In many parts of the country, a basement is just as common as a linen closet, and many families utilize these spaces for storage, for laundry, or even as additional living space. If you are asking yourself whether you should spend the money to revamp and unfinished basement in an investment property, you are certainly not alone. Below, you can learn more about the benefits and the average ROI associated with finishing a basement.
Will the Basement Add Value?
According to Zillow, one of the country’s leading websites for homebuyers, sellers, or even renters, a finished basement does add value to a home – but not as much as main-floor living spaces like bedrooms and dens. Zillow also claims homeowners see an average 70% return on their investment for basement finishing projects, so if you are a real estate investor looking for a way to make some extra money in a fix-and-flip setting, a finished basement should not be an area of focus.
2017’s Cost vs. Value Report showed that the average cost associated with a mid-range basement remodel – not too basic and not luxury – was about $71,115 nationally. Homeowners who carried out these remodels recouped roughly $49,678 of that money. It is also worth mentioning that while the Pacific area has the highest ROI on basement remodels at roughly 86.4%, it is still not profitable for a real estate flipper in most situations.
When Can a Basement Remodel be Profitable?
Although the average ROI for a basement remodel is only 70%, there are times when you can exceed a 100% return on investment. The first is when you plan to convert a basement into an apartment space and rent it out long-term. Keep in mind that there are many requirements and restrictions when it comes to converting a basement into an apartment, and everything must be up to code before you rent. However, if you spend $50,000 on finishing a basement and making it a nice, comfortable living space, you charge $1000 for rent each month, and you rent that property for 10 years, that’s $120,000.
Another situation in which a basement remodel might be profitable has to do with the specific local market and what people expect. Finished basements tend to hold more value in higher-priced and more luxurious homes, and they are far more likely to command a higher price when they have a specific function, such as a home theater, a game room, or even a full-featured home gym. You won’t typically get a good return on converting basement space into bedrooms since sub-grade living space is only worth about half that of above-grade living space.
A finished basement may or may not be worth the investment, and it all depends on the local market and what people in the area have come to expect. For the most part, it should not be your first area of focus, but if you are selling to a particular crowd, converting the basement into a gym, playroom, or even home theater may very well net you a profit.
