How much does renovating the basement impact a homes value?

Question

Hello everyone.

I plan on househacking and, since multi-family is hard to come by, I have heard some people buy a SFH and live in the basement while renting out the rest of the home and renovate the basement in the process.

To me it seems like it wouldn't really impact rent amounts too much unless I added bedrooms and I feel like the deal would already have to cash flow because of that

I know this can be pretty nuanced but I am open to everyone's thoughts.

Thank you!

Jonathan Greene · Answer

What you have heard is predominantly not doable with most configurations and in most markets, with permitting. A single-family home is a single-family home for the town, not a mother-daughter situation. A basement to live in it, needs a different type of egress and windows to be able to be slept in. You also then have create dual entry.

Lastly, your bathroom is always the hardest as below-grade bathrooms are hard to permit and hard to do and can ruin your value in the long-run, if it's illegal and done the wrong way. The basement also houses all of the mechanicals usually, so you would be sleeping with the furnace and hot water heater.

Kevin Sobilo · Answer

@Alec Jacobs, I would say that probably doesn't make sense for these reasons:

1. For that to work, the basement needs to already be finished so that you can live in it.

2. Basement space is less valuable than above ground space when it comes to appraisals and valuing a home. So, to renovate an already functional space to make it more modern involves demo'ing something that has value to try to add something of more value BUT the value is limited because it is basement space. So, if a basement has $10k of value and you spend $10k to demo and renovate it to make it worth $18k, you have lost $2k in the process. That's what I'm trying to get across. Because it already has value when you begin rather than starting with an unfinished basement it is hard to see this work.

3. Technically to live in a basement the bedroom at least needs to have egress which often means adding an egress window into the foundation. That involved excavating from the outside etc.

I don't know your market, but perhaps look for a home where you can find more bedroom space in the main house. Perhaps a large 3 bedroom that has an office or storage space that could be used as a 4th bedroom. Then you can have a conventional roommate situation and save money towards the next down payment. No need to necessarily add value to the property with a rehab that can be a bonus if an opportunity presents itself.