The Best and Worst Renovations For Profit

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I am absolutely in love with learning and sharing all things real estate. I’m an agent for Jacaranda Real Estate In Harare, Zimbabwe. This blog will be the ultimate resource for all things real estate so subscribe and stay tuned.

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It’s not every day that you renovate which is why you need to make sure that when you do, you do it right! So what defines “right” when it comes to renovation?

What is renovating?

 Not to be confused with its close cousin “Remodelling”; renovating is the act of either renewing, restoring or improving a structure in a property.

If there was a dirty carpet in a room, the following 3 actions would count as a renovation:

  • Cleaning the dirty carpet – renewing.
  • Sending the carpet to get repaired of holes – restoring
  • Replacing the old carpet with a new carpet  – improvement

Remodels, on the other hand, are focused on altering the structure

  • Replacing the carpet for tiles, hardwood or vinyl plank – change.

Remodels and renovations often overlap during home improvement and for the sake of this post, the term renovation will include the aspect of remodeling as well.

What makes a renovation good or bad?

Under real estate investing, there are 2 aspects of consideration that result in a renovation either being a positive or a negative thing; Desirability and Expected ROI.

Desirability – For a renovation to be desirably viable, it needs to be able to attract the largest pool of individuals within your target market.

If you’re targeting the middle class, more often than not; renovating an upgrade for $35 000 dollar infinity poo might look nice but wouldn’t increase the desirability of the property than say ‘a modern spacious kitchen’

Return On Investment (ROI) – For any renovation to have been worth it, it needs to be able to justify its cost through some measurable factor of satisfactory positive return.

When it comes to real estate renovations, there are 5 avenues to receive positive return; which are:

*Note – For rental properties, if renovations are made with intention of updating rental contracts while a tenant is currently occupying the property; you will need to have and discuss the provisions within the lease agreement.

1. Increased Rent Value.

Unlike for Flip properties, rental property renovations need to be made with full consideration of the tenant; will they be willing to pay extra for this renovation?

Flip deals automatically account for renovations in the price of the property when selling and more often than not; home buyers are unable to specifically dissect and separate the value of a home to its renovations.

Tenants, on the other hand, are often extremely picky in identifying what they are getting for their rent and refusing to pay for items they see no personal value from.

Always consider how long it will take you to recover the money invested from the renovation from the increased amount chargeable from the revaluation of rent.

2. The attraction of High-Quality Tenants.

The presentation of high-quality rental properties will more often than not attract high-quality tenants who appreciate the work put into the home.

These tenants are more likely to not only pay higher rent for the quality added but also more likely to stay for longer periods.

3. Reduced Vacancy Period.

 This property is beneficial to both rental and flip properties; the term vacancy period implies “period on market.”

Appropriate renovations will result in being able to charge a premium whilst also managing to attract a qualified tenant in a shorter period. Faster income, less stress and fewer maintenance costs on you.

4. Reduced Maintenance

Renovations are typically made with functional and aesthetic considerations in mind.

For functional considerations, the state of the current structure is a factor.

Renovations to an old kitchen with faulty wiring and broken cupboards would save you on future
complaints from tenants and buyers as well as potential repair costs if damages built up.

Good renovations are durable and lasting.    

5. Increased Property Valuation

For flip properties, renovations offer the direct benefit of immediately positively benefiting to the property valuation, benefiting from natural property appreciation and the compound effect.


Best Returning Renovations  For Property Flips and Rentals

The contents of the upcoming list are the highest returning renovation categories for lower, middle and upper-class renovations.

For this post, as more renovations are done in middle-class areas I will be presenting examples of the most desired forms of renovation by the middle class for each category

As such, when it comes to renovation desirability for the middle class; the golden rule is “Keep it neutral and avoid niche.” Your goal is to fish with a net and attract as many people to your property rather than a harpoon to look for a great whale

1. Kitchen

As it has more and more become the main location of activity within the household; the kitchen has silently taken the throne of being the top-selling point for home buyers and renters.

Desired Forms

  • Countertops – imitation stones
  • Neutrally painted cabinetry (black, gray, white, brown)
  • Handles and hinges
  • Open it up

Expected return:

  • Increased Rent Value.
  • The attraction of High-Quality Tenants.
  • Reduced Vacancy Period.
  • Reduced Maintenance
  • Increased Property Valuation

2. Flooring.

While the kitchen is the main location for people to use in the house, flooring claims the title of the most used feature of the house.

Because of this, expect 3 things from your flooring:

  • It will get dirty
  • it will get damaged
  • it will get noticed.

As such, the name of the game with the flooring is cost-efficient durability. As the cost of flooring is split between actually buying the flooring material and paying for its installation; cost efficiency is not just about buying cheap, durability is a major factor.

Desired Forms

  • Vinyl plank laminates
  • Moldings

 Expected Return:

  • Increased Rent Value.
  • The attraction of High-Quality Tenants.
  • Reduced Vacancy Period.
  • Reduced Maintenance
  • Increased Property Valuation

3. Bathroom

No one wants to wait in line for the bathroom in their own home. For most middle-class homes; 1 Master’s bathrooms, a 3/4 or full bathroom and a powder room are typically the norm.

  • Master’s bathroom: Shower, bathtub, sink, toilet and toiletry storage while adjoined to the largest bedroom of the property
  • 3/4  or full bath: Shower (and or) bathtub, sink and toilet
  • Powder room: Toilet and sink

Desired Forms:

  • Functional
  • Clean and neutral

Expected Return:

  • Increased Rent Value.
  • The attraction of High-Quality Tenants.
  • Reduced Vacancy Period.
  • Reduced Maintenance
  • Increased Property Valuation

4. Lighting

You’d be amazed at just how big a change in lighting can affect the overall presentation of the interior of a property. Brighter is always better and with consideration to the leaps and bounds made in more energy-efficient lighting; its possibly also cheaper.

Desired Forms:

  • Recess canned lights
  • Dimmers

Expected Return:

  • The attraction of High-Quality Tenants.
  • Reduced Vacancy Period.
  • Reduced Maintenance
  • Increased Property Valuation

5. Landscape

Presentation and atmosphere are huge factors in any the successful closing of any real estate venture whether it’s selling the property or renting it out.

While the inside of the home is undeniably the largest determinant of success, it’s most definitely not the only one. In an industry with high competition and high valuations on the table; it is often the finer details of presentation that tip the scale.

Landscaping is one such factor that can aesthetically propel your property from a consideration to a ‘must-have.’

As a landlord, one of the greatest fears of investing in landscaping is that your tenant neglects it as soon as they move; killing your plants and throwing away your money at the same time. There are means to avoid this by landscaping intelligently into low maintenance landscaping

Desired Forms:

  • Succulents and perennials
  • Weed barriers and gravel/mulching
  • Outdoor furniture

Expected Return:

  • Increased Rent Value.
  • The attraction of High-Quality Tenants.
  • Reduced Vacancy Period.
  • Reduced Maintenance.
  • Increased Property Valuation

Worst Profitable Renovations for flips and rentals

The same rules of consideration towards desirability and ROI apply to identify the worst renovations you could do to your home for flips and rentals.

1. Over customization.

The word unique is often seen as a factor that adds towards value due to its rarity; this is not the case is most real estate ventures.

In real estate, unique usually more accurately means “unique to you” and “detached from them.” This is the worst-case scenario for any home on the market, the less of “them” you have desiring your home the less valuable your property is on the market.

Least Desired Forms:

  • Colors, patterns, and themes
  • Furniture
  • Niche architecture
  • Exotics (religion, culture)

ROI Influence:

  • Attractive to very niche tenants.
  • Attractive to very niche buyers.
  • Increased Vacancy Period.
  • Reduced Maintenance
  • Increased Property Valuation.

2. Energy-efficient upgrades 

I’m not saying that people don’t want to save the planet but I am saying that people don’t want to save the planet when it needs them to burn a huge hole in the pocket to do so.

The main factor with this is when there are contractual leases attached to the property that were specifically tailored to you that would require the new property owner or tenant to adopt or sacrifice their time to get tailored to them.

Buyers and renters don’t want the latest and greatest if it’s coming out of their pocket; they want the minimum viable for presentation and utility.

Unless the area is known for not having a stable clean supply of water or stable electricity; boreholes and solar panels aren’t worthy investments.

Least Desired Forms:

  • Dual pane windows
  • Huge Solar Investments
  • High-end furnaces

ROI Influence

  • Attractive to very niche tenants.
  • Attractive to very niche buyers.
  • Increased Vacancy Period.
  • Reduced Maintenance
  • Increased Property Valuation

3. Home automation

Maybe one day in the future, having a smart home with voice automation, screens that pop out of wall and fingerprint door locks will be as essential in our daily lives as cell phones are today.

For now, however, smart home automation is a horrible real estate investment. For one, it makes everything far more complicated than the average buyer will be accustomed to and worse than that, it adds even more avenues for a buyer to complain about when things don’t run smoothly.

Tenants and recent home buyers will call about how the floor heating not automatically switch on when they wake up with as much fervor as they would if the stove started a fire.

Least Desired Forms:

  • Newly released tech.
  • Battery-powered electrical.
  • Automated systems.
  • Electrically hidden tech.

Influence on ROI:

  • Attractive to very niche tenants.
  • Attractive to very niche buyers.
  • Increased Vacancy Period.
  • Increased Maintenance.
  • Increased Property Valuation

4. Neighborhood over-improvement

Within every neighborhood, there is a normative spectrum for the properties on offer which proportionately increases and decreases the value of the property. Renovating a property past this spectrum on either end of the spectrum leads to negative disproportional effects.

A neighborhood is known for having 3 bedroom – 2 bath single-family homes will have a proportional increase and decrease for homes with 5 bedrooms – 4 bath homes or 2 bedrooms – 1 bath. But if you decided to renovate an 8 bedroom – 6 bath mansion in the neighborhood; the gain on the property would be distortional less the gains within the average spectrum.

Least Desired Forms:

  • Anything excessively beyond the norm.

Influence On ROI

  • Attractive to very niche tenants.
  • Attractive to very niche buyers.
  • Increased Vacancy Period.
  • Non-proportional increase Property Valuation
  • Reduces maintenance cost

5. Reducing Bedrooms:

If you’re planning to live in a home forever, it’s perfectly acceptable to turn a bedroom into an office or break down a wall between 2 bedrooms to make 1 massive room.

But in the case of investment renovations; reducing the listable number of bedrooms for your property is one of the worst decisions you could make.

It’s easy for prospective buyers and tenants to see a property advertised with 4 bedrooms and decide to turn one room into an office but when they see a listing for 3 bedrooms and 1 office they are less likely to imagine converting the office space into a bedroom.

Influence On ROI :

  • Attractive to very niche tenants.
  • Attractive to very niche buyers.
  • Increased Vacancy Period.
  • Non-proportional increase to property valuation.
  • Reduced Maintenance

Bonuses

  • Going Cheap (replacement necessary – paint,
    flooring) Fix it quick (plumbing and wiring)

*It will be more expensive and take longer(unexpected things
+ 10-20%)

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I am absolutely in love with learning and sharing all things real estate. I’m an agent for Jacaranda Real Estate In Harare, Zimbabwe. This blog will be the ultimate resource for all things real estate so subscribe and stay tuned.