The Real ROI You Can Expect from Rental Property Renovations

An integral part of many successful real estate investment strategies involves property renovations. The right renovations can greatly affect long-term property values and rent prices. Of course, you don’t have to be an investor to care about getting your money’s worth out of home improvements.

Still, whether you’re looking to add real value to your own home or boost returns on your rental properties, these are the renovations that make the biggest difference: and the ones you ought to skip!

As a baseline, remember that home renovations have an average ROI of 70%.

5 Renovations That Are Worth It and Why

Worth It: Reasonable Kitchen Renovations

The kitchen and bathrooms are the most important parts of a residential property. Of course, going all-out on a total overhaul will blow your budget without much to show in ROI. Property owners must understand that working with good bones is always the best way to renovate. Major overhauls that involve moving plumbing and appliances and revamping entire layouts likely won’t make the difference you’d want it to.

Work with the existing layout as much as possible and make reasonable kitchen renovations. Fresh, timeless countertops, updated cabinets and hardware, bright light fixtures, and sleek, clean appliances are really all you need.

Typical ROI: 81.8%

Worth It: Minor Bathroom Renovations

Bathroom renovations are similarly tricky. As an investor working with fairly tight margins, there are two big considerations here: will the renovation add long-term property value and boost the rental rate?

Like the kitchen, a total overhaul won’t provide a great ROI. Don’t rip out the tub to put in a walk-in shower. Work with what you have. The main thing to ensure with any reno is that the unseen structures (electric, plumbing, etc.) are in good working condition and that the aesthetics are clean, timeless, and appealing.

Typical ROI: 70.1%

Worth It: Adding Square Footage

Extra square footage is going to help you on two fronts: long-term property value and increasing your rental rates as well as your pool of potential renters. An extra bedroom, flex room, or increased storage space is attractive, particularly to families with children. In the same way, more square footage means better resale value. If you don’t want to construct an addition, properties with unfinished basements are a great option.

Typical ROI: 73 - 83%

Worth It: Exterior Renovations

Curb appeal goes farther than you think. It’s your property’s first impression! Some exterior improvements, like landscaping, are purely cosmetic. Others, though, can lower your energy bill and increase security. A new front door, windows, and siding all contribute to an air-tight investment.

Typical ROI: 60%+

Worth It: A Deck Addition

A deck or patio is a simple but impactful change to make. In the post-pandemic era, useful outdoor spaces are still highly desirable. A place to entertain, grill out, and gather is a big bonus to just about any household.

Typical ROI: 63%+

Skip These 5 Renovations With Low ROI

Skip It: Pools

Not only do pools have one of the lowest ROIs out there for home improvements, but they’re a huge liability for property owners. If you want to give yourself new and exciting ways to get sued, by all means, add a pool! Costly upkeep and the added liability just aren’t worth it. Save the pool addition for your personal home if you really want one.

Typical ROI: 39%

Skip It: Luxury Upgrades

You’d think that higher-end upgrades mean a better ROI, but that’s not really the case. The difference between budget, midrange, and upscale upgrades is rarely anything but cosmetic. You’re paying more for the same ROI you’d get on a budget. More expensive isn’t always better; choose materials for universal appeal, functionality, and durability.

Typical ROI: 54% & Under

Skip It: Specialized, Dedicated Spaces

For renter households, flex spaces are much more valuable than rigidly defined ones. Skip the home theater, the home office full of built-ins, and other specialized spaces. These appeal to fewer people and may result in a “waste of space” for your residents or future buyers. Allow your residents to use extra space to meet their needs – not what you think they want. This is particularly true of entertainment spaces!

Typical ROI: N/A

Skip It: High End Additions

As with upgrades, luxury additions, such as a new bathroom or master suite, don’t add the value you’d think. Stick with more midrange options so you don’t blow your budget. An addition is already a significant undertaking – so spend your renovation budget where it really counts.

Typical ROI: 57% & Under

Skip It: Trendy Improvements for the ✨Aesthetic✨

Some things are just dated. When you’re making property renovations, you don’t want to think about having the trendiest upgrades. While you might see some short-term ROI from these kinds of changes, it won’t last. When making renovations, you want long-term results: not something you’ll have to change in 10 years to keep up with trends.

Opt for timeless instead so that your home improvements don’t have to be replaced when the aesthetic goes out of style.