How Much Does It Cost to Renovate a House: A Guide 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.
There’s no one-size-fits all cost calculation for home renovation costs. Even two identical houses sitting side by side will have different renovation costs, depending on the extent of the renovations, the quality of materials used, the quality of the contractor and labor, the level of finish desired, and how long the home renovation takes.
Remodeling costs even vary by region, as labor costs can be double or even triple in high-demand, low-supply markets.
Still, house renovation costs operate within a certain range, even accounting for all of those factors. Here’s how real estate investors and house flippers can estimate how much does it cost to renovate a house, and how to avoid unpleasant surprises midway through their home renovation projects.
Planning the Extent of the Renovation
Minor retouching of a kitchen, that you did yourself, could cost under $500. Building a large home addition from scratch could cost $500,000.
As a general rule of thumb, if you’re knocking down walls or adding square footage, the renovation project gets expensive fast. Structural changes and mechanical system changes cost more, while cosmetic changes tend to cost less.
Determining how to go about fixing up a house is part art, part science, and all based on expected return on investment (more on that shortly). Here are a few common home remodeling projects, cost ranges, and other considerations to keep in mind before hiring a contractor.
Kitchen renovations run the gamut, from minor cosmetic updates to complete gutting and replacement.
Hold costs lower by keeping the existing footprint, plumbing, and as many fixtures as possible. You’d be surprised what a fresh coat of paint and new hardware can do to spruce up old cabinets!
As a final note on kitchens, ask for quotes excluding appliances. The more contractors buy for you, the more room there is for them to upcharge, so buy all appliances yourself, directly, and simply confirm measurements with your contractor.
- Minor kitchen cosmetic updates: $500 – $20,000
- DIY complete kitchen remodel: $15,000 – $50,000
- Hire a contractor for complete kitchen remodel: $20,000 – $120,000
Bathroom Updates and Additions
Bathroom updates can be as minor as replacing the vanity or tiling, or as major as building a new bathroom addition.
If you’re changing the plumbing, expect costs to rise significantly, while cosmetic changes typically cost less.
- Surface/cosmetic bathroom update: $1,000 – $15,000
- Complete remodel of bathroom: $4,500 – $50,000
- New bathroom home addition: $45,000 – $85,000
Interior painting costs more per square foot for smaller jobs, and less for larger jobs, given that much of the cost involves preparation work.
Paint itself varies greatly by brand and finish, so do some research online before choosing what you want. Just make sure it’s locally available in your market by calling around to the local paint supply stores to ask about what brands they carry.
Plan on at least two colors: one for the trim and one for the walls. Most real estate investors also like a third color, flat white for ceilings, regardless of the wall color.
- Cost per square foot: $1.75-$3.50
Hardwood floors nearly always cost more than carpeting. When possible refinish existing hardwood floors rather than replacing it entirely to save on costs.
Keep in mind that hardwood floor pricing varies wildly based on wood type, finish, and color.
As a final tip, don’t skimp on padding for carpet. Thicker padding is half of what gives carpet its feeling of plushness.
- Hardwood floors: $3-10 per square foot for materials and $3-7 per square foot for installation. Exotic rainforest hardwoods can cost more.
- Carpet: $3-9 per square foot for materials and installation.
Replacing a roof is one of the most expensive repairs that real estate investors (and homeowners, for that matter) undertake.
Costs vary based on the material and on the grade and type of roof. Get at least three or four quotes, verify the roofers’ license, and get a guarantee.
Asphalt: $120-400 per 100 square feet
Slate: $800-4,000 per 100 square feet
Terra Cotta Tile: $600-4,000 per 100 square feet
Metal: $500-1,800 per 100 square feet
Finishing the Basement
Finished basements add to the livable square footage of a house, expanding it without the need of a new addition.
Even better, some finished basements can be converted into independent living spaces, which can be rented out as a basement apartment, rented short-term on Airbnb, or used as an in-law suite.
But finishing a basement sometimes comes with more costs than owners expect. Beyond all the drywall, flooring, and lighting, some basements need to be rewired or replumbed in order to finish, and may need additional ductwork as well. Here are a few basement remodeling cost ranges as a rough guideline:
- Hire a contractor to finish a basement from scratch: $50,000 – $100,000
- DIY finish the basement from scratch: $15,000 – $25,000
- Hire a contractor to install a prefabricated basement finishing system: $50,000 -$75,000
Home additions are the among the most expensive renovations possible. They add living space and value, but sometimes cost more than they return in higher home values.
If you’re interested in an addition, consider enclosed porches and sunrooms first. They typically don’t require ductwork, plumbing, or much in the way of wiring changes.
- Enclose a porch: $7,000 – $15,000
- Add a sunroom: $15,000 – $23,000 for prefabricated sunroom, not including installation.
- Multiroom home addition: $150,000 – $500,000
Labor and Permits
Unless you do the entire home renovation yourself, you’re going to incur labor costs from contractors.
One option, to help reduce labor and house renovation costs, is to hire and oversee specialist contractors yourself, rather than hiring a general contractor and giving them license to hire and oversee specialists on your behalf. For example, if you’re renovating a bathroom, you can hire a plumber for any required plumbing work, and an experienced handyman to install new tile flooring and shower tiles. Some of the easier work you could even do yourself, such as replacing a faucet or cabinet.
Many real estate investors find hiring and working with contractors to be one of the most difficult parts of flipping houses. Before going into a renovation project, make sure you do your due diligence on any prospective contractors, and know your options for how to deal with a bad contractor if the project turns south.
Finally, when you’re determining how much it costs to renovate a house, keep in mind that for many remodeling projects you will need a permit. You can pull permits yourself, or you can pay your contractors to pull them for you. But when you do renovations requiring permits, you will need to use licensed contractors, so plan accordingly (more on permits shortly).
Contractor expenses aren’t the only costs you’ll incur in your house renovation. When estimating rehab costs, far too many house flippers forget soft costs.
Soft costs include all costs other than labor and materials. Examples include closing costs (both when buying and selling, as a flipper), loan interest, utilities, permit fees, and every other expense of buying, owning, and selling a piece of real estate.
These soft costs of ownership are one reason why it’s so important to accurately forecast how long it takes to renovate a house. Every month that goes by in a house renovation project, you pay carrying costs ranging from interest on your hard money loan, gas and electric bills from the utility company, and water bills from the local municipality.
The sooner you complete your house renovation projects, the fewer soft costs you’ll incur, and the greater your profit margin.
House Renovations & ROI
Not all house renovations are created equal. Some renovations produce far greater return on investment than others, and your job as a house flipper is to know where to draw the line in renovating the property.
For example, say that updating the kitchen will cost you $10,000, but will help the home sell for $20,000 higher than it would with an outdated kitchen. It’s a no-brainer.
The hard part is getting accurate numbers, both for the property’s after-repair value (ARV) and for its renovation costs. By reviewing comps to determine both as-is and after-repair value, and corroborating your estimate by consulting your realtor and perhaps another investor, you can feel comfortable with your value estimates.
As a shorthand rule of thumb, the 70% rule suggests not paying any more for a property than 70% of a property’s ARV, minus renovation costs. It helps you avoid overpaying for a house and finding yourself unable to sell a house for a profit when flipping.
While every property is different, there are some home updates that are classic, precisely because buyers notice them. Consider these seven house remodeling jobs that produce high ROI for investors before more exotic renovations.
Most importantly, look at the property’s specific needs before deciding which home renovations to make. If it has a mold problem, obviously that will need to be addressed before touching the kitchen or bathrooms, and has a huge impact when determining how much it costs to renovate a house.
One Often-Overlooked House Renovation
Installing new hardwood floors or new appliances is appealing, because it’s visible and obvious. But not every house renovation is obvious, even when it’s necessary.
If the property has foundation issues, you can expect problems when it comes time to sell your flip. Home inspectors pay extra attention to foundations, precisely because they’re not obvious, but they can cost property owners an arm and a leg to repair.
Because of this, many real estate investors avoid houses with foundation problems. Yet precisely because there’s less demand and competition for them, investors can earn a high ROI on them.
Make sure you check thoroughly for foundation issues when you do a home inspection on potential house flips. If you discover a problem, bring in several foundation repair experts to give you accurate quotes.
When you negotiate a price for the property, be sure to showcase just how serious the foundation problem is. You can potentially score an excellent deal from sellers anxious about the foundation issues.
As a final note, ask foundation experts whether the foundation repairs will cause any additional problems to the flooring in the property and take that into account when determining how much it costs to renovate the house.
Other Factors Affecting Home Renovation Costs
Every house renovation is different. When determining how much does it cost to renovate a house, here are a few considerations that will affect your home remodeling costs.
Size and Age of the House
It’s no surprise that larger homes come with larger remodeling costs. And the more of a given house that you want to renovate, the more you can expect to pay for a house renovation.
But age also matters. Every single component in a home–every wire, every pipe, every appliance, every piece of drywall—has a limited lifespan. Eventually, every component needs to be replaced.
Some components last longer than others of course. Carpeting may only last five years, while plumbing might last 50 years. Yet the day will still come when even the framing and wiring and pipes need to be replaced.
And when the “bones” of the house need to be replaced, you can be sure that the bill won’t be cheap.
In every industry, labor carries different costs in different markets. It’s no different in home construction.
Depending on the depth of the local labor pool, your labor costs may vary wildly. Before entering a new market, ask around among local investors, property managers, and contractors to get a sense for how much construction and home improvement labor costs in that city.
Material costs vary less widely, but can still cost more in either remote areas or expensive cities. Sales tax also varies by state, so keep that in mind when budgeting for material costs.
Local municipalities charge permit fees, which typically range from $100 to $3,000 depending on the jurisdiction and the number of permits needed. You can call your local housing office to ask about permit fees and procedures.
If you file the permits yourself, you don’t incur labor charges, but be prepared to pay extra if you delegate the permits to your contractor.
The local housing authority will send out an inspector to check on the work if you file for a permit. They may demand extra work, so be sure to leave wiggle room when forecasting how much it will really cost to flip a house.
Finally, keep in mind that for any work requiring permits, you will need to use a licensed contractor and they charge more than unlicensed contractors.
How to Save Money on Home Renovation Costs
There’s plenty of room to save money, when you set out to renovate a house. But keep in mind that if you cut corners, your eventual sales price may suffer for it.
Avoid Bad Contractors
It may sound obvious, but the surest way to lose money on a house flip is to use a bad contractor. You end up paying for the work twice when you have to send in a reliable contractor to redo the bad one’s work.
Invest the time to screen contractors carefully and only hire reputable, verifiable contractors for large renovation projects.
Obviously, lower cost materials reduce your total cost to remodel a house.
However, be careful here. Often buyers judge the entire property based on a single bad impression if they notice cheap materials. While you should always use quality materials, pay particular attention to the most visible finishes. Buyers pay more for a house with hardwood floors than one with cheap laminate.
Besides, in many cases, labor makes up the lion’s share of the renovation costs. If you’re already paying $3,000 in labor for a particular part of the renovation, and the materials for higher-end finishes are only $200 higher than cheap finishes, don’t save a dime today to lose a dollar tomorrow.
A better way to save money on materials is to look for ways to reuse the existing materials. Can you salvage the existing cabinets by painting them and updating the finishes? Can you refinish the tub rather than replacing it? If the tiles in the shower are an ugly color, can you re-coat them in white for a cleaner look?
When possible, breathe new life into existing materials and fixtures, rather than replacing them entirely.
Lastly, ask for quotes from contractors for labor only and buy materials yourself from home improvement stores like Lowes, Home Depot, or 84 Lumber. Often these retailers provide “contractor discounts” for bulk purchases which are based on volume rather than licensing. Many contractors up-charge for materials, and besides, you can earn credit card rewards on the money you spend on them.
Do It Yourself
The more of a home renovation project you can do yourself, the more you can save.
Start small. In your next flip, choose one additional fix to try and tackle yourself. Ask for help from friends, watch Youtube videos, and even ask the contractor to show you how to do the work.
One area that’s easy to start with is painting. Anyone can paint a property; it merely takes time and patience to tape properly.
Build your proficiency over time as you flip more houses, and look for additional remodeling work that you can take over yourself.
Don’t Change the Footprint
The moment you start talking about changing a house’s or a room’s layout, you start looking at exponentially higher costs.
If you can avoid it, don’t remove walls, rearrange kitchens’ or bathrooms’ layout, or make additions to the property.
Estimating Rehab Costs for a Specific Property
So, how much does it cost to renovate a house?
Yes, it varies, but here are four tools to help you estimate costs for any given property:
- Look into Home Advisor’s True Cost Guide. They check labor rates in your specific area, and connect you with well-reviewed professionals. As always, get several quotes from contractors before hiring one!
- Another resource to look at typical costs for similar projects in your area is CostHelper.
- There are also plenty of mobile apps out there to help you with estimating rehab costs. One popular app is Kukun. In addition to helping you estimate renovation costs, Kukun offers insights on potential ROI for a given project in your property’s market. They also help connect you with relevant and well-reviewed contractors in your market.
- Alternatively, try Handyman Calculator as a free mobile app for estimating rehab costs, tracking expenses, estimating materials, and renovation project management.
Sample House Renovation Costs
Investor Ivan has a four-bedroom, two-bathroom house he wants to renovate. Here’s how his renovation costs might break down.
Ivan replaces the cabinets, countertops, tile flooring, and appliances. He buys the materials and appliances himself, but pays a contractor for their labor.
Two Full Bathrooms: $15,000
Ivan leaves the footprint of both bathrooms intact, and hires a contractor to replace the vanities, toilets, tile flooring, shower tiles, and tubs. Once again, he buys all materials himself, and does not alter the plumbing lines.
New Carpet Upstairs: $3,500
Ivan pays a carpet company to install 38-oz. carpet with new half-inch padding, costing him around $3.50 per square foot, over 1,000 square feet of upstairs flooring.
New Hardwood Floor Downstairs: $7,500
For the hardwood flooring, Ivan pays closer to $7.50 per square foot, for both materials and installation.
Ivan pays around $3,000 to repaint the house, which has minimal trim.
From experience, Ivan knows to budget extra money for incidentals and unexpected expenses. He budgeted $5,000, and hoped to spend no extra; in this project, he ends up spending $1,000 on miscellaneous tasks like power-washing the deck, refinishing the wooden front door, and minor landscaping work.
Total Renovation Cost: $50,000
Financing Home Renovation Costs
Before making an offer on a home that needs remodeling, make sure you know how you’ll finance the renovation costs.
Conventional lenders typically don’t finance investment property renovations—or for that matter, investment properties that need renovating. Most real estate investors use hard money loans (also known as bridge loans) to fund both the purchase and renovation of properties needing remodeling. Upon completion, the investor either sells the property as a flip or refinances it to keep as a long-term rental.
LendingHome provides 100% financing of house renovation costs for real estate investors. Other options beyond hard money loans include paying cash, borrowing on lines of credit, or borrowing money privately from friends and family.
No matter where you plan to borrow the funding for house remodeling costs, get pre-approved before making an offer to streamline the approval process and settle quickly.
There’s no magic formula for looking at a property and instantly estimating rehab costs. It takes time to develop a sense for the various costs, and it varies based on dozens of factors including size, age, desired finish level, quality of work, quality of materials, local labor costs, and more.
Always get at least three quotes before tackling any house renovation project and don’t be afraid to negotiate pricing. If you’re new to real estate investing, get more quotes than you think you need, to get a sense for the breadth of pricing for any given project.
Most important of all, screen all contractors thoroughly before hiring. Nothing will ruin your real estate flip faster than a blown renovation budget and shoddy renovation work. But with thorough screening, you can hire reliable contractors who will finish your house remodeling project in-budget and on-time for a profitable flip in a short timeframe.
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 are the author’s own. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2019.