Your goal as a real estate investor should be to make money, and if you're in the business of flipping houses for a living, you know all too well that the more funds you sink into renovations, the less robust your profits are apt to be. Of course, some projects more than pay for themselves and offer a great return on investment (ROI); others, less so, and it's these you'll want to steer clear of.
Even if you're not a real estate investor, if you're updating your home to be able to sell it at a higher price, it's important to know which renovations are worth the money and which you're better off passing on.
Remodeling Magazine releases an annual Cost vs. Value Report that highlights the most and least lucrative renovations from an ROI perspective. According to its most recent 2019 data, here are four projects you may want to steer clear of.
1. A master suite addition
It's one thing to put in a master bedroom -- one with a private bathroom attached -- if the home you're trying to sell or flip is lacking one. But a full-blown suite, complete with a sitting area and oversized closet, isn't worth the money you'll spend from a resale perspective.
The average cost of a midrange master suite addition is $130,986, but that will only add an estimated $77,785 of resale value to your home. All told, you'll recover just 59.4% of your investment.
An upscale master suite addition will give you an even lower ROI. The average cost to go all out on a master suite is a whopping $271,470, of which you can expect to recoup $136,820, or just 50.4% of your initial spend.
2. A bathroom addition
Surprisingly, adding a bathroom to a home you're selling or flipping won't increase its value all that much. The typical midrange bathroom addition costs $47,427. Of that, you'll only add $28,726 of resale value. Your cost recovery is just 60.6% of your investment.
You'll do even worse with an upscale bathroom addition. There, you can expect to spend $87,704, of which you'll recoup $51,000, or 58.1% of your outlay.
3. A backyard patio
You'd think an expansive backyard patio would add decent value to a home, since it makes outdoor space far more usable. But the data says otherwise. The average cost for a backyard patio is $56,906, of which you'll add $31,430 of resale value. That means you'll only recover 55.2% of the money you put into that project.
4. A major kitchen remodel
Though you'll probably snag a great ROI with a minor kitchen remodel (the list puts it at 80.5%), think twice before taking that work to the next level. A major midrange kitchen remodel will generally set you back $66,196, of which you'll add $41,133 of resale value. That's a cost recovery of just 62.1%.
Furthermore, a major upscale kitchen remodel will cost $131,510 on average, but it will also come with a much lower ROI. Specifically, you'll only add $78,524 of value, which represents just 59.7% of your initial investment.
Keep your renovation spending in check
It's one thing to invest in renovations likely to generate a solid return, but the above projects aren't in that category. On the other hand, it does pay to focus on renovations that offer a great ROI. Making these improvements could score you a much higher asking price on your home -- not to mention get it off the market quickly so you can move on to your next investing opportunity.