4 Types of Renovations That Are Better Left Undone

by | BiggerPockets.com

Choosing what to include and what not to include on a scope of work is just as important as picking the right contractor. Some work is obviously necessary (say, repainting a tired house), while other upgrades are more elective. And when it comes to elective work, there are some improvements that are worth the bang for your buck and there are others that most certainly are not.

Here are the key things to add to your “Thou Shalt Not” list when it comes to rehabbing investment properties.

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1. Repairs That Are Generally a Poor Return on Investment

In 2003, the National Association of Realtors came out with a study on the characteristics that increase and decrease the price of new housing (assuming all other characteristics, i.e. square footage, remain the same). Here is what it found:

  • Full Bathroom: 23% increase
  • Partial Bathroom: 15% increase
  • Garage: 13% increase
  • Central Air Conditioning: 12% increase
  • Fireplace: 12% increase
  • Basement: 9% increase
  • Close to Golf Course: 8% increase
  • Higher Ceilings (9 Feet): 6% increase
  • Additional Bedroom: 4% increase
  • Laundry: 2% increase
  • Above-Ground Swimming Pool: 0% increase
  • In-Law Suite: 5% decrease
  • Professional Office: 5% decrease

The fireplace one sounds hard for me to believe, but the others mostly seem reasonable. Some of these characteristics are obviously going to have different effects in different areas as well. So, for example, a garage in a city that has a high walk score is probably not as valuable as in a city that has a low walk score. A basement in an area with a high water table that would often flood isn’t going to be particularly desirable. Central A/C is going to much more valuable in a place like Birmingham, Alabama than in San Diego, California.

That being said, some renovations are almost always a bad idea. In-law suites and professional offices would be two of those. Another is converting a garage into a bedroom. CostAdvisor.com puts the cost of an average garage conversion nationwide at $11,154. I think that’s high, but it still costs quite a bit (especially to do it right, as many garages are not insulated, for example). The problem is that you are losing something (a garage) at quite the price in order to just get another bedroom. While adding a bedroom to go from one bedroom to two or from two to three (usually the smallest a family would consider) may be worth it. It is rarely worth it to do so above three bedrooms unless the house is very large.

Related: The Top 5 Items to Replace or Upgrade in Every Rental Property You Buy

Like with most things, there are some exceptions. Most notably is student housing, which is rented out by the bedroom. In that case, the more bedrooms, the higher your rent. So finding any nook and cranny you can to turn into a bedroom makes sense. But in general, adding bedrooms beyond three isn’t worth the cost.

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2. Fixing a Property Up Too Nicely

Another common mistake investors make is fixing up a property too much. If you’re fixing up a luxury house to flip, then you need to go all out. But most rentals, particularly working and middle class rentals, don’t need anything near that. They need to be nice and functional, not spectacular. Of course, it’s important not to use crummy materials. Builder’s grade carpet will rarely last more than one turn, and good luck getting any mark off if you use flat paint. But you also don’t need to go all out with things like:

  • High-end stainless steel appliances
  • Custom cabinets
  • Granite slab counter tops
  • Bay windows
  • Elaborate crown molding
  • Expensive chandeliers, like, say, this one

My brother has a saying that he buys the second cheapest item a store has. His theory is the that the cheapest is junk, but the second cheapest (err, least expensive) is at least solid even if it’s not fancy. I would not embrace this theory fully, but it’s a good place to start. High-end materials won’t add much rental or resale value to a middle-of-the-line property. They’re just not worth the costs. But cheap materials will quickly break and need replaced. Cheap materials are also, in a different way, not worth the cost. Aim for the “Goldilocks zone.”

3. Awkward Additions or Upgrades That Don’t Fit the Property

I’ve seen some weird repairs in my day. (Just check out my list of top 10 DIY catastrophes for proof of that.) For the most part, it’s probably best to avoid adding additions to a house in general. It’s also rarely worth finishing a basement. I’ve lost track of how many “finished” basements I’ve walked into that were full of mold or the bottom half of the drywall was torn out because of flooding problems. That being said, if you do go either route, make sure to get it permitted and use a respectable contractor.

Other upgrades may appear on the surface to be worthwhile, but really aren’t. I’ve seen a good number of “additional bedrooms” that are only accessible through another bedroom. This doesn’t count (legally or otherwise) as a bedroom, folks. Some additional bedrooms are so small that no serious person would consider it one. (A bedroom should be at least 100 square feet.) Counting these rooms as “bedrooms” often just disappoints potential buyers or renters when they actually see it and reduces your chances of getting it rented or sold.

You should also ask yourself, “What would I want if I lived here?” So, for example, if you have a big, multi-story house with no downstairs bathroom, adding a half bathroom is almost certainly something you would want. Who wants to have to go upstairs every single time nature calls? On the other hand, if you have a multi-story house where every bedroom is upstairs and it has a half bathroom downstairs, you may be tempted to make that half bathroom a full bathroom. But why? People generally aren’t going to take a shower on a different floor than their bedroom unless they have to.

If a house has a dingy basement and that’s where the laundry is, it’s probably worth trying to bring that laundry upstairs. If it has a dry, finished basement, it’s probably OK to keep it in the basement. Again, I’m not a fan of garage conversions, but if you are considering one, you should think about whether the house would still have any storage. If the house has no basement or shed, converting the garage pretty much eliminates whatever storage the house once had. People have a lot of stuff these days and need somewhere to put it.

Related: 7 Ways to Spend a $5,000 Renovation Budget for Max ROI

So make sure to ask yourself these questions and put together a scope of work based on the answers.

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4. Upgrades That Are Mostly Just a Headache

Some items are nice, but are usually just a headache, especially for rentals. Skylights look nice, but they are notorious for leaking when it rains. I would not recommend putting them in unless you’re dealing with a luxury property. Swimming pools also generally fall in that category.

As noted above, the National Association of Realtor’s study found that adding a pool adds a whopping zero percent to the sales price. And pools aren’t cheap to add. CostAdvisor.com (which, again, I think is high) puts the national average at $49,500! In addition, if you’re renting out the property, there are a lot of arduous laws and liability issues regarding swimming pools these days.

That being said, there are some exceptions, of course. When I was in Scottsdale a while back, literally every single house had a swimming pool. Sometimes, clientele of a particular area expects to have one. In those cases, it makes sense to put one in, but it usually doesn’t.

Conclusion

You may make your money when you buy, but you can lose it at any stage of the process. And the most common place I see investors turn a good deal into a bad one is with a botched rehab. Finding good contractors and managing them well is essential. But it’s also essential to put together a good scope of work. And a good scope of work is good for not just what it has in it, but for what it leaves out.

What would you add to this list? Do you disagree with any of the above?

Comment below!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

17 Comments

  1. Daniel Taylor

    According to the report, an in-ground pools DOES add value (of about 8%). From page three of the report you cite:

    “an in-ground swimming pool adds about eight percent to value while an above ground
    pool adds no value;”

    I’m sure it was just a mistake, but you might want to correct it for accuracy’s sake.

  2. Michael Baum

    I do agree with most of the items in the list. Granite countertops have become a commodity these days so you can really find some deals.

    Here in the greater Seattle area, tier 1 slabs can be had for as little as 69 bucks ready to install. It really pays to look around to give your mid level rentals a bit of pizzazz! You provide just a little more and you can end up getting a better tenant who really appreciate the extras.

  3. Bill Wilson

    Basements that are prone to flooding should have an existing sump pump. If the basement has none yet has mold and mildew then it only needs a dehumidifier. The basement exterior walls should be left uncovered so one can easily find cracks that seep moisture. Bare cinder block walls can be sealed using a waterproof masonry sealer/filler like UGL Dry-Lok then painted over. Basement ceilings are best covered using a commercial drop ceiling hung from a grid since the panels are easy to remove & reset if any work needs to be done above them. It’s not a bad idea to have a full bath, a washer/dryer hook-ups and a kitchenette in a presentable basement either since a lot of families use basements for big dens and have visiting relations stay down there.

  4. Blake Denman

    Interesting that an in-law suite doesn’t add any value – perhaps this will be changing with the aging of baby boomers?
    I know both sets of my grandparents are at a point where living alone is getting hard, and I can imagine that members of my family and many other families will find value in having a space that allows their elderly parents to live very near them without having to co-inhabit the same space.

  5. Kimberly Storey

    To me, I think the study from NAR is a bit outdated. A LOT has changed in the housing market since 2003. In the greater Seattle area market where I live and sell real estate, having a mother in law suite/ADU brings the value of the home up significantly! I believe this is also very true of other metropolitan markets. We are living in an era where parents are wanting the grandparents to help with daycare since the cost is so high and so many households have two income families, an ADU works well for that. Many students after college move back home with their parents to save money for several years and additionally, the ADU works well in that situation. Not to mention additional rental income to cover the high housing prices/taxes and the ability to do short-term rentals for extra income, such as AirBNB or VRBO. I also don’t believe the home office decreases the value, lots of folks work from home where traffic is very bad. In addition, you can rent it. I agree with some of the study, but a housing study from 2003 maybe shouldn’t have so much weight in our 2018 market.

  6. Jennifer Goddard

    This article is a good start, but I completely agree with Kimberly. Society has changed so much that a 15 year old study has little to no relevance today. Rule of thumb, studies that are more than 2 years old shouldn’t be used as the foundation for industry insights. In addition, this article is unclear as to what constitutes a good upgrade. There’s a copy/pasted list of upgrades followed by percentage points for either increase or decrease, but aside from saying the fireplace is a “hard” one to believe (not clear what that means either) there is no analysis by the writer. At what percentage threshold does the good upgrade become the not-so-good upgrade? Where does the not-so-good become bad? Some fresh insights would make this a more relevant article.

  7. Dave Rav

    @Andrew Syrios decent article. I think the point you’re trying to make does compute and makes sense.

    However, there are a few flaws to point out. As someone else @Kimberly Storey mentioned the article is dated. It’s a decade and a half old. Though I would say that easily 50% of those findings remain relevant, certainly all of it does not. Today, folks want newer, better, and somewhat “flashy”. They want it to pop. With the internet and smartphones, consumers are more informed and more trendy, into the what’s “in” due to this information abundance.

    I also disagree with your take on fireplaces. You think folks don’t want FPs? Listen, I live in the South and though not functional, people LOVE these.

    Lastly, the upgrades comment (Item 2) is a bit general. You mention not using stainless steel appliances. They don’t have to be expensive, if you know where to buy them at a discount. Something else worth noting is, if you browse discount and clearance section of Lowe’s and other hardware stores you can often find certain items marked down. Sometimes, these include your “fancy chandelier” example. I do this all the time. Once got a $300 chandelier for $70. It was beautiful, without the price tag. Also, just last month I bought $30 exterior fence stain for $9. That’s six gallons for less than the price of 2. It pays to shop around. Great, inexpensive deals abound.

  8. Erika Lim

    This article is really helpful esp to first time flippers. Basically you need to give room for the potential buyers to put their personal touches once the’ve bought the property. Central Valley House Buyer buys, flips and sells properties. If you have a viable project we can work on, give us call at 559-554-2230.

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