Mid-Level Remodels to Get the Best ROI
Work Smarter and Not Harder
by Erica LaCentra
Home flipping levels are not what they used to be. According to the first-quarter 2021 Home Flipping Report from ATTOM Data, only 2.7% of all home sales in Q1 of 2021, or 1 in 37 transactions were flips. That is the lowest level since 2000. According to the same report, that latest figure was down 4.8% from Q4 of 2020 and down 7.5% year-over-year.
While flipping rates have been down overall for nearly the last year, the returns were still hefty. For those that were able to navigate inventory issues and find the right deals, flipping was still a very profitable venture. However, returns on home flips have also dropped in 2021. As the rate of flips has dropped, so have profits and profit margins, with the gross profit on a typical home standing at $63,500 in Q1 of 2021 versus $71,000 in Q4 of 2020.
The market has finally gotten to a point where flipping homes has become very challenging to be worthwhile due to home prices that have spiked over the last year. Whether this is truly a downturn for the flipping industry or not is hard to say. With government intervention finally coming to an end, there are many possible ways that the housing market as well as the flip market may be affected.
For those investors that are still looking to flip or maybe add some additional money into properties they currently own, there are definite areas to focus on that will give them more bang for their buck. So, what are those worthwhile ROI improvements?
Minor Remodels of Major Areas
When investors are reviewing what parts of a property should be rehabbed to ensure a good return, they should be thinking about the parts of a home that get the most use. The kitchen and bathrooms are the highest traffic areas and remodels of these rooms are typically going to
provide the greatest return. However, that does not mean that a major gut remodel is necessary to result in larger profit margins. Investors should be thinking about mid-level remodels to get the best ROI.
For a kitchen, that would typically entail refacing or replacing kitchen cabinets, installing new countertops, putting in new faucets and fixtures and updating appliances. This level of renovation will cost, on average, around $20k–$25k versus a major kitchen renovation that can cost anywhere from $40k to $70k, saving an investor a tremendous amount of money on a project.
For bathrooms, a similar approach can be taken. Fresh paint, refacing a vanity and new faucets and fixtures can go a long way towards giving this area of a home a facelift. If the layout of the space works and the essential parts of the bathroom are in good shape, there is no need to do a gut remodel. A basic remodel of a bathroom typically costs $10k versus a major bathroom remodel costing an average of $14k to 18k, again saving an investor money while still improving the space.
Fresh Paint
A fresh coat of interior paint has an average cost of $2k but according to HomeGain, an interior paint job can have sellers seeing up to an 107% return on investment.
Choose colors with your end buyer in mind and stick to a more neutral color pallet. You will see the greatest return by choosing white, off-white, light grey, or tan paint colors throughout the home. This ensures that potential buyers can see the home as a blank canvas that is move in ready or is easy to paint over.
Curb Appeal
Focusing on curb appeal is a must! Because the exterior of the property is the first impression potential buyers get of a home, it makes sense that it is a good place to spend renovation dollars. According to a recent article from CNBC, the “majority of projects offering the greatest returns in resale value were related to curb appeal.” Something as simple as replacing garage doors showed a 94% return-on-investment. Other projects to consider include updating the siding, painting the exterior of the home or adding a manufactured stone veneer for a more appealing look.
Investors should also take landscaping into consideration. Not only will future buyers be looking at the home in person but usually an exterior shot of the home is the first thing they will see in the property listing. Attractive landscaping can add up to 28% to your home’s overall value, according to John Harris, a landscape economist.
Finally, investors should be looking at basics such as repairing damaged fencing, repairing or re-staining an existing deck or porch, sprucing and cleaning up walkways and re-sodding any
dead grass spots on the lawn. A little TLC spent on the outside of a property will ultimately bring in bigger returns.
Lighting
Interior and exterior lighting can have a significant impact on a potential buyer’s opinion of a home. Upgrading the lighting is another easy fix to modernize a property without major effort. Investors should find more modern and timeless fixtures. This will not only prove to be less expensive but will also have greater appeal for future buyers. Also, do not overlook smaller touches like updating outlets and switch plates.
According to HomeGain, upgrading the lighting can see an ROI of close to 300%. Some other key projects include installing dimming switches in common rooms, increasing the wattage of all bulbs around the house and making sure the lighting functions properly. If there is room in the budget, consider investing in smart home technology, as well.
Flooring
According to Realtor.com, in 2019, homes that had hardwood floors sold for 2.5% more than homes with other types of flooring and provided an ROI of between 70% and 80%. Investors should consider ripping up existing carpets and spend the money to either refinish the underneath flooring (if hardwood) or put in new flooring. New flooring will make a home look more attractive and eliminate any smells or stains that may appear on older flooring, particularly carpet. Investors should consider materials with future buyers in mind. Replacing flooring with tile or laminate are also good options for smaller areas of a home like a sunroom or entry way to spruce up the home’s appearance.
Work Smarter, Not Harder
While current market conditions are not necessarily favorable for investors looking to flip homes, there are still viable options for that investment strategy. While the days of a full gut remodel may be on pause, investors should consider smaller improvements to get a good bang for their buck and still generate a solid return on their investment.
