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Rehabbing & House Flipping

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Allison O.
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Unsure about ROI on finishing basement for future rental

Allison O.
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Posted Nov 3 2022, 08:54

Hello,

I purchased my first home last year, a small brick ranch in a great area (Downers Grove, IL). It is currently a two bedroom, one bath and is walking distance to three highly rated schools (elementary, middle, and high school), 3/4 mile walking distance to a nice downtown area, and has a great yard. I am on a main street with a few smaller homes but million dollar homes are popping up everywhere and I only see this area improving. I plan on staying here another year or two, then upgrading to another fixer-upper and want to use this home as a rental. A similarly sized rehabbed home a few doors down from me sold 6 months ago for about 360,000 and I have seen several posts for people looking for rental homes in my area. I am guessing I could rent at the current state for 1400-1900 but without the basement it is small and I think I would have more turnover and may be harder to rent due to the current size and wasted potential living space. I would love to find a great long-term family to rent to. If I rehabbed as described below, I am estimating I could easily rent for 1800-2600/mo with the extra bedroom and bathroom. My current mortgage is 1500/mo.

Here is my question: I have a completely unfinished basement. I want to add a bedroom and bathroom with shower to give me a 3 bedroom, 2 bath house. I have gotten contractor estimates ranging from 28-50k. I found one I really like and his estimate was 40-50k. He is the only one that I have been impressed with and felt the 28k contractor wasn't listening to what I wanted and was trying to cut corners and not give me what I am asking for without me noticing. I almost would rather pay a bit more and have peace of mind that things will be done right and not have to babysit. Worst case if rental prospects fall short, I think finishing the basement would increase my home value enough to break even, if not more. I know nothing is for sure, so what do you guys think? Is 40-50k realistic or way too much for what I envision as the future of this home? Should I even bother with this project?

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Caleb Brown
  • Real Estate Agent
  • Blue Springs
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Caleb Brown
  • Real Estate Agent
  • Blue Springs
Replied Nov 3 2022, 09:00

I would run comps to see if the equity is there. I would think that finishing the basement would make sense but have an agent send you comps. Is the basement a walk out? 

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Replied Nov 3 2022, 10:03

Hi Allison,

It's great that you're really thinking through the numbers when considering this large of a project. (or truly even for the smaller ones)  I'm a long-time Downers Grove resident and an active real estate agent in our market.  I agree with Caleb that you should closely look at comps and overall market conditions to assess the return on investment.  Typically that involves looking back at comps 6 months or fresher as you've noted.  However, we're in a strongly pivoting market, so there are a number of additional factors to review.  Not the least of which is being on a "main street" in this area can mean very different things, depending on if you're talking about something like being on Main north of the tracks or down on Belmont near 63rd St.  Buyers & renters evaluate these uniquely.

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Allison O.
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Allison O.
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Replied Nov 3 2022, 10:09

@Caleb Brown Thanks for your response! I will utilize your suggestion. The comps I have done on my own seem to make sense but I will see what the professionals say. The basement is not a walkout, there is a back door stairwell that leads to downstairs and another that leads to main level.

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Allison O.
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Allison O.
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Replied Nov 3 2022, 10:12

@Aimee Derylo Hi Aimee, thanks for your response! I appreciate your insight. I am on the North side of the tracks. I also used the rent estimate tool on here and is estimating higher than what I have been thinking.

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Replied Nov 3 2022, 10:16

@Allison O. I think the rent estimate tool is probably better on a national average level than it is at a hyperlocal level.  Especially when you have areas like ours where things differ dramatically from one part of town to another.  A 2-bed rental right in town with parking and a block from the train station would definitely fetch more than the same one down on the 75th Street corridor.  I'm happy to do a rent estimate for you as well.  Just let me know