Remodeling investment properties
Considerations for remodeling investment properties :
When thinking to upgrade an investment property it is important to chose the project wisely in order to maximize the ratio of gained money upon resale over renovation investment.
– Don’t over improve the house. Use the value of the building around your neighborhood as a guide – it’s best to be the house with the lower value among more expensive houses around you.
-Having more bedrooms and bathrooms makes a difference! When renting/ reselling a house value is determined by number of bedrooms, bathrooms (whether full or half) and not by their size. The total square footage of the house adds to the calculation, but having more bedrooms/ bathrooms is an advantage.
-Kitchens are probably the best spaces to renovate in order to raise the market value of the house. People are looking for open layout kitchens, with abundance of natural light, modern cabinets (wood or high quality laminates), large counter tops preferably of granite, marble or Corian, energy efficient appliances, decorative wall tiles, and wood/ ceramic tile flooring. For an investment property- keep the kitchen remodel at mid range, with modern looking features made of durable, easy to replace materials. A full mid range kitchen renovation should cost about $30-$40 K with a payback of 75% upon resale.
-Adding a bathroom is probably the second best investment in a property, especially in a house that has only 1 full bathroom. Houses with more bathrooms are easier to sell, and the money invested in the renovation can easily be returned upon resale. (For a house with more than 3 full bathrooms there’s no economic sense in adding another) A full new bathroom costs about $25 K. Renovation to an existing bathroom costs a bit less, about $15-$20K but will not be fully returned upon resale, payback is about 50%. Popular features in modern bathrooms include skylights, large windows, decorative ceramic tile, inclusion of both shower and tub (possibly a jacuzzi).
-Adding a room or section to your house can make a big difference when looking to rent or resale. The addition has to fit the architectural character of the house and should be appealing aesthetically with features such as fireplace, skylight, high ceiling, exposed beams etc. A new room costs about $50 K, a new section (same room foot print on both floors) costs about $100K. However, be careful of adding spaces such as sun room which end up being rarely used, with a low payback upon resale of 40%.
-If site condition allows, adding a deck is a renovation winner, in spite of the relative short summer. Priced at $10-15K with a payback of more than 88%.
-Another renovation winner is turning an unfinished attic into a bedroom. Costs will vary, according to size of attic, level of finish, whether you include a bathroom in the space or not, but an estimate will be $60K (including a small bathroom with shower) with a payback of about 80%. When turning an unfinished attic into a habitable space, clients are fond of open space, with plenty of natural daylight including roof skylights, and maximum use of low height spaces for built in storage, sitting benches etc.
-A home office renovation project is not expected to payback more than 40% of the rough $28K invested in renovation. While more people are working from home these days, renovating a home office in investment property probably does not make much sense.
-Finishing a basement – this renovation project is probably best for homeowners rather than for investment properties. The payback will be mostly in the joy of using the space rather than in monetary measures. An average basement finish project is roughly $35K, with a payback of 50% upon resale.