There are over 43 million rental homes in the US – a very large market, for sure. Most, if not all, of these rental owners have the same goal: generate recurring revenue each month to cover costs and maximize their investment return.
As real estate investors know, this is easier said than done. The physical property, the location, the local demand, and even the national market all play a role, to name a few considerations, and investors only have so much control over these factors.
Fortunately, you can take control of your rental income by renovating your rental properties. To help you get the most out of your rental we’ll take a look at several renovations with the best return on investment (ROI). But first, it’s important you understand what ROI is and why it matters with your rental.
What is ROI?
ROI is return on investment, or what you get back for what you put in.
Every investment has an ROI, calculated or not. Professional investors focus on ROI intently, and for good reason—a negative ROI means they are losing money. But, unlike your ROI with a one-time investment, like a crowdfunding project, rental ROI fluctuates over time. As markets and demand shift, and your property ages and requires updates, your ROI will inevitably shift as well.
In short: it’s important to consider your rental ROI year round. If demand dips or your house requires some repairs, your ROI for the month or year could stay positive if you’ve already done all you can to have an ROI well into the green.
The top ROI renovations for rental properties
There are several cost-effective renovations for rental properties, and many you can implement quickly. Keep in mind there’s no absolute ROI for the renovations below, as each one can vary in cost depending on whether you do it yourself, supply costs at the time, and contractor expenses (if you need one).
Paint is a lot cheaper than lumber, and it goes a long way toward making your rental look brand new.
Look at rental homes in your rental’s neighborhood and see what’s performing well (Airbnb is a useful tool for this). Are homes with certain types of curb appeal doing the best? If so, consider making this style your own by giving the interior and exterior of your house a facelift.
Also, if you have rooms in your house where the paint’s flaking, invest in some new paint and refinish the walls. A fresh coat of paint shows tenants you value your home, and they should too.
Much like paint, floors in rough shape can lower the appeal of a room down. While flooring isn’t as quick, or cheap, to fix, it can breathe new life into a room. And flooring can last a long time—quality wood floors can last longer than most of the house itself!
There are several types of floor to choose from, each varying in cost and perks:
- Solid hardwood: If you set foot in a house dating back over a century and see wood floors, those are solid hardwood. This flooring will last for decades (or centuries!) but does run anywhere from $4-8 per square foot. But, if you plan on keeping the house for many years, this flooring can pay for itself and provide timeless beauty.
- Engineered hardwood: Engineered hardwood contains real wood on top of laminate. This flooring is slightly cheaper than solid hardwood, running $3-7 per square foot in most cases. And as an added perk, engineered hardwood is less likely to incur moisture damage and scuffing than solid hardwood.
- Vinyl: While vinyl tiles may not look as deluxe as hardwood, they still make a room look new. And, vinyl is fairly quick to install and affordable, at roughly $2-4 per square foot. But, be warned: vinyl tiles are prone to scratching, so avoid them if pets are potentially staying in the rental.
- Linoleum: Your classic tile, linoleum is durable and classic. Unlike hardwood, linoleum isn’t prone to water damage, and it’s great at keeping homes cooler (a plus if you’re in a hot environment). Linoleum is typically $2-3 per square foot, making it fairly affordable too.
A deck is a great way to add visual appeal to your rental, while providing the added value of an outdoor space for tenants to enjoy. And best of all, a wooden deck is fairly affordable.
Depending on the style of home, a small deck that’s suited for a grill, table, and a couple of chairs can be as little as $1,500-2,000. If you’re wanting a full-size 14 x 20 deck, you’re likely looking at $6,000, depending on the cost of lumber and labor involved.
Energy-efficient fixtures and appliances
While not as visually appealing as the other options on this list, energy-efficient fixtures and appliances help you save money over time. LED bulbs can save you more than $100 over the lifetime of the bulb when compared to an incandescent bulb. But, this also depends on the amount of usage the bulb gets.
If your rental isn’t outfitted with appliances yet, get Energy Star certified appliances. These appliances consume less energy than non-certified counterparts, and can save you roughly $450 per year.
It’s also not a bad idea to consider solar power for your home depending on its location. If your rental is located in a sunny part of the country, solar panels can help you save anywhere from $10,000-30,000 over the course of 20 years.
Determining which renovations to do first
If you’re unsure about which renovations you should tackle first, focus on those that are quickest and cheapest to tackle. For instance, removing clutter and deep cleaning the rental property could make an immediate difference. Next, make a list and prioritize what renovations are most urgent. Is there a room with paint peeling off the walls? Start there. If everything’s in decent shape, maybe it’s better you focus on curb appeal: new exterior paint or a deck.
Lastly, consider your financial limitations. If you have a limited budget make the most impactful changes your budget allows. While you may not be able to afford new floors, a deep clean or buffing of the existing floors can go a long way toward giving the house a nicer appearance.
Acquiring your next rental property
Rental properties are a great way to build retirement income, as well as create an inheritance for your loved ones. It might feel like your first, or next, rental property acquisition is far off—or financially impossible altogether. But, with New Direction Trust Company you can use your retirement savings to open a self-directed account and purchase a rental property now.
Start building a better retirement with New Direction Trust Company today by opening an account.