Your home is probably your most valuable asset. The home can be used as collateral on a mortgage loan. The equity can be borrowed against in a home equity line of credit. When you are ready to move, the property can be rented to generate a stream of revenue or sold at a profit.
However, like any asset, your home requires investment and management. In addition to your initial purchase price, you will invest in maintenance, improvements, and renovations.
Some of these will maintain the value of your home. For example, it may be difficult to sell your home if the roof is damaged or the furnace is broken.
Other investments will increase the value of your home. Here are four basement finishing project that may produce a net positive return on investment (or ROI):
If your unfinished basement leaks, you may need to invest in plugging those leaks before you finish the basement. However, your investment in sealing your basement may produce a positive ROI in at least three respects.
- The home’s selling price will be lower if your basement shows obvious signs of water leaks.
- Your home may fail a home inspection if water leaks have damaged the foundation or facilitated mold growth.
- Waterproofing a basement is relatively inexpensive and allows basement finishing without concern about water leaks destroying your basement renovations.
Adding Livable Space
Home buyers are obsessed with square footage and larger homes command a higher price. According to one study, your home’s value will increase by 30% for every 1,000 square feet of space you add. In practical terms, if your basement is about 32 feet by 32 feet, basement finishing could turn your $200,000 home into a $260,000 home.
Keep in mind that this is independent of what you do with that space. Certain renovations, discussed more below, are in higher demand than other renovations. But a simple basement finishing project to add a basement family room and fireplace increases the square footage and, as a result, increases the value of the home.
Adding a Bedroom
After square footage, the next number most home buyers scrutinize is the number of bedrooms. Turning a four bedroom home into a five or six bedroom home not only increases your asking price but expands the market for your home. Many home buyers search for a home with an extra bedroom or two for use as a home office, guest bedroom, craft room, or playroom.
In terms of the exact ROI on a bedroom addition, estimates vary. However, most agree that your ROI on a bedroom addition will be between 150% and 180%. This means that for every $100 you spend on the bedroom, your home’s value could increase by as much as $180.
It may surprise you, but adding a bathroom can add even more value to your home than a new bedroom does. The explanation for this is relatively straightforward. More than half of the homes being sold are over 40 years old. Older homes were built with fewer bathrooms than newer homes. To compete with newer homes, older homes usually need another bathroom.
Bathroom projects during basement finishing can be complicated by plumbing and sewage work. However, a new bathroom could add 8-9% to the value of your home. Again, for a $200,000 home, this could mean an additional $18,000 on your asking price.
Another basement remodeling project that can add value to your home is a second kitchen. Kitchens and landscaping are the areas that home buyers use to form their initial impressions of a house. Most families spend a majority of their time in the kitchen, followed closely by the living room.
The ROI on a second kitchen depends on many factors, including the size and usability of your first kitchen, the size and features of the second kitchen, and the quality and types of materials. For most kitchen additions you will at least recoup your investment, meaning that your home value will increase by exactly what you spent on the new kitchen. However, some kitchen renovations can increase resale value by 200% of the renovation’s cost.
Basement finishing can not only add to your enjoyment of your home, it can also increase your home’s value.