Maximize Your ROI On Your Rental Remodel

It’s fun to think about the next phase of your home and how your guests will enjoy it – maybe you’re having visions of them sauntering out onto a new deck to watch the sunrise or having a family party while creating culinary masterpieces in the newly renovated kitchen. But before you decide to remodel your rental home, it’s important to understand that the price you pay for the work and materials won’t always deliver a full return on your investment when you sell it, no matter how well the work is done or how much of an improvement you’ve made.

The home remodel that recoups the most, surprisingly, is the unsexiest and least fun home project possible – and the ones your renters probably will care about the least. The annual 2018 Cost vs. Value report report from Remodeling Magazine shows that nationally, a $3,470 garage door remodel returns 98.3% of its cost. And the feature that returns the least on the investment is the one that could bring enjoyment for a long time to come, especially at a vacation rental home: a backyard patio ($54,130), which rings in at only 47.6% of cost recovery.

You’ve probably heard that “kitchens and bathrooms pay you back,” but that refrain actually becomes a myth when you look at the data. Bathroom remodels, depending on the size, cost, and quality paid a return of 56.2% to 70.1%; adding a new bathroom came in a 54.6% to 59.9%. Major kitchen remodels returned 53.5% to 59%.

Survey results were compiled by three measurements: the price of a professional remodel, what real estate agents in those markets think the resulting bump in selling price will be from the remodel, and the average response for each project in each market compared to the cost.

According to the magazine, the trends show that costs vs. value were affected by prices for labor and materials vs. home-sale prices — overall, there’s a slight decline in the average remodel payback in 100 major markets across the nation, to 56.8% in 2017 from 57.9% in 2016. That’s mainly because the cost of doing 20 common projects went up, while home values rose for only about two-thirds of them. And next year, the downward trend will continue as hurricane damage from Harvey, Irma and Maria, factors in, and what one distributor called “a freight train of extraordinary demand” for materials and workers.

Homeowners in high tech centers such as Seattle, Silicon Valley, San Francisco, and the North Bay market area of Santa Rosa, California saw the greatest values: 17 of 20 common renovation projects collectively returned 100%+ returns, more than the combined results for the entire Northeastern ones.

So, What’s Your Remodel Worth?

How much will your remodel cost? Out of 149 markets surveyed, the most expensive markets to remodel homes in are the New York City metro area (which includes parts of New Jersey and Long Island), San Francisco, Los Angeles, and Trenton, N.J. Lowest costs for remodels were found in three Texas areas (McAllen-Edinburg, Beaumont-Arthur, and Killeen-Temple), Port St. Lucie, Florida, Manchester-Nashua, New Hampshire, and Roanoke, Virginia.

In most areas of the country, you’ll see similar cost vs. value patterns, but the price for the project varies, as does the return percentage. And materials matter – there’s a difference between vinyl and wood windows, and a steel vs. wooden door, for example.

In Salt Lake City, Utah, the highest return was for a manufactured stone veneer (103%). A wooden deck addition, in second place, returned 98.6%, but one made from composite materials only brought in 58.8%. A backyard patio brought in a lowly 41.7%, and a steel front door replacement, 49.1%.

Miami numbers told a radically different story with five projects returning more than 100% value of their costs: A steel entry door replacement came in first with a 138.1% return, a garage door was a close second at 137.1% return, a manufactured stone veneer at 110.7%, roofing replacement recouped 104.7% and a wooden deck addition brought in 103.4%. This indicates that buying a fixer in Miami may be a better investment than elsewhere, depending on the state of the market.

If you’re remodeling in Los Angeles, consider a stone veneer, which brings in a whopping 157.2% of the cost, or a garage door replacement, at 145.6%. A minor kitchen remodel will earn 113.2%; a wooden deck addition, 101.5%.

Seattle also saw high numbers for remodels. The celebrated stone veneer in Seattle brought in 144.6%, a composite-material deck addition earned 122% (a wooden one, 106.7%) and a minor kitchen remodel, 116%. Even the project with the lowest resale value–a backyard patio–brought in 66.2%.

Hardly any remodel in Austin will return the cost, however. A garage door is the only one that returns 100% — the next-highest returns are a stone veneer at 98.3%, a minor kitchen remodel at 88.7%, and a wooden deck addition at 88%.

What’s It Worth to You and Your Guests?

The numbers above tell only part of the story. The other thing to consider is the livability and enjoyment of your home – your guests will give a higher rating to a more functional, comfortable and attractive location, so perhaps that could translate to more bookings at a higher price. If an outdated kitchen is getting ho-hum reviews, if a new master suite will make the home a more romantic destination, and if a refurbished deck will help everyone enjoy the sunrise that much more, it’s worth running the numbers and considering a home makeover. And hey, if that wonky, ugly garage door is dampening your curb appeal, go ahead and replace that too. You’ve got nothing to lose on that one.

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