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The Top Renovation Strategy for Maximizing ROI—Hint: It's Not the Kitchen or Bathroom

Preparing for your initial renovation project? Whether it's a flip or BRRRR, here's groundbreaking insight that will revolutionize your approach to value-added enhancements in real estate: If your aim is to build equity for leverage or cash out and you want to maximize your investment, forget about focusing solely on the roof, furnace, kitchen, or bathrooms. Instead, shift your attention outdoors and allocate resources for landscaping.


But isn't it common knowledge that kitchens and bathrooms yield the highest returns? Let me clarify—I'm not suggesting neglecting kitchen and bathroom updates, but when it comes to return on investment (ROI), landscaping reigns supreme. While kitchens and bathrooms entail significant expenses with promising returns, landscaping offers a low-cost, high-return opportunity. In essence, you'll yield better ROI from landscaping compared to any other renovation expense.


Making a Lasting Impression

Many inquire about the value added by installing a new roof or HVAC system. Sure, replacing a dilapidated roof with a new one can increase the home's value, but it doesn't necessarily translate to significant ROI. A functioning roof and furnace are basic expectations when purchasing a home—they don't inherently increase its value.


During a property rehab, the objective is to achieve a better ROI than the 1:1 ratio associated with functional yet non-aesthetic upgrades.


Having flipped numerous houses and assisted investors in selling their flips, I've noticed a recurring pattern—investors prioritize beautifying the interior but overlook the exterior landscaping due to budget constraints. Despite my recommendations, they often dismiss landscaping enhancements.


While the interior of the house appears stunning in listing photos, potential buyers are often deterred by the unkempt exterior. Even if you manage to secure an offer, you may end up covering the cost of landscaping through concessions, doubling or tripling your expenses.


With a reliable contractor, enhancing a lawn by adding a sprinkler system, weed barrier, permabark, bushes, and flowers typically costs between $5,000 to $10,000 in many markets. In most cases, the ROI exceeds 2x, and in severe cases where the property's exterior is unappealing, the return can be considered infinite.


Particularly in upscale markets, discerning buyers prioritize well-maintained landscaping, and neglecting it could deter offers. If you're targeting a price point in the upper 50% of the market's average sale price, landscaping becomes indispensable.


But What About Rentals?

Even for BRRRR projects aimed at rental properties, landscaping holds equal importance. Appraisers, although bound by objective criteria, form subjective impressions based on the property's curb appeal. Ensuring a positive first impression with well-executed landscaping can positively influence the appraiser's perception of your project's quality and scope.


In Conclusion

Whether your renovation strategy involves flipping or rental properties, don't underestimate the significance of landscaping. You'll be pleasantly surprised by the transformative impact of allocating a portion of your budget to outdoor enhancements. Investing in small bushes, flowers, mulch, and landscape borders can yield substantial returns on your property investment. Allocate around 5% of your rehab budget for landscaping, and witness the remarkable difference it makes firsthand.

In previous post: "What is a Cash-on-Cash Return?"

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