Home Renovations with the Highest ROI: Which Renovations Add the Most Value?

The Big Picture On Home Renovations With The Best ROI:

• • Improvements like garage door replacements, manufactured stone veneer, and new front doors offer high returns on investment due to their significant impact on a property’s first impression.
  • Minor kitchen remodels and bathroom updates can yield good ROI, especially when focusing on cosmetic improvements and avoiding extensive overhauls.
  • Doing renovations yourself, building relationships with contractors for discounts, and creatively reusing materials can boost ROI and reduce overall costs.

Every real estate investor tackles home renovations sooner or later.

Materials wear out, home styles change. Home updates are inevitable in a property’s lifespan if you buy and hold real estate for the long term.

As an investor, you naturally want to get the most value for the money you spend on home improvements. But what home improvements offer the best ROI?

Here’s what you need to know about ROI for home renovations, whether you’re a flipper or a buy-and-hold landlord.

The Difference Between Adding Value and ROI

Return on investment – ROI – refers to the percentage value gained on your invested money. To calculate your actual ROI percentage on an investment, first subtract the total investment cost from the gain on the investment, then divide that number (the profit) by the investment cost.

Adding value refers to a higher sale price you can fetch from an investment property due to improvements you’ve made to that property. But because a renovation adds value, it can still have a negative ROI.

For real estate investors, home renovations typically create revenue in two ways. One of these is added value realized upon the sale of the property, and the other is the potentially higher rent you can charge as a result of the improvements.

Renovations from an investing point of view are different from when you’re renovating your primary residence. Since you won’t live there, you can’t count the enjoyment of a renovation as a benefit. Your sole goal as an investor is higher returns: choosing home improvements with the best ROI.

Home Renovations with the Best ROI

You understand the difference between value and ROI. So here’s the kicker: according to Remodeling Magazine’s 2023 report on home renovations offering the best ROI, most of them had negative ROI.

They all add value, sure. But not all of them had ROI.

“What are you saying, that I shouldn’t make any home updates or renovations as a real estate investor?”

Hardly. The Renovation report was based on homeowners, not investors. You have unique advantages as a real estate investor – more on these shortly. Here are some home renovations that offer the best ROI, followed by how you can ensure you succeed in your renovations.

HVAC Conversion

Furnaces are a thing of the past. Instead, focus on HVAC improvements that use electricity (or, better yet, green energy, if possible). Don’t just throw out your old furnace, though. You can sell it as scrap metal, then reuse or remove the existing ductwork. I have to stress, though, that hiring a professional is the best way to go about this. 

You might think that this sounds too much trouble for what it’s worth, but Remodeling’s data shows that HVAC electric conversion has the highest ROI at 103.5% 

Garage Door Replacement

You’ll find replacing a garage door at the top of nearly every high-ROI home renovation list. A garage door replacement is a relatively low-cost improvement you can make to your property (Bankrate quotes an average of $3,611). It carries much weight regarding ROI because even the average homeowner can recoup 102.7% of the cost of installing a new garage door, per Remodeling’s report.

The garage door impacts a home’s curb appeal. An attractive, clean, and smoothly functioning garage door makes a great first impression when prospects first lay eyes on your property.

Installing a new, stylish garage door sends a message to prospects that the property is well cared for. It can also impact heating and cooling costs, so renters and buyers want one that is well-insulated and seals the property.

Plus, a shabby or stuttering garage door doesn’t exactly scream “responsible owner” to a potential renter or buyer.

Manufactured Stone Veneer

Another renovation that spruces curb appeal is installing a manufactured stone veneer on the exterior. This is a popular method for increasing a home’s value. These faux panels are durable, affordable, and look great.

While a real stone exterior addition to a home or rental property can be extremely expensive, you can now find authentic-looking manufactured stone materials that accomplish the same look and feel at a fraction of the cost.

Buyers love the cozy look it lends to a home, and Remodeling’s report estimates that it brings homeowners one of the highest ROIs possible at 102.3%.

(article continues below)

(article continues below)

Real estate investments? Awesome. Being a landlord? Less fun.

Learn how to earn 15-30% on passive real estate investments in one free class.

Minor Kitchen Remodel

Unlike the complete gut jobs often seen on HGTV home renovation shows, a minor kitchen remodel is one of the home renovations with the highest ROI. In particular, if you’re improving a rental property, you don’t want to spend an astronomical amount on kitchen remodels.

Investors can bring in much more value for their properties by doing less extensive repairs and renovations. Don’t remove everything from floor to ceiling, and add overly high-end finishes. Instead, look for simple improvements such as repainting or refurbishing existing cabinetry, replacing outdated appliances, and installing new laminate flooring that looks like hardwood. See our list of 7 Hacks to Cheaply Redo Your Kitchens and Bathrooms for more ideas.

These steps will create a new look and feel in your kitchen, making tenants and potential buyers more comfortable without the hefty price tag. The Remodeling report found homeowners, too, are likely to reap greater benefits with a smaller kitchen remodel, estimated at 85.7% ROI.

On the contrary, a major kitchen remodel averages a much lower ROI of 41.8%. Only tackle these in your investment properties if the existing kitchen isn’t salvageable.

Wooden Deck Addition

People want space to entertain and get outside, so adding a deck will appeal to many potential renters and buyers. It will also increase the livable space offered by a home.

When your property has plentiful yard space, you can define that space and make it more functional by adding a beautiful wooden deck.

The ROI for homeowners averages 50.2% for a new wood deck. However, important factors such as the home’s location should be considered. If it’s in a colder climate where a deck is only practical for a small percentage of the year, invest your renovation budget better elsewhere.

Siding Replacement

Siding replacement is tied with a new wood deck as a high-roi home renovation. Homeowners recoup an average of 94.7% of their costs to install new vinyl sidings and 88.5% of fiber-cement.

Your property’s exterior makes or breaks its curb appeal and prospective renters’ and buyers’ first impression. Siding sends a message about how well you’ve kept up the property. Older, stained, or warped siding isn’t exactly appealing to a buyer or even a renter – it looks junky.

People want to live in a loved home, so consider new siding if needed. But remember that the existing siding might only be stained, dirty, or simply an ugly color. Consider power-washing, scrubbing, and possibly painting the existing siding before replacing it!

New Front Door

Sensing a theme here? The curb appeal and first impressions of a house matter when it comes to value.

Like the garage door, siding, and stone veneer, a brand-new entry door can improve a home’s aesthetics. It brings the average homeowner a 100.9% ROI.

The entry door is one of the first things a potential buyer or tenant notices; if it’s dingy or squeaks when you open it, that’s a big red flag. When we recently attempted to sell our house, the warped front door scraping the entryway floor did not draw buyers in. It was a necessity to replace that door.

Consider a new entry door to make your investment property stand out. Pick something sturdy that will withstand weather and a lot of use, and make sure it looks terrific and fits the style of the house.

Before spending money on a new door, however, consider repainting, re-staining, or otherwise refinishing your existing door. Like siding, if it’s fundamentally sound, you can probably refinish it for a new look. Be sure to oil the hinges while you’re at it!

Roof Replacement

Getting a brand-new roof on your rental house or property may not sound as exciting as a kitchen remodel or adding stone veneer. But nothing ruins the rest of your property faster than a water leak.

Replacing an old roof is one of the home renovations with the hightest ROIs, coming in with a 61.1% average homeowner return for an asphalt shingle roof. A metal roof is not quite as high, at 48.9% of costs recouped at sale.

Roofing materials vary, as do their typical life expectancies, so check on your roof’s quality and remaining life expectancy when deciding if it’s time for a new roof. Only replace roofs that need it, and repair roofs with several years’ good life.

Bathroom Remodel

The ROI on bathroom remodeling varies wildly.

On average, homeowners can expect a 30.2% ROI on a mid-range bathroom remodel job, whereas upscale bathroom renovations offer lower returns at 22.7%. You’ll get a better ROI if you stick with more universally appreciated styles rather than your personal preferences.

Look for ways to create a new look without ripping the tiles and fixtures. If the tiles are ugly but in good condition, coat them in a glossy white tile refinish and sealant. If the tub has stains that won’t come out, re-coat that too.

When you must replace fixtures, leave as much of the existing plumbing in place as possible.

Prospective renters and buyers care about bathrooms. When you list a home for rent or sale, outdated bathrooms with ugly fixtures and an awkward layout won’t attract the highest offers or the best tenants. But you don’t have to spend an arm and a leg to create a new look!

(article continues below)

Want to compare investment property loans?

What short-term fix-and-flip loan options are available nowadays?

How about long-term rental property loans?

We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

Sure-fire Ways to Increase Your Home Renovation ROI

As an investor or even a committed homeowner, you have plenty of options to boost your ROI on home renovation projects.

Here are some simple tactics to boost your ROI on renovations and always come out ahead in your investment property upgrades.

1. Buy Fixer-Uppers

One reason homeowners’ average ROI for home renovation projects is so low is that they make “vanity” renovations. They update rooms or home features because they want a new look, not because the property needs it.

A kitchen that hasn’t been updated since the 1960s almost certainly needs new cabinets, countertops, appliances, and a new sink. On the other hand, a kitchen that hasn’t been updated in 20 years just looks slightly dated but still works perfectly well.

One way to find good deals on properties is to buy fixer-uppers, homes that need a little TLC – or a lot. Consider driving for dollars, or using online services to help you find vacant or run-down properties like Deal Machine and Propstream. The needed renovations represent an opportunity, as they already impacted the purchase price and offer the chance to create sweat equity through truly necessary updates.

2. Do the Renovations Yourself

It’s no secret that doing the work yourself can save you major money on any home improvement task. While some jobs are specialized, and you should only hire a licensed contractor (think HVAC and electrical issues), you can slash your renovation costs significantly by doing as much of the work as possible.

Most laypeople are capable of performing simple home renovations themselves. Painting interior walls isn’t hard, for example, and freshens up any space. If you’re doing cosmetic improvements in a kitchen, you could likely sand the cabinets and paint or refinish them in a day or two. If you’re installing new flooring, perhaps you’ll be able to rip out old carpeting to save on labor costs.

And if you’re renovating a rental, always aim to tenant-proof the property!

Whatever you choose to DIY, be sure you have some experience or check respected resources to help you prepare and do things properly. YouTube can come in handy as well, since you get visual aids along with step-by-step instructions.

Doing the work yourself won’t be the most efficient use of your time if you have many properties to renovate. However, doing some tasks yourself for a smaller investor with a couple of homes or rental properties can keep it frugal. 

3. Negotiate & Build Relationships with Contractors

Homeowners don’t need renovations done often enough to build deep relationships or negotiate volume discounts with contractors. So they pay full retail pricing.

As a real estate investor, cultivating positive relationships with contractors is well worth the time it takes. You’ll want to know the trusted authorities in various home improvement niches. They can help weed out folks with shady operating practices or inflated prices.

Use online review sites like Angie’s List to vet contractors and companies, finding out who has the highest ratings in your area and whom to avoid. Remember, the best person for a home improvement job likely isn’t your cousin’s brother-in-law’s friend from college. Do your research to ensure you’re hiring quality, trustworthy people to work for you.

Negotiation is also a powerful skill when it comes to home renovations. Home improvement project prices are not set in stone, so get quotes from multiple contractors. And don’t be afraid to flex your negotiation muscles with anyone you hire. It can’t hurt to ask for a more competitive rate on work, and it might save you a lot of money.

4. Get Creative and Hack New Looks

This tip goes hand-in-hand with DIY renovations. Many of your projects can come in under budget by using your creativity. Sometimes, small changes can make a big difference in the look of a home. 

As mentioned previously, one popular money-saver in a minor kitchen or bathroom remodel is repainting cabinets rather than replacing them. Be sure to pick simple, neutral colors that won’t deter potential buyers. In our older home, simply repainting the dark oak bathroom cabinets white brightened the entire bathroom. You can finish off the look with modern new hardware.

Other renovations can be hacked to save you money. Re-glaze those turquoise floor tiles with a modern finish or color, refinish older bathtubs, or revive tired countertops using a faux-granite DIY kit.

5. Be Patient

Waiting for sales on materials is a great strategy for non-urgent projects if you have the time. Plus, you can aim to schedule skilled labor during their off-season, so you’ll get a better rate and a quicker turnaround time.

For example, HVAC contractors work long hours during the peak of the summer heat and winter cold. They’re typically booked out for weeks or even months. Expect to pay a premium if you want to skip to the head of the line.

So, have your furnace and air conditioning condenser serviced in the spring and fall. Preventative maintenance will catch issues before they become emergencies and save you major money and headaches in the long term.

Patience can pay off when it comes to home renovations with the best ROI. This can be tricky if you’ve got tenants or are rushing to bring in new tenants, but it’s something to consider when possible.

6. Consider Several Ways to Pay for the Renovations

One option is paying for property upgrades with cash, of course. You can and should set aside monthly money for property repairs and maintenance as part of your real estate cash flow budget. And, of course, you should include repairs and maintenance as costs when running the numbers on a rental property ROI calculator before buying a property.

But paying out of pocket isn’t your only option. Financing the renovations may also make sense, depending on the potential increase in asking rents and cash flow. Check out these options for financing rental property renovations before writing off the updates as unaffordable.

Ensure you don’t spend more on interest than you’ll earn in higher returns.

7. Consider The Different Types Of Renovations

Renovations can come in many different forms, and you need to know what to avoid overspending on your high-ROI renovations (or what improvements you want to make when you have the funds). For reference, here are the most common ones:

Thoughts of Getting the Highest ROI Out of Your Home Renovations

As a real estate investor, you must be efficient with your time and money. Choose renovations that offer the best ROI on home renovations and only make necessary upgrades.

Your rental property likely won’t need all the renovations on this list, so determine which home improvements add the most value to your situation. Assess your neighborhood’s standards to avoid over-improving your property, and focus on upgrades that have statistically proven ROI, like adding energy-efficient features and improving overall property maintenance.

And remember: there’s almost always a cheaper but equally effective way to achieve a new look in your investment property!♦

What updates have you found to be the home improvements with the highest ROI? How do you save money and boost the returns on your renovations? Share your experiences and tips below!

The More You Learn, The More You Earn:

I want to know more about…