Wondering which renovations could actually make a difference to your bottom line? For real estate investors, every dollar you spend upgrading a property should increase your return on investment (ROI). Whether you’re flipping houses or renting them out, focusing on strategic renovations ensures you’re squeezing every bit of value from your budget.
This guide explores the home improvements that often yield the best ROI, and the ones that might not be worth the expense. You’ll learn which upgrades could attract buyers or long-term renters, how to evaluate the cost versus the benefit, and how to approach renovations with ROI in mind.
Keep reading for tips to help make your next real estate investment a success!
When planning investment property upgrades, it’s important to understand which renovations are likely to give you the most value for your money.
What is Renovation ROI?
Renovation ROI measures the financial return you gain from the money you invest in property upgrades. It’s typically expressed as a percentage. For example, if you spend $10,000 on a kitchen remodel to add $15,000 in value to your fix-and-flip property, that’s a 150% ROI. ROI matters most for real estate investors (REIs) who want to maximize profits for a flip or attract quality long-term tenants and garner premium rent.
Different projects could provide varying levels of ROI. By understanding what buyers or renters prioritize, you can make informed decisions about where to focus your DIY efforts (and dollars).
High vs. Low ROI Projects
High-ROI upgrades are cost-effective property improvements that increase the perceived value or functionality. These usually include kitchen and bathroom updates, new flooring, or boosting curb appeal.
Low-ROI projects tend to be expensive or overly customized, like luxury remodels or super-niche additions that appeal only to a small audience.
Kitchens are often called the "heart of the home" for a reason. They’re one of the first areas buyers scrutinize; even modest upgrades could deliver exceptional returns.
Budget-Friendly Upgrades to Consider
With a midrange kitchen remodel, you could potentially see an ROI of around 70%–80%. However, be cautious with luxury custom kitchens, as they often cost more than they return.
Refreshing investment property bathrooms is another potentially high-ROI move. Buyers and renters value modern, clean bathrooms, but you don’t need to go all out.
Small Changes, Big Impact
Bathroom updates could deliver an ROI of 60%–70%. However, full-scale luxury upgrades, such as installing a home theater, adding a wine cellar, or outfitting a kitchen with top-of-the-line professional-grade appliances, might not deliver proportional returns. In contrast, investors that focus on functionality and affordability may see the largest ROI.
Floors can significantly impact how a property feels. Old or unattractive flooring can often be a deal breaker, while fresh, durable options often make a world of difference.
Best Choices for ROI
Avoid overly trendy or bold flooring choices that may not work for all buyers. Remember, neutrals appeal to the broadest audience.
First impressions matter, and curb appeal often sets the tone for potential buyers and renters. Small changes to your investment property’s exterior could dramatically impact perceived value.
Smart Exterior Updates
While significant landscaping projects generally don’t offer the highest ROI, basic upgrades and maintenance pack a lot of visual appeal for a modest cost.
You don’t need to turn your property into a high-tech fortress, but modest smart home additions can sometimes make it more appealing to potential buyers.
Potential Smart Features for Increasing ROI
The key is affordability. Avoid overly complex or expensive systems, like fully automated smart home setups, high-end soundproofing in every room, or luxury appliances that many buyers or renters might not value and could potentially be costly to repair.
When deciding whether to tackle a project yourself or hire specialists, weighing several factors is important. Consider the time you have to dedicate to the task, your own skill level and expertise in handling such projects, and how the quality of the final outcome could impact your return on investment (ROI).
DIY Projects
Leave to the Pros
Poorly executed renovations can waste time and resources, potentially hurting your ROI by leading to subpar results or costly mistakes. To ensure the best outcomes and protect your investment, don’t hesitate to bring in an expert when needed—they can provide the professional touch and expertise required to get the job done right the first time.
Permits are essential for protecting you from costly violations and fines that could significantly impact your profits. Beyond avoiding penalties, unpermitted work could also reduce your investment property’s value, making it more challenging to sell or refinance in the future. Skipping permits might seem like a shortcut, but it can often lead to bigger headaches down the road.
Best Practices
By following these steps, you can help maximize the potential value of your investment property through strategic renovations.
Transforming a distressed property into a profitable investment takes more than great rehab ideas—you need the right financing to make it happen. That’s where hard money loans come in.
Also known as bridge loans, hard money loans offer fast, asset-based funding specifically designed for real estate investors tackling renovation projects. Unlike traditional loans that require lengthy approvals and rigid criteria, bridge loans are based on the property’s after-repair value (ARV). Want to get an accurate estimate of your property’s ARV? Use Kiavi’s ARV calculator.
Things to Keep in Mind:
When used wisely, hard money loans can provide real estate investors the speed and liquidity to turn ambitious fix-and-flip ideas into a profitable venture.
Your renovation strategy can make or break your next property flip. Focus on high-ROI upgrades like kitchens, bathrooms, flooring, and curb appeal, while avoiding overly expensive or niche changes. Choose smart renovations that fit your budget and resonate with the majority of buyers or renters in your market.
Before starting any project, develop a renovation budget and ROI plan to guide your decisions. If your cash is tight, consider working with a lender for a hard money loan to cover the property acquisition costs (up to 95%) and the renovation costs (up to 100%).