Best Return on Investment Remodeling Projects

Best Return on Investment Remodeling Projects

Remodeling one’s home comes with a lot of big decisions about the extent, costs, and color, style, and materials. If you are remodeling your home solely for the purpose of your own use and enjoyment, those decisions are very personal. However, many homeowners undertake remodeling for a combination of personal use, and future resale of their property. In this article, we will explore the remodeling choices that come with the best return on investment.

First, realize that the payoff for your improvements can come in two ways when you place your home on the market. We generally think of the return primarily in a cash on cash return; in other words, how many dollars do you get back in reselling the property vs. the dollars you put into the remodel. But we should also consider that the return may come partially in terms of how quickly you are able to sell the property. If the property is highly desirable, it will sell quickly and for top dollar.
Before speaking about the projects that produce the highest cash on cash return, let’s discuss two remodeling categories that take priority in your ability to resell your property quickly.

Before speaking about the projects that produce the highest cash on cash return, let’s discuss two remodeling categories that take priority in your ability to resell your property quickly.

  1. Functionality Improvements—These are projects that are essentially needed to sell the property. I once considered making an offer on an investment property that my family and I lived in for a short time while waiting for our home to be ready for us. One day while trimming some bushes, I discovered a foundation crack at the front of the house. It looked large, so I went looking at the back, and behind some other bushes, I found a crack at about the same location. Then I checked inside, and there were cracks in the drywall around some doors and windows. I concluded that the property was essentially cracked in two like an egg. I did not make an offer. A few months later, after our family had moved out, I happened by that house, and met the new owner, an investor who was doing work on the property. When I asked about the crack, he informed me that the seller could not sell the property without fixing the crack first. No one wanted the property in “as is” condition. Some properties will not sell rapidly, or at all, without some work being done first.
  2. Market Deficiencies—These are characteristics of a property that fall short of what is standard for the area. Failing to address these can cost a huge amount in reselling the property. Our investor team dealt with another property that was in a neighborhood where every home had 4 or more bedrooms. We bought a property that needed work and had three bedrooms. The property had a basement, and they had framed for a downstairs bedroom and bathroom. It was an easy remodel to finish both rooms, and the cost was fairly low. When we placed the property on the market after rehab, we priced it a little high for the area, but were surprised to have three offers in three days, with the top offer being $19k higher than our offer price. We estimate that the addition of the fourth bedroom and extra bath were worth at least twice what we had paid to add them. The seller could have finished those rooms, but chose not to, and lost some money in the sale of their property.

Now let us discuss the remodel projects that are showing up most prominently on the lists of highest return on investment. Keep in mind that there are sometimes variations depending on which list you use. We caution you that your results could vary, but the purpose of this article is to identify those remodels that consistently show the highest returns as compared to other remodeling choices—in other words, this is for comparison purposes only. We have also only identified Top Tier and Second Tier items, and not in any specific order.

Top Tier Remodeling Projects (Best Returns—85% to 100%)

Garage Door Installation Minor Bathroom Remodel

Manufactured Stone Veneer Landscaping

Entry Door Replacement Minor Kitchen Remodel

Major Bathroom Remodel

Second Tier Remodeling Projects (Very Good Returns—70% to 84%)

Vinyl Window Replacement Major Kitchen Remodel

Siding Replacement Bathroom Addition

Roof Replacement Master Suite Addition

Grand Entrance Deck/Patio Addition

Again, according to who you listen to, some of the items in one tier appear in the other tier of someone else’s list. But all the items above appear in multiple lists as remodeling projects that produce better returns. Homeowners can go wild on costs to get very specialized looks. We want to make one other recommendation: choose color, style, and materials that are current, and neutral. You may love the color mauve, but one property we dealt with had mauve carpet, and mauve and sage walls in the living room. It did not actually look bad, but most home buyers would turn around and leave the moment they stepped into the living room. What is popular right now is light grey wall paint, with lots of white trim, a small amount of accent, and neutral brown hardwood floors. These colors change a little each year, as designers promote new colors so that they can keep making money.

Buyers are smart, and they will only pay top dollar if the property is done in the popular color, style, and materials for right now. If you want to sell your house for the most money, make sure it matches the template of what top dollar buyers are looking for.