Is it worth adding expanding my home?

11 Replies

Hi everyone,

I currently live in a 3bd/1.5ba home in South San Francisco, CA.  I'm thinking about upgrading the 0.5 bath to a full, and adding about 500 sq ft extension to the back of the house. This extended portion would be a small living area with kitchenette, a full bedroom and bathroom. I could use it as a guest room, or a private portion of the house to airbnb/rent out. I've gotten a quote from a contractor for about 220k to get everything done and I'm here to get some perspectives on whether or not the price is reasonable, and if it's worth the upgrade. I am meeting with a few more contractors this weekend, but wanted to see if I can get some thoughts here first.


A few facts:

-Assume all permits and drawings are approved by the city.

-Most homes in my neighborhood are 3bd/1ba. Am I over-upgrading my home?

-Homes here sell for about $600/sqft, so if the expansion is approx 600 sqft, then it would add 300k to value of home. Is this too optimistic?

-We have a 640 sqft shed in the back that needs to be demolished. (quoted 15k, included in the 220k full estimate)

-The 1/5 bath needs a shower, and because it's small, we need to move everything around, and also move shift the door a few inches. (quoted 27k, included in the 220k)

Please let me know if I can provide any additional details and thank you in advance for your help!

Jeff

Updated about 3 years ago

Update: I spoke with a few more contractors and received another quote of 250k, but also one for 130k. Crazy variance here! I have a couple of questions. 1) I found these guys on yelp. What do you do to perform more due diligence on contractors? I have asked for referrals and read reviews from Yelp and their website. 2) We only have 1 shower in our home. We also have 2 tenants that I would like to do everything I can to make sure they are unaffected. This project would likely require moving our bathroom with the shower. One contractor mentioned he could build out the other bathroom first, have that functional, before tearing down the old one. Assuming that works out, great, but if it doesn't, does any one have any ideas of what to do if having to go without a shower for a few weeks?

@Jeff Hsieh , thanks for sharing info about your potential project. I guess it depends on what your goals are? Do you plan to keep the home or sell after the renovation? Or maybe rent out the entire home? 

You mentioned that you might want to Airbnb the addition? And it depends how much you purchased the home for and what would be the ARV once the renovation is complete. I would check comps around your area that would have similar specs to your renovated home. That would give you a general idea of what your home would be worth.

I personally bought my primary residence as at 3/1. I added a second bathroom and got it re-appraised as a 3/2. The reason for the additional bath was not only to add value to my home, but so that my family and guests would have their own bathroom when they visit. Then I did a cash out refinance and used that money for my next deal.

Figure out what your end goal for house is and see if the value and time of the renovation aligns with those goals.

Good luck!

Thank you for your response @Sherwin Gonzales ! I am in a similar situation as you where I do want to add value and also have a place for my out of town family/friends to stay when the visit. When friends/family are not visiting, I'd keep it open for airbnb. 

Right now we rent out 2 of the other bedrooms to friends so we have no room for guests.  If I were to do this expansion, I would forsee myself stay in this property at least 5-7 years more until we have kids and may want to consider moving to a better school district.

Do you (or anyone you know) have an idea of the amount I was quoted is reasonable? This would be my first step into any sort of renovation project and I'm having a hard time grasping reasonable costs.  And sorry, one more question, would my home have to be reappraised right after the project, and if so, would that affect my property taxes going forward?

@Jeff Hsieh , that sounds like a great plan! For my bathroom addition, I got at least three quotes from different contractors and I would suggest you do the same. Contractors' bids differ from city to city and sometimes their schedule dictates their pricing. 

I'm not sure if your home would have to be re-appraised right after the project or if it would affect your property taxes. I would suggest you consult a real estate broker or your lender. The reason I got my property re-appraised was because I was refinancing my loan.

I hope this helps and don't hesitate to let me know if you have any other questions!

@Jeff Hsieh

You might want to touch base with a local Realtor and get their take on the new value add. As far as Airbnb, as long as regulations are still favorable it might be a great addition. When we purchase property for it though we always make sure the cost of the property (or in your case, value add) would break even if we had to put a Long Term Renter in there. 

If your curious what properties are renting out for on Airbnb, go to the website and browse local properties that are booked up with good ratings and see what their average rate is for a 7 day stay for different months/seasons. 

@Sherwin Gonzales - thanks! Yeah I've got 2 more contractors coming in tomorrow to provide a quote, we'll see how it goes. Thanks for your help so far!

@Travis Rasmussen - that's a great point about speaking with a local realtor. I don't imagine the $600/sqft scales linearly. Can you elaborate a bit more about it breaking even if putting a long term renter in there? If I am not financing any portion of it, I won't have any monthly payments. At most there would be some additional utilities and cleaning expenses, but that *should* be easily covered by the airbnb price based on my research of homes in my neighborhood on airbnb.

220k for a 500 ft addition? Omg. This is what it takes to build houses everywhere else.

I agree houses can be at 600 a sq ft but that includes the cost of land etc which is probably very significant in the Bay Area. I would recommend getting a few more estimates.

@Jeff Hsieh

Oh Sweet, if you're paying cash than no worries. I was talking for example, if I purchased a property with a loan and the expenses come out to $1400, I want to make sure at a minimum in case STR goes haywire, I can rent it for $1400.

@Vinay H. - the 220k includes upgrading a separate half bath to a full, completely moving a full bathroom (so layout isn't weird), demo'ing a shed, and then finally adding the expansion. But it definitely sounds pretty steep. I'm crossing my fingers and hoping the other quotes come back more reasonable! 

$220k for 600sf sounds very high. I’d suggest getting a few more bids. In all sectors construction is expensive right now. I’m trying to turn a number of units this summer and am on the verge of acting as my own GC.

I question the $15k for shed demo. Perhaps this can be done on a Saturday with a $500 dumpster and $500 in day laborers?

Only you know if the project is worth it. Adding SF would add value. You can apply for a HELOC through First Republic and get a free appraisal.

It all depends on when you bought your house. If you have equity from at least 5 years ago, then I would say that's a good sign in the peninsula. You also should speak to a qualified realtor in SSF who knows your neighborhood to give you a realistic value of your property once you've done the reno. 

Here is what worries me- 220K- that's just the physical labor. The city will want plans with drawings and then you'll have to pay for the permits. For my large addition it was an additional 40K. 

Now, saying all of this, I would only move forward if you plan to stay at that location for at least another 3-5 years as your primary residence... better to play it safe with a high investment then to lose it all once the economy flips again. 

Hi all! Thanks for your responses so far. I've updated my post above with additional information after speaking with some more contractors this weekend.

@Nicholas Leone - thanks! I received another quote for about 130k to do the project. He quoted only about 1-2k to demo the shed, instead of 15k. Sounded much more reasonable.

@Carolina Solorzano - We bought the house in 2014.  If we do this remodel, the idea is we would stay in this home for at least 5-7 more years. One of the contractors I spoke with is going to the city on Tuesday, and I asked him to speak with them for me to make sure they don't see any issues with this project.  If signs look positive, then we will probably proceed to get an architect/engineer involved to do drawings and pay for the permits.