Once you’ve found the perfect property to fix and flip, it’s time to decide which projects are worth your time and money.
Surprisingly, the renovations that may seem obvious for a high ROI often turn out to be a bust.
Instead, opting for simpler updates usually is the key to maximizing your ROI—and your savings.
In this guide, we will share the worst home renovations for ROI, what you should do instead, and how you can get the fast, flexible financing you need from Park Place Finance.Get Started with Park Place Finance
Your return on investment for home improvement projects compares the cost of the renovation to the resulting increase in the property’s value or the net gain.
Use the following formula to calculate the ROI on a project:
ROI = (Net Gain from Renovation / Cost of Renovation) x 100
ROI is expressed as a percentage. For example, if the net gain from the renovation is $60,000, and the cost of the renovation was $50,000, your ROI is 120%.
A positive ROI means the renovation added more value to the property than the cost of the renovation, while a negative ROI means you lost money on the investment.
While the formula is simple, calculating ROI can be complex because it’s influenced by several factors.
Working closely with other industry professionals can help you get the most accurate estimates of pre- and post-renovation market values and provide valuable local insights.
Now, let’s discuss which projects more often result in a low ROI — and alternatives that will boost what you recoup.
If you’re purchasing a smaller home and have the urge to expand, take a pause.
According to Remodeling’s 2023 Cost vs. Value Report, a mid-range primary suite addition and bathroom addition both offer a mere 30% ROI.
Upscale additions bring in even less, with 22-26% of the cost recouped.
While it might seem like expanding the property would appeal to buyers, sometimes additions end up not fitting the neighborhood’s look or price point.
Even worse—a poorly executed addition can mess with the floor plan of the home.
Rather than putting your money toward adding a room or two that you think would improve the home, opt for improving the space with fresh paint and simple updates.
Choose neutral paint colors and fix any blemishes on the walls. You also might consider removing textured walls and ceilings or dated wallpaper.
One simple update with a healthy ROI: entry door replacement.
According to the report, a steel entry door replacement has a 101% ROI.
Major kitchen and bath remodels only offer an ROI in the 40% range.
High-end appliances, marble countertops, and luxury light fixtures are expensive to install and don’t give you the ROI you would expect from your hard work.
Additionally, you have no way of knowing the future owner’s style and preferences. Since these spaces are sacred, leave it to them to design them as they see fit.
Rather than revamping these spaces, focus on replacing the most outdated and worn-out appliances.
Again, a fresh coat of paint will work wonders, as well as replacing an old faucet, updating the plumbing, and choosing a simple light fixture upgrade.
If the tile is in poor shape, consider a deep cleaning or replacing the grout.
Installing an inground pool is widely considered a bad idea to add to your fix-and-flip property for several reasons—the most obvious being a poor ROI.
But beyond ROI, pools are costly to maintain and repair, are considered a safety hazard, and take up valuable backyard space.
Unless you’re flipping a property in a warm state or purchasing a rental property, it’s best to leave pool installation up to the buyer.
Consider adding a small patio or deck to the property. While the cost recouped for a $17,000 wooden deck is only about 50%, they can be a strong selling point.
If the property has an existing patio or deck, that’s even better. Give this space a refresh with new deck boards or handrails.
In general, adding unique or extravagant features to the property that you deem attractive is not guaranteed to win over your buyers.
Best-case scenario, you find a buyer with the same taste as you, but that still doesn’t mean this will be reflected in the ROI.
Gazebos and intricate gardens are costly projects that often don’t translate.
Curb appeal will nearly always trump extravagant landscaping features.
For example, a garage door replacement boasts a 103% cost recoupment.
According to the report, adding a stone veneer has nearly the same value, at 102%, and vinyl siding replacement is at 95%.
But before you even turn to those projects, mow the lawn, trim the trees, and weed the yard—or hire a lawn care service.
You should also consider fixing sidewalk cracks and power washing the siding and sidewalks.
This includes turning a small bedroom into a large walk-in closet or home office, transforming closets into bathrooms, or combining rooms.
The problem with these transformations is that you could potentially drop a lot of cash on a project that isn’t functional for the buyer.
Focus on the basics and spruce up the current spaces with fresh, light paint colors and clean, refreshed flooring.
More bedrooms generally add more value to homes even if they’re small. While you might feel a bedroom could be converted into a cool office space or bathroom, your future buyers may have needed that extra bedroom.
Ultimately, the key to choosing the best home renovations for your property is to place greater emphasis on “move-in ready” rather than unique, costly features that don’t translate to all buyers.
But before you can dig into these projects, you need to partner with the right lender.
Park Place Finance is a direct hard money lender with in-house capital. We lend to investors nationwide, allowing us to better serve your needs—wherever your next property may be.
We offer fix-and-flip loans, DSCR loans, ground-up construction loans, and bridge loans to qualifying investors.
We look forward to helping you move ahead with your next investment property.Get Started with Park Place Finance