6 Types of Rental Property Add-Ons (& a Look at Whether They’re Worth It)

by | BiggerPockets.com

Generally speaking, adding additional living space to a property is not advisable unless it’s in a particularly high-end neighborhood. But as with anything, there are exceptions to this rule.

Certain homes naturally lend themselves to easy additions, such as bedrooms or bathrooms, or present opportunities to convert already existing space into living space.

Consider the following ways to not only improve your property but also add value to your investment.

Bedroom or Bathroom Addition

Sometimes you don’t even need to add any square footage to a home in order to create an extra bedroom or bathroom—either of which can substantially increase the value of a property. (This is especially true if the house only has two bedrooms or one bathroom.)

A third bedroom is advantageous to property owners because most families who are looking to move won’t settle for any fewer. Families typically intend to stay in place longer than single tenants; therefore, they can be easily turned off by what they consider inadequate space.

In certain situations, it’s even worthwhile to add a fourth bedroom—especially if the addition is easy to do. But it is rarely beneficial for homeowners to add a fifth.

Oftentimes, especially with older homes, floor plans are far less than optimal (think large hallways and other poorly utilized space). Wasted square footage can present an opportunity to throw up a few walls, build a closet and install a door. Boom! You’ve got another bedroom.

As an alternative, maybe you could cut one large bedroom into two—but be careful with this. Heads of households (like parents) tend to like bigger master bedrooms, so avoid dividing one room into two if it’s the only large bedroom in the home.

airbnb-tips

Related: 7 Creative Ways to Add BRs, BAs & Other Value-Adds to Your Rental [With Pics!]

Here’s a final note on bedrooms: they must be at least 10 feet by 10 feet. They also aren’t legally deemed a bedroom if:

  1. they don’t have a window to the exterior;
  2. don’t have a closet; or
  3. are solely accessible by going through another bedroom.

Bathroom additions don’t require as much space, but they are more expensive to build. Remember, you will have to run plumbing, so the closer your new bathroom is to the main stack, the better.

If there is a basement (or at least an easily accessible crawlspace), this can make it a lot easier to install new plumbing. Houses that are built on a slab foundation, however, are pretty much a lost cause. To add an extra bath would require cutting into the concrete to lay the plumbing, which is (needless to say) quite expensive.

If a floor plan allows for it, there are several instances when adding a bathroom is a good idea.

One key opportunity is when you are dealing with a large house—say, approximately 1,500 square feet or bigger. When possible, the extra bathroom should be connected to the master bedroom. (Again, parents love privacy.)

As a space-saving option, a shower stall can be installed instead of a bathtub. And if there isn’t enough square footage to add a full bathroom, a half bathroom (just a toilet and vanity without a bathtub) is still a significant improvement.

Another instance in which you should try to add a half bath is when you’re dealing with a large, multistory home with no bathroom on the first floor. Nobody wants to go all the way upstairs to use the restroom, and most people wouldn’t like to send guests up there either. If you can squeeze in a half bath on the main level, it’s usually worth it to do so.

That being said, preferably a house will have a bathroom on every floor. Worst case scenario would be a multistory property with all of the bedrooms upstairs and the only bathroom downstairs. Having to go down a flight of stairs every time nature calls in the middle of the night is not only less than ideal, but also dangerous.

There’s no size requirements with regard to bathrooms, but they should be big enough for people to comfortably do anything they might need to get done in one.

Unfortunately, bedroom and bathroom additions are not always practical or financially feasible. Whether or not the property is begging for one or the other (or both!) should factor into your decision to purchase the property in the first place.

Related: 12 Creative Ways to Add Major Value to Apartment Buildings

Garage Conversions

More often than not, garage conversions aren’t worth it. Certain situations, however, make sense.

First of all, recognize that by converting the garage into, say, a bedroom, you are quite obviously losing a garage in the process. Secondly, the garage will probably need to be insulated. And thirdly, it can be tough to match a home’s siding or paint color if the conversion requires you remove the garage door. (For that reason, garage conversions are easiest when you also intend to update the home’s exterior.)

Garages are also often built on slabs—even when the rest of the house is built on a crawlspace foundation or basement. Sometimes those slabs have settled, creating an uneven surface, which can make remodeling that much more difficult.

Regardless, there are times when it does make sense to pull the trigger on a conversion. The most obvious instance is when you have a relatively small house (like a two-bedroom, 800-square-foot home) with a two-car garage. It’s unlikely tenants need both garage bays, so using half the garage space to create a master bedroom and bathroom could add a lot of value while also retaining one garage spot.

In some lower-end areas, I have seen investors carve out most of the garage to build an additional bedroom, while leaving the very front of the garage as basically a small storage locker. The purpose behind this? Section 8 pays more for additional bedrooms. So, these investors increase their income even if it makes the house feel a bit awkward.

invest-garages

Basement Conversions

Whereas garage conversions are usually a bad idea, basement conversions are almost always a bad idea.

I encountered countless half-finished basements when exploring properties shortly after the crash of 2008. Apparently, an unfathomable number of people thought it would be a good idea to refinance their house in order to finish their basement.

Needless to say, they chose unwisely.

Basement conversions can have a variety of problems.

For one, many appraisals don’t consider any finished space below grade (underground) to be countable square footage. I’ve witnessed appraisers not count bathrooms when they were part of a finished basement. This means that the upward adjustment post-conversion will be rather small even though the cost can be substantial.

But a bigger problem is water; a lot of basements leak. Most are vulnearble when there is a torrential downpour. And it can be an essentially endless and fruitless battle to prevent this from happening.

Mold can form when water gets into a basement. Then, the property owner has to tear out the affected drywall and reinstall it, assuming they’ve actually been able to seal the source of the leak.

It’s another metric of which I’ve lost track. I can’t count the number of “finished” basements I’ve seen that are missing the bottom foot or two of drywall because of water damage.

Rental properties with finished basements can introduce further problems. If a tenant has property in the basement and it’s destroyed by water issues, well, they’re not going to be particularly happy with you!

Yet, there are times when basement conversion do make sense.

The first instance occurs when additional bedrooms are at an extreme premium. The most obvious example of this is student housing, which rents out by the bedroom in hot markets.

My dad is the master of finding ways to carve out bedrooms for his student rentals—he fills every nook and cranny. These extra bedrooms are often built in basements.

Another instance when it makes sense to convert a basement is within a house where you can do a “cheap finish.”

Best case scenario are homes with walk-out basements. With this type of property, only one side of the basement is underground (maybe due to the fact the house is on a hill). With these, I recommend simply painting all the walls white and the floor gray with an oil-based paint (so it won’t scuff when people walk on it). Perhaps add a few lights, too.

Voila! This finishes the basement—sort of—and can make the space more appealing to renters, buyers, and appraisers. The best part is it’s cheap!

Attic Conversions

Attic conversions are rarely possible, but can make sense in certain circumstances. There are three major conditions that need to be met for an attic addition to work:

  1. The stairs to the attic need to be in good shape and not overly steep.
  2. The ceilings need to be tall enough.
  3. The area must be properly ventilated.

Attics can get really hot in the summer and cold in the winter. Without an additional attic on top of your attic conversion, there won’t be much insulation. So, you need to make sure the space can be heated and cooled sufficiently. Oftentimes, even if you have central air, you will want to provide an additional window unit.

Steep stairs can turnoff buyers and renters, as well. The International Residential Code recommends that for a rise of 7.75 inches (vertical part), there should be a run (horizontal part) of 10 inches. Older homes may be “grandfathered in” with a steeper rise, but it shouldn’t be too much steeper than that.

Building codes vary by the region, but most require at least a seven foot ceiling. The 1994 Uniform Building Code requires a ceiling height of at least seven feet, six inches.

Check the building requirements in your municipality, but anything less than that most likely cannot technically be considered living space. Regardless, very few people would want to have a bedroom with ceilings lower than that anyways.

If your property meets all of these criteria and there is substantial value to gain by adding more living space, then (and only then) should you consider converting your attic.

Enclosing a Porch

Rarely is it a good idea to enclose a front porch in order to add on to a house. Back patios, however, can be a different story. It sometimes makes sense to enclose, insulate, ventilate, and convert back patios into an additional bedroom or living space.

There are a few questions to ask yourself before embarking down this path.

First things first: does the house needs extra living space to begin with?

Next, keep in mind that people really like having direct access to their backyard. So, if you are planning to turn the porch into a bedroom, make sure there’s another door to the backyard. (At the very least, ensure you can add a new one elsewhere.)

Finally, just like with garage conversions, acknowledge that you’re losing something when you enclose a porch. People like outdoor spaces, especially in cities with pleasant climates. Weigh the pros and cons before making the plunge. Is the cost of converting the porch actually worth the trade-off?

Building an Addition

Building an addition is somewhat like building a small house that attaches to an existing one. Maybe the foundation is already there, but it’s rare. You’ll likely be starting from scratch.

Anything like this requires permits. (Full transparency, much of the above does, as well, depending on the municipality). For this reason, adding an addition is rarely worth it unless property is located in a high-end area.

Conclusion

Adding additional bedrooms and converting non-livable space into livable space can be a huge value-add to real estate. But it’s not without costs, both financially and to the property itself. There are times when it makes absolute sense to pull the trigger, and others when it does not. This should provide a helpful guide for making such decisions.

When was a time you had to make a decision on value-adds for your properties?

Comment below!

About Author

Andrew Syrios

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.

5 Comments

  1. Joseph Lee

    One thing to note- every state (possibly even municipality- depends on who controls the building codes) is different on bedroom requirements. For example, Minnesota only requires 70 sq ft., with the shortest dimension being at least 7ft. It also doesn’t require a closet, but does require a means of emergency egress, a source of natural light, and a source of natural ventilation, among other things.

    But I’m with you on the finished basements. I read a quote one time that was something like “the ultimate testament to man’s ignorance is finished basements.” I got a chuckle out of it and have found it fairly true.

  2. Andrew Syrios

    As several people have pointed out, I got the last bit wrong on bedrooms, it’s not necessary to have a closet (legally speaking) to have a closet, although most prospective tenants and buyers will want a closet in any bedroom to really consider it as such.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here