Perhaps your rental has greatly appreciated, and you are ready to pull some capital out of it. Or perhaps you have identified a better opportunity or a different market. Regardless of the reason you have determined it is time to sell your rental, here are some tips to make the most of your exit.
While the economics of a major remodel do not usually make sense for landlords, there are some upgrades that are worthwhile, both in terms of direct ROI and the ability to sell your properties faster (think, time value of money or TVM).
What to upgrade ultimately depends on your goals, and of course, is market specific. Generally, for investors looking to quickly sell their properties for top dollar, losing 10-15% of your construction costs should be considered a viable option to unlock your equity faster. On the other hand, investors looking for the highest return on investments, should stick to minor upgrades, primarily cosmetics.
Let’s dive into three popular categories of upgrades- kitchen and bathroom, curb appeal and landscaping, and flooring- and take a closer look at the economics for resale.
“Real estate pros stress that the kitchen and bathrooms are the most important parts of the house,” noted The Spruce, a renowned design publication. “If a kitchen or bathroom is woefully outdated and unappealing, buyers may automatically add the cost of renovating it to the cost of the home. And if the home isn’t low enough to compensate, the buyers may run.”
The Spruce further stresses not to “completely overhaul” the kitchen or bathroom, but rather to make minor changes as needed.
Minor Bathroom Refurbishments
Bathroom remodels can get expensive quickly, yet there are some upgrades that more than pay for themselves. In fact, Landmark Home Warranty found that small plumbing repairs, such as unclogging drains, fixing leaking faucets, and giving the hardware a makeover can have a 230% to 400% ROI. Such a no brainer!
Additional minor bathroom upgrades to consider include re-grouting, caulking, new plumbing fixtures, and updating lighting fixtures. A Consumer Reports article on boosting home value said these upgrades could cost between $300 and $1,000 and have a 2 to 3% ROI.
We only recommend further upgrades such as flooring and vanity counter tops for a quick resale.
Kitchen Improvements
Like the bathroom, the kitchen should be updated strategically and with the “little goes a long way” attitude. To give your kitchen an upgrade for less, Inman, a leading news outlet for brokers and realtors, recommends focusing on cabinets, outdated title back splash, appliances, and counters. As a point of reference, Consumer Reports suggests a $300-$5,000 budget with a potential return of 3 to 7%.
However, if your property has a kitchen that has not been touched since the 70’s and the rest of the listed properties in the immediate area are fully updated, it might make sense to spend more to move the property quickly. The National Association of Remodeling Industry 2019 Remodeling Impact Report says the average cost of kitchen remodel is $68,000 with an average ROI of 59%.
The property front yard is the very first impression buyers will have. Luckily minor improvements can have significant returns. “Some real estate experts say that smart landscape design can give a return on investment of 200-400% and landscape economist John Harris says that keeping up with your homes landscape and gardens can contribute up to 28% of your home’s overall improvements,” says New York company Grasshopper Gardens.
HGTV recommends something as simple as planting a tree or hiring a service to trim your lawn and shape your hedges for $100-$200. Further, you could spend up to $1500 to update your home’s entrance, stating “a welcoming front door is sure to increase your home’s bottom line.”
Replacing flooring is not as black and white as some other potential upgrades. Realtor.com found flooring can have a 70-80% ROI on the higher-end, which means you will most likely lose money on flooring upgrades. However, Realtor.com also found that flooring upgrades have the potential to reduce market time by 62%. Ultimately, the decision to redo floors is dependent on your specific scenario and market.
There are some affordable flooring upgrades that are worth looking into before replacing, such as cleaning and/or re-stretching carpet, cleaning and resealing tile grout, and buffing hardwood.
Once you have your target buyer identified, and you know what updates you should make to match your market, you are going to need to layout some capital. If you are not interested in pulling from your cash reserves or the project is a little bigger than is comfortable, short-term financing is always an option.
We’ve partnered with LightStream, the nation’s premier online consumer lender, to offer low, fixed rates for virtually any home improvement project without requiring home equity or an appraisal.
Learn more about LightStream’s hassle-free process and get your project started.
For more resources on updating your rental property, check out our Investor Resources.