Top 7 Rental Property Renovations to Improve ROI
Written by: Veronique Hart, Property Management Specialist - Published: Sep 29, 2022
Improving your ROI (or “return on investment”) is an important step in recovering the initial cost of your rental property. Additionally, improving your ROI raises the market value of your property, allowing you to invest in other properties or see higher profit margins for your current property holdings.
How can property owners take action to improve their return on investment? The main method of improving ROI on a rental property is conducting strategic renovations that will improve property value, save money over time, and attract higher-quality renters.
7 Renovations to Increase ROI on Rental Properties
Rental property renovation can be extremely costly in both time and resources. If you want to improve your property’s value, you may have no idea where to start in the renovation process. Luckily, you do not need to waste time remodeling your property floor to ceiling. Instead, you can prioritize a few key renovations that will make a significant difference in your ROI.
1. Energy efficient replacements
As energy costs continue to skyrocket, you may find that this portion of your monthly expenditure is cutting into your profits. Besides the many environmental benefits, “going green” can make your property more cost-sustainable in both the short and long term.
You can make a range of energy-efficient improvements ranging from quick fixes to long-term installations. For example, making the following changes can help reduce your property’s energy consumption:
- Installation of solar panels
- Swapping old light bulbs for LEDs
- Installing low-flow fixtures in kitchen and bathroom
- Sealing gaps in doors and windows to maintain climate control
The average cost of these renovations varies greatly. For example, for just the price of the bulbs, you can easily make the switch to LED. Installing solar panels, however, is more extensive and typically costs $25,000. Before beginning renovations, determine which energy-efficient investments will provide the greatest return on investment.
2. Increase square footage
A rental unit with higher square footage is likely to attract higher-paying tenants. One common way of increasing the square footage of a rental home is by converting the attic, basement, or garage into an extra bedroom or office. On average, an attic bedroom conversion costs approximately $39,000 and will add at least 70 square feet to your property. The extensive nature of these repairs means that they will cost more than other options on this list, but they will guarantee a significant increase in the value of your property in the long run.
3. Replace or repair roof
The condition of your property’s roof can make a substantial difference in the state of your ROI. The national average roof replacement cost is around $8,000, so many property owners leave their roofs alone until it is too late. Unfortunately, a poorly maintained roof can end up costing property owners thousands in damages if neglected. Therefore, being proactive and acting before issues arise can save you money in the long term. While a new roof may not necessarily attract notice like a fresh coat of paint or upgraded windows, your tenants will certainly appreciate protection from leaks and the knowledge that the roof of their home will not collapse during their time living on the property.
4. Improve property appearance
There are many ways owners can improve the “curb appeal” of their property. The building exterior and landscaping is the first impression any potential renters will have of your property. Therefore, when considering which renovations to invest in to raise your ROI, it is important to consider the exterior and the interior of the property.
Some changes you can make to boost your property’s curb appeal include:
- Repainting the exterior buildings
- Adding quality lawn or patio furniture
- Adding flower beds or garden
- Improving outdoor lighting
Exterior renovations generally cost less than interior renovations. For example, a full-scale landscaping project costs an average of $4,900, far less than the average kitchen or bathroom renovation.
5. Flooring or carpeting upgrades
Is the faded carpet in your units or common areas dragging down the value of your property? A flooring refresh can provide a much-needed update to the interior of any rental property. Replacing a faded, stained carpet with attractive wood or vinyl flooring is usually a short-term renovation project with significant results. Depending on the square footage covered and the type of flooring chosen, property owners can expect to pay between $1,500 and $4,500 on average for a flooring upgrade.
6. Add outdoor deck or patio
An attractive outdoor seating area adds more room and an extra amenity to the property. Many renters are interested in properties with functional spaces for outdoor barbecues, pool parties, and relaxing in the sun. An average patio addition costs approximately $11,000 for labor and materials. Depending on the position of the greenscape, you may consider investing in a patio covering to protect your renters from the sun.
7. Minimal kitchen remodel
While a large-scale kitchen renovation project is unlikely to have a high ROI, there are many smaller projects you can do to significantly improve the look and function of your property’s kitchen. For example, repainting kitchen cabinets, replacing outdated appliances, adding a backsplash, replacing countertops, or upgrading kitchen lighting can be done quickly and efficiently. While the average cost of replacing kitchen countertops is around $3,000, another effective renovation, such as adding a tile backsplash, can cost as little as $500.
What to Consider Before Renovating Your Rental Property
The above renovations can potentially add value to your property and increase your ROI. However, before taking on a costly commitment, it is important to consider the parameters of your budget, the local real estate market, and the renovation timeline.
Extended vacancy times
In some cases, you may be able to conduct minor or short-term renovations while a tenant occupies the property. However, major renovations will require the property to be vacant– leaving you without profits generated by monthly rent. It is important to weigh the value a potential renovation will add to the property against the losses you will incur from a vacant rental unit.
Major renovations may require new appliances, updated wiring, plumbing, or large-scale demolition. While you may be able to charge higher fees for a rental unit with a newly renovated kitchen or bathroom, the upfront cost of these extensive renovations may not be easy to recover.
State of local real estate market
If you renovate your property, you will likely need to raise your rent to account for these expenditures. However, increasing the rent price too far above the market average may prove prohibitive to potential renters.
Pay attention to local property trends
Examine comparable properties on the market. Are these properties incorporating similar features or aesthetics? Are there specific features local renters consider non-negotiable? Before renovating, consider the needs and preferences of renters in your area.