Real estate investing, for the most part, is predicated on one thing: making money. Every decision you make will impact your bottom line, and –therefore – should be calculated. It is not enough to blindly make upgrades that you feel belong: you need to make the right improvements.
It is entirely possible to lose money by making the wrong upgrades. Some projects simply don’t warrant the initial cost. (This can even extend to alternative types of investing, such as tax lien investing.) Conversely, there are projects that separate themselves from the rest, and actually return more profit when it comes time to sell.
The real trick is to focus on the projects that don’t coincide with such drastic highs and lows – the ones with consistent ROI. Our partners over at CT Homes have found that the following improvements will generate some of the best return on investment:
1. Steel Entry Door
Nothing has proven to be a better return on investment in recent history than a front door replacement. In fact, steel entry doors have been known to return approximately 101.8 percent of their initial investment upon resale. That means people are actually getting more back than they spent on the door itself when the time comes to sell.
Of particular interest, however, may be the added benefit of curb appeal. While front doors do add value to a home, they simultaneously make it more attractive from a buyer’s perspective – an invaluable addition to any remodel.
“It gives you the best bang for your buck in terms of transforming the look and feel of your home,” says Brandon Erdmann, president of the remodeling firm HomeSealed Exteriors in Milwaukee. “Plus, old exterior doors can be a huge source of energy loss. So you’re improving the look of your house, improving energy efficiency, and you’re able to do it without breaking the bank.”
2. Wood Deck
The average cost to install a wooden deck is just over $10,000. While the price is relatively high, at least compared to a front door replacement, wooden decks have become synonymous with great returns on their investment. Some experts suggest that building a wooden deck can recoup as much as 80.5 percent of the initial cost upon selling the home. Depending on where you live, the ROI could be even more impressive.
Decks are certainly a product of their environment, both economically and environmentally. There is no denying their ROI potential, but decks – or at least the prospect of decks – took a hard hit during the latest recession.
“When the economy soured, deck-building soured,” says remodeling contractor Lino Carosella of Haverton, Pa. “Decks are a bit of a luxury, and homeowners tended to spend on necessities, such as upgrading their kitchens and baths. But now decks are coming back.”
Wooden decks are one of the few projects that vary drastically by location. While nearly every prospective homeowner would want one, there are only a few regions where decks can be used almost all year long. San Diego, for example, has some of the best weather in the country. As a result, decks are more valuable because they can be used more often. It is also common for the ROI on a wooden deck in temperate locations to be higher than, say; Seattle, where it rains a lot more.
3. Attic Conversions
The prospect of converting an existing attic space into another bedroom became extremely popular during the latest recession. Perhaps even more importantly, it was one of the most cost-efficient ways to improve the value of a home. Not only does the home’s footprint remain unchanged, but also there is no need to add walls, flooring, or even a ceiling.
On average, converting an attic space into an additional bedroom will cost $51,696. That is considerably less than building a new room from scratch. Of course, the real draw in converting an attic space is the resulting return on investment. When it comes time to sell the house, owners can expect to recoup as much as 77.2 percent of the initial cost; enough to come in at third on this list.
4. Garage Door Replacement
Not unlike the front door, garage door replacements serve as a dual threat. Not only can a new garage door increase the value of your home, but it too can also increase its curb appeal exponentially. When it comes time to sell, the home will sell quicker, and for more money.
The cost to install a new garage door can vary significantly. Whereas a mid-range replacement can run homeowners about $1,595; upscale replacements are twice as much. However, the ROI on a mid-range garage door replacement is higher than an upscale one, 88.4 percent and 82.5 percent respectively.
5. Fiber-Cement Siding
It is hard to argue the impact new fiber-cement siding has on a home, particularly when it changes the appearance of the whole property. However, its benefits are far beyond that of cosmetic aesthetics. Fiber-cement siding offers superior longevity that something like stucco or wood could never come close to. It is capable of resisting termites, moisture, rot and fire. It is an investment in and of itself: it’s very rigid, so it requires less maintenance – saving a lot of money over time. Moreover, fiber-cement has one distinct advantage over its vinyl counterpart: perceived quality.
Fiber-cement siding has the added benefit of curb appeal. While it improves the quality of the home, it also makes it more attractive to prospective buyers. Homeowners can expect to recoup approximately 84.3 percent of the initial cost when they sell the home in the future.
6. Replacement Windows
Window replacement projects have withstood the test of time, and still account for one of the highest ROIs on a remodel. It has been estimated that mid-range vinyl window replacements can return as much as 77.5 percent of their initial cost at resale. Wooden window replacements, however, have a slightly higher ROI, at 78.8 percent.
For what it is worth, new windows may be the most efficient use of your rehabbing budget. Their return is three-fold: They simultaneously increase curb appeal, value and efficiency. There may be no other remodeling project that accomplishes so many things. The resulting curb appeal and value are a given, but the right windows can reduce a home’s carbon footprint for years to come. Both heating and cooling costs can be significantly lowered with insulated windows that regulate heat exchange.
7. Vinyl Siding
As previously discussed, fiber-cement siding is a great way to see a return on your investment. However, it turns out that vinyl siding is almost as popular. Coming in slightly under that of its fiber-cement counterpart, mid-range vinyl siding projects have been estimated to recoup 80.7 percent of their initial cost. With a lower cost than other types of siding, vinyl appears to be the most popular option. It still offers a lightweight, low maintenance, and relatively low cost alternative.
Some brands offer a degree of thermal resistance, effectively reducing energy consumption that would have been used to heat and cool the home. Not unlike window replacements, vinyl siding can make a home’s operating cost more bearable.
8. Kitchen Update
Let there be no mistake about it: the kitchen is the most important room in a home. There is no reason a significant portion of your rehab budget should not be allocated toward upgrading the kitchen. However, it just so happens that kitchen updates coincide with relatively high ROI rates. They are certainly worth putting money into.
On average, it costs $19,226 to update a kitchen. The average return on investment, however, is 79.3 percent. At that cost, you will be recouping more money on a kitchen update than on most of the other projects included on this list. However, the real benefit of a kitchen update lies in its ability to attract potential buyers. There is perhaps nothing else that can sell a home faster than its kitchen. Make sure yours is on par with its competition – if not just a little better.
Of course, there are presumably countless remodeling projects you can do to maximize your ROI, but few have withstood the test of time like those mentioned above. Do you have any projects that have worked well for you in the past?