Does anybody have experience with adding on bedrooms? This is not the sole renovation I am planning, but I was wondering what kind of ROI I could expect. Obviously comparable homes in the area and different variable costs will drastically change this, but I mainly want to know if this is something I should even be considering. Thanks in advance for the insight!

Determining the ROI can vary greatly without knowing all the details of your property. Generally speaking, adding bedrooms is an excellent renovation and something we've found to be very profitable in the past. But it depends which route you are going.

There are various ways to do it like sectioning off part of the existing sq footage to convert into a bedroom (i.e. dining room, den, or office). This is our favorite approach as it is the lowest cost and generally has the best ROI. The other approach is new construction where you actually add the the home from the ground up. To determine if this makes sense for you, you need to assess several things:

1) The cost of permitting and construction. Also, will this cost be cash or financed? This can impact the ROI figures.

2) What is the potential increase of rental income for this extra bedroom. This will vary greatly depending on your rental strategy, what the current home size is, and what is the expectation of renters in the area etc.

Ultimately, you can determine your own ROI after doing serious research on construction costs and potential rental income. Hopes this helps!

@Lawrence Dy Thank you for the reply and the helpful advice! I was planning on the new construction route, however I honestly had not given much thought to using the sq footage already there. These are mostly smaller homes, but I will definitely be mapping it out on all of my future projects to see if it is possible to squeeze it in. This particular area in central Illinois has a large gap between the value of 2 bedroom homes and 3+ bedrooms.  

Originally posted by @Kevin Dunlop :

@Lawrence Dy Thank you for the reply and the helpful advice! I was planning on the new construction route, however I honestly had not given much thought to using the sq footage already there. These are mostly smaller homes, but I will definitely be mapping it out on all of my future projects to see if it is possible to squeeze it in. This particular area in central Illinois has a large gap between the value of 2 bedroom homes and 3+ bedrooms.  

Yes, one of our favorite strategies is finding a home with larger sq footage or unused rooms that can be easily converted to bedrooms. Often times when a home has a formal dining room, a family room, and a living room, we find that it tends to be more profitable to convert one of those 3 rooms into a bedroom. Especially out here in Southern CA where home prices can be challenging. In the past, we've even converted large living rooms / large bedrooms into 2 bedrooms. Those scenarios have been very profitable. Happy I could help. Best of luck!

@Lawrence Dy  That is a brilliant way of creating more value with what you already have. I was focused on finding smaller homes on a parcel that would have the available room for additions, but you have given me other, more lucrative options. Thank you for broadening my knowledge and my scope for my next investments. Hope to stay connected!

@Kevin Dunlop Happy to help and yes, let's stay connected!

It is very easy to overbuild for the neighborhood. Most investors and many renovators cannot add a bedroom in a cost effective manner, nor can you recover the proposed profit on a flip. 

My only exception to this rule is converting an attached garage into one or two bedrooms. We have done this several times and increased our rent accordingly. The problem with a garage in low income rental units is all the accumulated trash you need to wade through after a hoarder moves out. We would rather eliminate the garage storage issue, turn it into two bedrooms and increase the rent accordingly. There is still trash to throw out, but depending on your location you made another $200 a month or so for your troubles.

Other than the exception you would probably be better off selling the smaller home and renovating a larger one.

@George Skidis That is not exactly what I wanted to hear, but these are exactly the type of things I am looking for here on BP. I am glad you brought this to my attention, especially before purchasing. I see that you are also from Illinois, I hope to stay connected with you. Thanks for the help!