What Home Improvements Add the Most Value for Real Estate Investors?
About the author: G. Brian Davis is a real estate investor who has owned dozens of investment properties over the last 15 years. He’s also the co-founder of SparkRental.com, an online resource which provides free landlord education and video series for anyone looking to build passive income from rentals.
Flipping houses isn’t about making them as beautiful or fashionable as they can possibly be. It’s about making the highest return you can possibly earn on each individual home.
Sure, your bridge loan might cover the renovation costs, but “financed” is not the same as “free.” Part of learning how to flip a house is gaining efficiency: how to maximally improve home values on a minimal renovation budget.
Before you remove a single nail, look at property values in the neighborhood, the recent sale prices of comparable homes, and how long they sat on the market. Online resources like Zillow and Trulia are free and easy places to start, but also work with a Realtor intimately familiar with the neighborhood before renovating to help you decide the best home improvements for resale value in your market.
We asked LendingHome’s Valuations department what home improvements add the most value and why. Based on what they see in the market, here are the seven best home improvements to increase home value for projects both large and small.
Update or renovate the kitchen for best value
There’s a reason why kitchens are the first place many investors look when evaluating how to increase home values. People have a visceral connection with kitchens.
Once hidden from houseguests as a purely functional room, kitchens have evolved to become central gathering places. And unlike a living room, which changes little over the decades beyond paint and flooring, kitchens wear their age openly.
Full Renovation: Does your fixer upper need a brand-new kitchen from scratch, or can you update the existing bones?
If you go for a full renovation and remove all the existing cabinetry and fixtures, pause to ask whether the existing floor plan is as modern or efficient as it could be. Could there be a better return on investment if you added an island, or perhaps arranged the dishwasher? Could the oven, sink and refrigerator be more conveniently located?
Before splurging on granite or marble counters, consider quartz or new synthetic stones. They can be more budget friendly, hardier, and come in a wider range of colors.
Selective Updates: Don’t assume that renovating the kitchen will inherently deliver high ROI. Sometimes doing less delivers more bang for your budget. Perhaps the cabinetry and countertops are in good shape, and only the appliances are dated. Stainless steel remains in vogue despite several decades of favor. But if you want to push the style envelope, consider the new darker stainless steel look.
When possible, opt for energy efficient appliances to add even more value, and look for “provable” claims about how much more efficient the new appliances are than their peers.
If the cabinets look a bit dated, but are sound otherwise, a new coat of paint can give the kitchen a fresh feel. Consider swapping in stylish new knobs, handles, and other hardware for an instant cabinet makeover.
Focus on bathroom fixtures, finishes and efficiency
Second to kitchens, bathrooms are the other area where homes show their age most, and they inevitably appear on any list of which home improvements add the most value.
Replacing old sinks and toilets with more water-efficient and space-saving models can provide an open feel. His-and-hers sinks are an especially appealing touch for the master bathroom.
Getting rid of linoleum in favor of sharper flooring will do wonders.
If the bathroom has a shower, replacing the tile and/or tub can provide visual appeal for an otherwise boring room.
Selective Updates: Wondering how to increase home values on a budget, without doing a complete bathroom remodel?
Swap in new fixtures, including faucets, handles, and other sink and shower fixtures. Don’t forget cabinetry hardware, which is another affordable update that can dramatically improve a bathroom’s look.
Remember, paint goes a long way, and not just on the walls. Could you salvage an ‘80s-inspired bubble-gum pink sink stand by painting it a more timeless white or black? What about the cabinets? Dated-looking fixtures can often be instantly modernized with a simple coat of fresh paint.
The best home improvements for ROI don’t necessarily require a new floor plan or sparkling new installations. Savvy real estate investors know how to increase home values with the least intervention possible.
Increase home value with new paint & flooring
Fresh paint and new flooring may be basic house improvements, but they’re no less effective to increase home value for their simplicity.
Full Renovation: Many older homes may have a combination of worn-and-torn flooring or carpet. Hardwood looks sharp of course, but it’s far from your only option. Bamboo flooring can create a similar look for a lower price. Similarly, a fresh coat of paint for the entire house can give it new life.
Selective Updates: Underneath old carpets may be beautiful hardwood floors, waiting to be cleaned up and refinished.
If you decide that new flooring is necessary, consider skipping the hardwood or bamboo upstairs in favor of carpeting.
Add curb appeal through smart landscaping
First impressions matter a lot. Home improvements that add the most value doesn’t end with the home itself!
Full Overhaul: The front of the home should look immaculate. Full landscaping, complete with mulched gardens and pristine green lawns, may be money well spent. If the grass is dead, consider re-sodding the yard to add some green.
Selective Updates: Potted plants by the front door can go a long way in creating a homey, welcoming vibe. Edging the front walkway is a small cost that makes a big impact.
The backyard, on the other hand, may not need to be perfectly manicured with abundant gardens, but should be presentable and regularly mowed. Your goal for the front yard is different than your goal for the backyard. The front yard should be designed to attract people toward the house. But the backyard is merely a starting point for the new homeowner to create the yard of their dreams.
Be strategic with lighting
No one wants to live in a dim, dark cave. But the quantity of light is only the beginning. Fortunately, replacing lighting is among the most effective ways to increase home values cheaply.
Full Renovation: Are the light fixtures outdated? It may be time for new fixtures across the board. Recessed lighting can add a subtle, upscale look. It’s also a nice buzzword when you’re marketing the property for sale.
Dimmer switches are another upscale touch, and cost very little to buy and install. In fact, property investors can install them without the help of a contractor, if they’re feeling ambitious. (Safety tip: always turn off the breaker to that room before touching wires!)
Selective Updates: Don’t want to mess around with fixtures or installing new dimmer switches?
Swap in new light bulbs, taking care with wattage and color temperatures. Never mix color temperatures within the same room. Consider cooler color temperatures for a clean look in the bathroom, with warmer color temperatures in the kitchen and living room.
Lastly, replace lightswitch covers to add style and flair. Chic and modern? Vintage farmhouse? Or perhaps fun and whimsical? Just make sure they fit with the style of the home as well as the preferences of the buyer’s market, and these small stylistic touches could help you price your flip for top dollar.
Energy efficiency helps justify higher prices
One of the great advantages of energy efficient updates (besides the environment impact) is that you can use hard numbers to persuade buyers of your property’s superiority.
Full Renovation: If you’re doing a complete renovation, start by adding new insulation. According to the U.S. Department of Energy (USDE), the average home leaks energy equivalent to a three-foot square hole in the wall.
You can also improve energy efficiency by replacing the windows. According to Energy Star, double-paned windows with low-e coating can slash heating and cooling bills by 7-13% or $500, annually.
Selective Updates: Don’t want to shell out potentially tens of thousands of dollars for new windows? Start by installing LED lights. You can tout both their energy efficiency and their longevity to buyers, and cite figures detailing how much they’ll save on their utility bills.
Before writing a check, research rebates and ask around about free energy audits. There are an enormous amount of government-funded initiatives to boost energy efficiency, which investors can take advantage of when evaluating how to increase home values on a budget.
Add more living space
When you buy a property to flip, adding an addition should never be the first plan. Even though additions add value by expanding the livable space, they rarely earn a high – or even positive – return on investment.
Full Renovation: Before you hire an architect, look at other nearby properties that have added an extension. Getting a sense of what has sold will help you factor the cost-to-return ratio on an addition.
Think about how an addition will impact your overall budget. Did you consider that construction in the beginning or did the idea come as you did a walkthrough? You may find yourself stretched too thin.
Selective Updates: Does more square footage have to be attached to the main building? It’s more affordable than ever to add a prefabricated outbuilding to a property. Search online for prefab structures that might make the perfect “carriage house” or “in-law suite.”
While far from cheap, adding additional living space – that can be flexibly used to house friends and family, rent on Airbnb, or store belongings – can be one of the best home upgrades you can make.
Before writing a check, always speak with your Realtor to ensure it will add more value than it costs!
Focus on marketability
What home improvements add the most value? It depends.
Many of the house improvements above will work swimmingly in one market but flop in another. Know your market, and when in doubt, consult your Realtor. Even in markets where all the above home improvement projects do well, it doesn’t mean you should reflexively make all seven improvements for every property you flip.
Form a budget and make it a priority to stick to it. That includes not only the home renovation costs, but your timeline as well. The longer you own a property, the greater your soft costs will be, and the thinner your profit margins.
Experienced house flippers can look at a property and know exactly what updates will deliver the best returns, and how much the flip will cost. If you’re flipping a house for the first time, hire an experienced general contractor and oversee the repairs, but make sure you ask for several quotes and don’t make unnecessary renovations.
Focus on the home improvements listed above with the highest ROI for your specific property and financial situation, and you’ll find your flips moving faster and delivering you higher profits.
Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. Please consult your tax advisor. All calculations and information shown here are for illustrative purposes only. All third parties listed above are for demonstration purposes only and are not affiliated with LendingHome. All views and opinions expressed in this post belong to the individuals referenced. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2019.