Is finishing a basement worth it?

Question

Hi all,

Brand new to BP so sorry if this question has been answered. I'm currently analyzing (hopefully not analysis paralysis) on whether its beneficial to finish the basement in the rental property I'm purchasing. I'm doing a conventional renovation loan so all of the reno costs will be worked into a 30 yr mortgage. Finishing the basement would add ~150$/ month to my mortgage. How can I analyze if that will allow me to charge in excess of that amount to the tenants (ex. $+200/ mo rent). Do tenants value a finished basement over storage? Does this add options to my exit strategy?

Joe Splitrock · Answer

Another option instead of finishing the basement is painting the walls and floor. Use water proofing paint on the walls to help with humidity or water intrusion. Use epoxy garage floor paint on the floor for durability. A nicely painted basement makes it look almost finished and it makes the space usable for more than just laundry or storage. Painting is increadibly cheap and gives you huge return. If you choose to finish the space later, the paint doesn't need to be removed, so no harm.

Joe Splitrock · Answer

@Ryan Monsalud just make sure that finishing the basement doesn't introduce more problems. You need to make sure the basement is 100% dry or you will deal with water and mold problems, destroying your investment. You also need to make sure there is an egress window, which is a fire escape window that must meet certain size requirements. You can add egress windows, but that often creates water problems. Water can accumulate in the window well and leak into the basement. There are ways to deal with this, like drains and window covers, but in my experience window wells are nothing but trouble. I don't even buy houses with full basements anymore. If I did and it wasn't finished, I would leave it unfinished for a year to monitor the water situation.

Adding $150 per month to your mortgage to get $200 in rent is not worth it in my opinion. More bedrooms just means more people and more wear and tear on the property, so that $50 cash flow could be swallowed up quickly with added repairs or maintenance.

Louie Gabriel · Answer

I think it depends on the size of the house and number of bedrooms you already have. It would also depend on windows. Would you have to put egress windows in or dig window wells? That can get expensive. We aren't finishing the basement of the house that we are flipping right now because it already has 3 bedrooms and 2 baths, along with a small room off of the living room. I don't think additional living space is needed. I also don't think we would recoup our costs because it would make it a more expensive home for the area that it's in.

Nathan Gesner · Answer

There are a lot of factors to consider, but it's generally worth it. Make sure you install legal egress windows.

Forrest Faulconer · Answer

Hi Ryan, are there currently tenants in there? Hard to say for sure, but it may be a difficult sell to finish a basement and charge current tenants more, many would rather just pay less. But if you plan to finish it then rent it, you would just be looking at that as added square footage, an extra bedroom or two and bathroom, which should rent for more. From an appraisal standpoint, you may want to look into whether or not it will count as added square footage and that the bedrooms will be conforming. They have certain requirements, but it may be worth looking into for the future value of the home.

Forrest Faulconer

Theresa Harris · Answer

I would wait until the tenants move out, but yes it is worth it.  Don't go overboard, but you can double your living space.  Imagine a ranch style home going from a 2 bed/1 bath to a 4 bed/2 bath which is what would happen if you finished the basement.  It will also affect your sales price down the road.  You'd need some simple framing, drywall, flooring and a bathroom-assuming the house was set up for one when it was built.

Jonathan Greene · Answer

I would only finish the basement to complete a flip. I wouldn't spend the money to make a nice basement in a rental unit or multi unless it was a higher-end SF. If you have laundry down there, I would rather leave it as-is just in case something happens with a careless tenant.

When flipping and thinking about a basement reno, it's whether it will really add something needed to the house. If you have one living room and it's right, you could get huge value out of a finished room downstairs. If you have enough common space upstairs, I usually leave that reno to the new owner unless the property is in a price range where they all are finished.

Ryan Monsalud · Answer

Hey Forrest,

Thanks. It's not currently a rental and does not have tenants. I'll look into how exactly it will be appraised.

Is finishing a basement worth it?

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