Remodeling and Renovations: Boosting Property Value

Remodeling and renovations can raise the value of your property. According to the Cost vs. Value Report by Remodeling Magazine, certain renovations can yield a high ROI, or at least recoup up to 70–80% of their cost upon resale. For example, kitchen and bathroom remodels, adding energy-efficient windows, or landscaping can significantly increase your home’s value.

A joint study from the National Association of Realtors and NARI, the National Association of the Remodeling Industry found for interior projects, refinishing hardwood floors yielded the highest cost recovery at 147%, followed by new wood flooring at 118%, and insulation upgrades at 100%. For exterior projects, new roofing and new garage doors both recovered 100% of their costs. Fiber cement siding recovered 86%, while vinyl siding recovered 82%.

Homeowners remodel for various reasons:

Upgrading Worn-Out Surfaces, Finishes, and Materials (30%)

Over time, surfaces and materials degrade. Upgrading these can modernize a home and increase its market appeal.

Adding Features and Improving Livability (20%)

Additions like a home office or improving kitchen functionality can make a home more comfortable and attractive to potential buyers.

Desire for Change (16%)

Sometimes, homeowners simply want a fresh look or feel, which can also contribute to increased property value.

Certain projects result in increased happiness for homeowners, as reported by their renovations’ Joy Score:

Interior Projects

Painting, adding a home office, refinishing hardwood floors, new wood flooring, closet renovations, insulation upgrades, and attic conversions.

Exterior Projects

Painting siding, new windows, and new doors.

The approach to remodeling varies:

Hiring Professionals (35%)

Ensures quality and expertise.

Hiring Labor, Purchasing Materials (28%)

Balances cost and control.

DIY Projects (22%)

Cost-effective but requires skill.

Partial DIY (13%)

Combines professional help with personal effort.

Remodeling for rental property can also have a positive ROI:

Kitchen

As the heart of the home, kitchen remodels offer significant returns. Upgrade cabinets, countertops, and appliances. New granite countertops can give your kitchen, and even the entire apartment, a freshly-renovated look. Instead of splurging on all-new cabinetry, sand and paint the existing ones yourself, then add new hardware for a modern touch. Inexpensive updates like replacing the faucet and adding a glass tile backsplash, which looks modern and is easy to clean.

Bathrooms

Modern, functional bathrooms are major selling points. Invest in fixtures, tiles, and vanities. Install shelves to provide more storage without taking up much room. Upgrade bathroom finishes by adding a new vanity and more counter space where space allows. For budget-conscious renovations, source prefabricated vanities. If capital permits, maintain a one-to-one bedroom-to-bathroom ratio to maximize tenant appeal and rental yields.

Add Popular Amenities

According to the National Multifamily Housing Council, 77% of renters wouldn’t consider leasing a unit without a washer and dryer. Dishwasher, storage space, off-street parking, outdoor living areas like patio or balcony, fenced-in yard for pets, and many others can give you opportunity to raise a rent.

Flooring

Replace old carpets with hardwood or high-quality vinyl. Hardwood is a popular choice due to its modern appearance and ease of cleaning. Carpet is less desirable in rental properties as it can trap odors and requires more maintenance.

Exterior

The exterior of your building is the first thing prospective tenants will notice, so ensure it makes a strong first impression. Fresh paint, new doors, and well-maintained landscaping do most of the work here. Opt for low-maintenance and cost-effective landscaping for the front lawn to minimize upkeep for both you and the renter.

This guide for rental property renovations provides many valuable details. At the same time skip upgrades which are waste of money: swimming pools, landscaping with exotic plants, kitchen sink in the island, smart home technologies, soaking tubs, fish tanks and high-tech toilets.

Financial Samurai shares his experience with remodeling of rental property resulting in 12% annual return.

When you remodel a rental property, you can often deduct those expenses from your rental income under IRS guidelines. According to the IRS, these expenses can be classified as either repairs or improvements. Repairs, which keep the property in good condition, are typically deductible in the year they are incurred. Improvements, which add value or extend the property’s life, must be depreciated over several years. For detailed guidance, refer to IRS Pub. 527, “Residential Rental Property”.