When the time comes to renovate one or more units, or even your entire building, it is worth determining the ones who are the most profitable, especially from a financial point of view. Sometimes, they are not profitable at all or even make you lose money, even if they seem necessary. Of course, some are more profitable than others, but only if you consider that the property will be refinanced (with a new appraisal), rented at full capacity (after rent increases), or sold for a profit.
In short, it is important to determine which renovation is worth it and, above all, to remember that you do not live in the unit, so do not “over-renovate” (many investors tend to do this). This could cost you thousands of dollars. The goal is to make the property attractive and functional enough, so that it is always rented at full capacity and at the most beneficial price of rent for you.
To help you, here is a list of the 5 most profitable renovations in real estate and their respective return on investment:
1. The Paint Job
Everybody knows that repainting a unit is one of the most profitable renovations. It is not expensive, you can do it on your own, and it makes the unit more appealing to future tenants. Whether you want to modernize the unit or to make it neutral, repainting is always worth it. You will most likely recover the full amount you invested.
2. The Kitchen
Every day, people spend hours in the kitchen cooking or discussing with their family, which is why most people care about the appearance of this room. It should be up-to-date (according to the latest trends), spacious, and well-lit. You could also consider having room for more appliances like a dishwasher, which is something more and more tenants look for. Expect to recover at least 80% of what you invested, so it is also a very profitable renovation.
3. The Bathroom
This room is one of the most important during visits with tenants or investors. It should be beautiful; it should have useful and stylish accessories, a nice sink, neutral colors, and efficient ventilation; and, above all, it should be as clean as can be. You should recover about 85% of what you invested in this room.
4. The Exterior Siding
Changing the exterior siding is a profitable renovation because it is the first thing people will notice. Everybody knows how important first impressions are. You should recover about 85% of what you invested.
5. The Addition of Rooms/Stories
People usually look for a lot of space, which means that having more rooms in your units or more units in your building can increase your income and the value of your property. The return on investment of this renovation should be around 80%.
To summarize, you must analyze every renovation once you decide that you want to renovate your property. As you saw, the renovations you choose will greatly influence your return on investment once they are completed and once the property is rented, reappraised, or sold. Perhaps, in a future article, we will take a look at the… least profitable renovations!
Good luck with your renovations!