Remodeling projects with the greatest return on investment for your rental properties

Megan Wild
Megan Wild | 5 min. read

Published on December 19, 2017

Today’s rental market boasts an increase of over 10 million households since 2000, and the trend shows no sign of slowing. As rental properties compete for residents, updates and remodeling can help you to differentiate your units from the competition. However, you should always have your property’s long-term growth potential in mind–so it’s critical to estimate the return on investment of each upgrade you make, as well as your overall capital expenditure rate for each property.

Which home renovations pay off? Here’s how to find out.

How to Tell Which Rental Renovations Pay Off

Run Comparison Data

Check out recent sale prices for similar units in the area. You can track those numbers over time to determine local market trends. Which demographics appear to be driving the trend–for example, do renters tend to be Millennials or Baby Boomers? The home renovations that you undertake should resonate meaningfully with the concerns of your specific market.

Research Realtor Assessment

The National Association of Realtors’ Research Department is a great place to glean such information. Its 2017 Remodeling Impact Report cites improved spatial functionality as the most important benefit of residential upgrades nationwide. Respondents report valuing efficient livability over home beauty and design aesthetics by a margin of 2:1. We recommend seeking out NAR data reports specific to your property parameters.

Source Labor and Material Options

An essential factor to consider with any remodeling project is the cost of labor and materials. What kind of bulk pricing might be available from area distributors? Do you have established relationships with any licensed plumbers or electricians? Looking into cost-saving options even before a particular upgrade is approved may seem out of order; but the potential to lower your labor and material costs gives you more room in the budget to work with. Plus, you’re already a significant step ahead in coordinating the details of your project once it’s approved.

Weigh Cost vs. Value

Finally, consider the cost versus value of different upgrades for your specific location. Upgrading your deck might add more value to warm-weather units, while wall insulation appeals to those in colder climates. Remodeling Magazine is a great source for average cost versus value percentages of popular projects. Its updated annual report compares data across major geographic U.S. regions as well as specific cities.

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Once you’re armed with these numbers, you’re ready to compare remodeling options. So, which home renovations pay off in the long run? Consider these promising possibilities:

Which Rental Renovations Pay Off the Most?

Minor Kitchen Remodel

The emphasis here is on ‘minor.’ Remodeling Magazine cites a hearty return on investment for kitchen facelifts of 80 percent, whereas major kitchen renovations receive only 65 percent (and require a much heftier investment). With this in mind, it’s probably wise to cross a kitchen gut or custom cabinet installation off your list.

Perhaps the most in-depth renovation worth considering is opening up the non-load-bearing wall of a narrow galley kitchen to create bar seating that overlooks the central living area. Families with children, young couples, and many other renters prefer open floor plans with natural flow.

Otherwise, think about adding a fresh coat of paint, swapping out cabinet doors and hardware, or removing cabinet doors to create open shelving.

Updating appliances with more energy-efficient models is another cost-effective option. Energy Star offers package pricing that makes purchasing multiple appliances at once more appealing.

Bathroom Upgrade

With an estimated return on investment of 65 percent, basic bathroom upgrades are worth careful consideration. Many newer options are eco-friendly and offer the added benefit of saving money over time.

Low-flow faucets and shower heads use water-pressure inserts to maintain suitable flow while using significantly less water than traditional fixtures. In addition, the EPA offers rebates for WaterSense product purchases.

Wood Floor Replacement

Replacing carpet or linoleum with wood floors–or upgrading an existing wood floor if it’s damaged or dated–has to the potential to recoup 100 percent of its cost.

For rental properties, consider engineered wood. This material is significantly less expensive than hardwood, does not need refinishing, and is resistant to moisture. Best of all, you can often install engineered wood yourself, eliminating labor costs.

Closet Organization

Sometimes, the key to differentiating your property from the competition lies in seemingly small details. Closet organization is one such case in point.

When potential tenants see that their storage space has built-in shelving and other organizational features, they can already envision their things inside. Such a subliminal selling point cannot be overemphasized.

Prefabricated closet organization kits abound, but a creative do-it-yourselfer can knock off the same look with basic materials in a minimal amount of time (and for a much lower cost).

Deck Maintenance

When it comes to enhancing functionality and maintaining viable living space, it pays to refresh units’ decks or porches. Stabilizing shaky railings and attending to splintering material or chipped paint has a high cost-to-value ratio. If decks need replacing, consider long-lasting composite materials for a higher return on investment over time.

Which rental property renovations pay off in the long run? Find out now on the #BuildiumBlog! Click To Tweet

Rental property investments that take energy efficiency, cost-effectiveness, and tenant satisfaction into account drive occupancy rates in a competitive market while protecting your property’s long-term growth potential. That’s a definite win-win.

Which renovations are you considering in 2018? Tell us in the comments!

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Megan Wild

Megan is a freelance writer who specializes in real estate, home improvement, and coffee consumption. Follow her on Twitter @Megan_Wild, or subscribe to Your Wild Home's weekly newsletter.

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