What projects within a rehab produce the best ROI?

14 Replies

Hey BP,

Curious if anyone out there can chime in on what specific projects within a rehab produce the best ROI. Obviously this assumes that there aren't major infrastructure items to be addressed (ie. functioning roof, furnace, hvac, electrical, plumbing etc), but the projects that come to mine for me are painting the interior, granite counters, flooring, and prefab bathroom vanities.

Anyone have their list or case studies that they care to share?

I once read an article about this that was geared towards homeowners planning to sell. It said that the single best ROI would come from a fresh coat of paint on the front door.

It is generally assumed that rehab money is best spent "plumbing rooms." Kitchen, bathrooms, etc because they generally look dated faster than the bare walls of the rest of the house. 

I think the best way to add value and increase ROI would be things that are area specific, for example a friend of mine lives in Seattle, and he found a house with a mud-room which is apparently something that he absolutely needs. That may be a pretty specific example, but use your best judgement. I see your from Walnut Creek, so maybe find a way to build a wine rack into a small closet, or maybe install a half wine refrigerator in the kitchen to give your property something special. I know my parents would have loved a feature like this when they were looking around the bay area suburbs. The more creative you are the more risk that a prospective buyer would dislike it, but it also greatly increases the value to those that do.

Just my 2 cents.

Adam

It really depends on your intentions for the property.  Are you planning to live in it, sell it, or rent it.   Your selection of "projects" will be different in each scenario.

We are buy and hold investors but even among our selection of rentals, we would have different priorities:

  • student rental units - looking for simple. healthy, efficient, durable, and easy to clean;
  • rooming house - focus is even more heavily on energy/resource efficiency since we carry the costs.
  • executive rentals - higher end finishes and furnishings.

I agree on kitchen and bath usually being the noticeable and having a good ROI, although they can sometimes be pricier renovations. Painting is always a decent ROI for not too much, adding or updating baseboards can go a long way and interior doors too. From some articles I have read though it sounds like exterior upgrades tend to have pretty good ROI, replacing the front door with a nice new steel one in a color that works well with the house, and new siding (or stucco or brick treatment) can be quite a good improvement in the look, that usually has pretty good ROI. All of this is assuming the property is dated and in need of those types of visual improvements.

Always keep in mind you are much better off matching renovations of the higher price point within your area, but not doing more. You don't want to be the most expensive house on the block because you will not have good comps to help with your property valuation.

If you are talking about a rental things are a bit different, you really should not go overboard  but find what matches expectations for similar rentals you are trying match in your rent price point.

Walnut Creek is a nice area.  I lived in Pleasant Hill for many years and went to DVC.

Visit all the Open Houses in your area and know how far they are going with their rehabs and of course get a flyer on the property.  You don't want to over rehab for the area, but you do want to make it nice and to stand out from the rest. 

I agree with @Jessica S. - about painting the front door and I would also include the soffits (trim).  It would give the impression the whole house has been painted.

Also, the flow of the house is important to a buyer - can you tear down non-load bearing walls to really open it up?  There's nothing worse in an older home, not to have it flow properly.

Suggest you consider having it professionally staged.  Get at least 3 references from the stager - did this result in a fast sale?  Using the appropriate furniture arrangement, the stager can help you sell the house.  It's not too early to consult with a stager.

Yes, please address the landscaping - even if it is GREEN grass freshly mowed and trimmed, that would be okay.  There is such a thing as "curb appeal"!  Plant a few pansies and your done.

Buyers are going to be in full force this spring and you might create a bidding war!  People want to buy that dream!

Good Luck!

From an ROI standpoint, the best ROI items are the things that will take the house from being unable to allow a buyer to qualify for a loan to a house that is in good enough condition to allow the buyer to qualify for a loan.

Beyond that, there's not enough information to answer your question.  For example, if a house is 100 years old, but with brand new kitchens and baths, then spending more money in the kitchens and baths isn't going to be the best use of your funds.

To be more specific, I have an early 90s home in Fairfield with standard builder grade materials throughout for that era (solid oak cabinets, linoleum floors, gold accent hardware in bathrooms, tile counters, etc.) My thoughts on best bang for the buck on the interior are paint (standard light khaki color), granite counters in kitchen/bathrooms, tile floors in kitchen/bathrooms, new hardware in kitchens/bathrooms, new doorknobs throughout.

The home is 3000+ sq ft so I'm debating on whether it's worth it to upgrade the windows and do some of the larger cap ex items which are nice to haves but are perhaps afterthoughts in terms of selling the home. Obviously I'll be fixing anything that flat out doesn't work (hvac, furnace, water heater, etc). Any feedback on the items I've listed?

I always try to find one, or a couple, specific details in each rental unit that can be a bit "special" above the baseline necessities, such as stainless steel appliances, gravel/bark for landscaping, a thicker trim and nice trim/wall paint contrast, a better grade of carpet, or a brand new front door.  Many times the competing units in the area will lack that attractive detail, which can stick in the minds of prospective tenants and create a slight competitive advantage.

I'd recommend exercising your own intuition to find the renovations most suited to each property and area.  After developing your "personal touch" and adding experience you'll be able to hone in on your desired approach.

Generally speaking, your best ROI comes from new paint, curb appeal landscape, garage door, etc) upgraded bathrooms, upgraded kitchens, upgraded flooring. Additionally, changing a poor flow or layout to a better flow or better layout will also have tremendous ROI benefits.

In your specific circumstance, we all would need to know your current market conditions, your subject property details, and what the competition has to answer such a question.

Originally posted by @Manolo D. :

i would say kitchen and bath. they dont really notice paint and and floor that much. then again, they would not visit every property posted.

 Actually, I am frequently surprised when buyers I'm working with have difficulty seeing past the paint color.  Having said that, solid kitchen and bath and stunning first impression (front door) always help.

In my opinion I'm guided by what I acquired the property for, the carrying costs and what I might be able to sell it for.  The improvement costs are a direct reflection on what I might make as profit and influence my decision on what improvements I can make.  I would be influenced by comps and do the improvements that would take my home off the market the fastest.   If you have a substantial spread, then you can put your personal touches on the project.  To answer your question more directly, the front door, the foyer, the front yard, kitchen cabinets, appliances, bathroom appearances, custom closets.  Good luck.

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