Looking to open up your investment opportunities or bring in some additional revenue streams? Investing in real estate is a great way to do just that. Here at First Western Federal Savings Bank, we can connect you with the financial resources you need, like an IRA non-recourse loan to start investing in real estate.
But how do you get the most out of your investments? Once you’ve purchased a property, you can maximize your investments by investing in the house itself. But don’t just start remodeling the house with abandon. We’ve found that some projects have a higher return on their investments than others. To help guide you in your next projects, we’ve assembled this quick-hitting guide on the home remodeling projects that have the best ROI.
Why Remodel a Home You Can’t Live In?
When you use an IRA non-recourse loan to purchase a property, it legally cannot be your primary residence. That means that many people use their non-recourse loan to purchase rental properties or vacation homes. Some might be hesitant to invest in a home that they can’t live in, but by remodeling some spaces and places in the property, they can still get value out of it.
Indeed, by remodeling your rental or vacation properties, you’ll enjoy a variety of benefits. First, you’ll attract more potential renters or vacationers to your properties. New fixtures presented through modern styles are always in demand, and your newly remodeled spaces can offer just that. The increased attention your properties get means you can be more selective in who you offer the spaces too as well. You’ll get a more reliable tenant in your properties. Additionally, you can ask for higher rents for these places. You’ll find that you’re making more money in the long-term by remodeling your investment properties.
As an added benefit, when you’re ready to sell your investment property, you’ll find that you’ll get better offers, even in areas with competitive markets.
How Much Should You Invest in Home Remodeling?
We’d all love to be in a situation where we have an unlimited budget to completely reimagine our investment properties. The fact is, however, most of us are working with a fairly strict budget and want to get the most out of each dollar we spend. So how do you budget accordingly?
First, let’s take a look at how much the average remodel might cost. HomeAdvisor has found that the average cost of a home renovation or remodel projects is about $18,000 for a home with 1,000 square feet. This cost quickly jumps to the $36,000 range as the square footage of the home expands from 3,000 to 4,000. There is a lot that accounts for these ranges of prices, the age of the home being chief among them. Older homes simply require more work to bring them up to modern standards for necessities like plumbing and electricity. Generally, you can expect to spend about $100 to $200 per square foot of space you’re remodeling or renovating.
Another way to think about how to budget for your remodeling project is to look at the value of the property itself. Experts suggest that you shouldn’t invest more than 10 to 15 of the value of the home on a single room. For example, if you want to remodel the kitchen of a property worth $200,000, you don’t want your budget to exceed $30,000.
Which Space Should You Remodel First?
The short answer to this question is, of course, “it depends.” The longer answer is that you’ll have to balance subjective and objective information to make that decision. For instance, subjectively, some rooms might simply look dated and need a refresh. Objectively, other rooms might need new fixtures like sinks or toilets. You’ll also have to think about your budget. If you’re remodeling multiple rooms, create a priority list and go from there.
Remodel These Things for the Best ROI
Now we know why you should remodel and how to budget for it, so let’s explore the projects that will help you earn the most.
Doors and Entryways
Turn on any home improvement show on any channel and you’ll see that they spend countless hours pouring over paint chips for accent walls in living rooms. What you won’t see is any thought put into the doors and entryways. This is surprising since your doors and entryways are a great way to get money back on your investments.
So why are doors so valuable? It’s all about presentation and protection. Modern home designs, for the most part, have made the garage door an integral part of the front of the home. That means it’s often the first thing that renters and buyers see when they first visit the home. Similarly, the front door is a symbolic focal point for your buyers and renters. Having updated doors is a great way to catch their eye and draw their interest. Additionally, new doors are more secure than old doors. In particular, steel doors are an easy way to protect your home.
The ROI for new doors is remarkable. The 2019 Cost Vs. Value Report found that replacing the front door with an updated steel door has a 74.9% ROI. Even better is replacing the garage door, which fetches a 90.1% ROI. Investing in these can open the door to other remodeling projects.
A remodeled bathroom should be on nearly every project list. As Americans spend less money on luxuries like trips to the spa or salon, they’re spending more time pampering themselves in their bathrooms at home instead.
Remodeling the bathroom can be as complicated or as simple as you want it to be, but the more you put in the more you get out. For instance, a basic remodel would be to simply replace the fixtures with updated examples, give the room a new coat of paint, and call it done. Something as simple as this will net you a 60.2% ROI. A respectable return but one that can be improved by investing a little bit more. Adding an addition on to the bathroom and remodeling more fixtures and features can add up quickly. An addition also nets a 60.6% ROI, and an upscale nets a 67.2% ROI.
While these projects may have great returns, unless you’re a gifted carpenter, you might need to partner with a local contractor to finish projects like these. Typically, you’ll find that you have the skills to do simple remodel projects like replacing tubs and toilets and even installing new tile and vanities.
Patios and Decks
People love spending time in their backyards. From birthdays to BBQs to simple relaxing evenings, your renters and tenants will spend time in the backyard, so why not invest in it?
A redesigned patio space creates a welcoming and useful area that can be enjoyed year-round. The inclusion of features like a fire pit provides a natural gathering point, and comfy seats can entice people to spend more time outside. If fire pits aren’t an option for you, you can use other features like bars, water features, or even something as classic as an outdoor rug with a table and chairs. When you remodel your patio, consider putting down flagstone, or another high-end material. When covered by something like a pergola, you’ll have an inviting space that will offer a 55.2% ROI.
If your investment property doesn’t already have a patio, this might be a great chance to put in a new deck. Decks can be added to nearly any story of your home, which can create some great elevated social spaces. In many cases, property owners are treating their decks as outdoor living spaces, connecting their indoor spaces with sliding glass doors. Adding a deck nets different results depending on the type of material used. For instance, wood is a timeless choice and has a 75.6% ROI. Composite decking is a little more affordable way to construct a great looking deck and still leads to great results, an ROI of 69.1%.
Besides bedrooms, most people spend the majority of their time in the kitchen. They’re natural gathering spaces, after all. With fewer people spending money to go out to eat, investing in the kitchen is an obvious alternative.
Adding modern fixtures and appliances to your kitchen ensures that you have a workspace that highlights form as much as function. It’s also a great way to attract buyers, renters, and more to your property. To get the most out of this remodel, make sure the appliances are your main focus. Replace them with new energy-efficient models. You’ll save money over the lifespan of the appliance that way. Next, take a look at cabinet faces and replace them with new panels and stylish hardware. Countertops should come next, followed by flooring, wall coverings, and paint. Even simple remodels like new cabinet faces and a new range can result in an 80.1% ROI.
There’s no denying that most remodeling projects take place inside the home, but some of the exterior projects are just as, if not more so, important. Like your doors and entryways, the siding on your home helps to establish the first impression that visitors and renters get of the property. Worn out and weathered siding can turn off potential renters even if the interior has been refreshed.
You can expect to pay about $16,000 for 1,250 square feet of siding. While that might sound like a lot, those costs are tempered a little bit when you realize that it could lead to a 75.6% ROI. It’s a smart idea to replace your entryways at the same time as the siding for a total makeover of the exterior of the property.
Everyone wants to feel safe and relaxed in their home, whether they own it, rent it, or are simply staying for a vacation. One of the best ways to create that feeling is to add or expand the master suite in the property. An addition to the home can be added to the side of the building or to the top in some cases. As you make this addition, consider the living space of the bedroom, but also include features like a master bathroom and walk-in closets.
While this is certainly one of the more costly remodeling options, a master suite addition is an attractive feature to include on any investment property. It’s not uncommon to see an ROI of 59.4% on master suite addition projects.
Invest in Real Estate Today
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With more than 40 years of experience, our knowledgeable lenders can help you make smart borrowing decisions. Contact our non-recourse loan lenders today to find out more and to schedule a consultation.