Is it Worth Finishing the Basement in My Home or Fix and Flip Project?

Posted by Bobby Montagne on Mar 14, 2017

 

Determining what parts of a home should be renovated can be a tricky decision. As the majority knows, money doesn't come easy and large-scale renovation projects should be thought-out and planned wisely. Should you remodel the kitchen or update the bathroom? Is it the right move to transform the attic or should you instead spend extra money finishing the basement? We've got some pros and cons for you which will help you determine if your money should be spent on a basement remodel or if a different area of the home should call dibs on your time and money.


In 2016, Remodeling Magazine released its annual "Cost vs. Value" report, which revealed that the average basement remodel, priced at approximately $61,000, had a 70.3 percent payback. The study also revealed that the Return On Investment (ROI) generated from a basement refinish made it one of the top home renovation investments. Whether you are a homeowner looking to transform an unused floor into an extra family gathering space or a fix and flipper looking to maximize the benefits of your hard money loan, it's important to weigh the pros and cons before diving into this expensive and time-consuming rehab project. 

Potential Pros For Finishing A Basement  iStock-464481830.jpg

  • A basement can be finished to appeal to wide variety of uses, which can be beneficial to both your family and future buyers. For example, you can finish the basement as an entertainment space that future homeowners might easily convert into a secondary playroom for their kids. In fact, a partly finished basement that has the potential to become a wine cellar or storage area can also add value to a home by presenting an otherwise unseen or unimagined opportunity to buyers. 
  • Finishing your basement will add square footage to your home without increasing its footprint. As seen in the first point, the added useable square footage will bring value to your home by making it more appealing to buyers, while simultaneously making the home more comfortable for your use. The finished basement can also increase the home's monetary value. Who doesn't like that?

iStock-537458968.jpgIn many cases, a finished basement can improve access to your backyard. When you enhance your home's accessibility to its outdoor spaces, you automatically make it more appealing to potential buyers. This appeal-factor can be enhanced by adding a patio near the basement exit or a secluded garden area.

Potential Cons For Finishing The Basement

The basement space is typically appraised at half the value per square foot of the floors above ground. For example, if your first floor is appraised at $600 per square foot, then your basement will probably be valued at $300 per square foot. 

  • During the rehab project you might discover that the lower level has foundation cracks, excessive moisture, or that local ordinances are limiting your ability to install the basement kitchen that you desired. To combat this potential con, "know before you begin." Be sure to install a sump puStack-of-dollars.-Paper-bills-or-money.-Icon-in-a-621698098_1027x1027.jpegmp or back-up generator to prevent unwanted water damage. You should also factor in the cost of adding a proper heating and cooling system to your finished basement. These big ticket items can quickly eat into profits if you didn't factor in all the costs into your initial budget.
  • When it is time to sell, you might discover that you have priced yourself out of the neighborhood. In other words, finishing the basement might make your home the nicest on the block, which can be advantageous during a housing shortage, but might become a disadvantage in a buyer's market. This especially rings true for a fix and flipper - make sure you know your market and use your hard money loan wisely. 

[Wondering what zip codes are the hottest for fix & flippers in Washington, DC? Some top zips for flips are listed here]


The Bottom Line: Finishing A Basement Can Add Value, But Remains A Matter Of Personal Preference 

While finishing a basement can add value to your home or real estate investment, the choice to complete this rehab project will depend on your goals and financial expectations. Before you commit to this large-scaled endeavor, you should first consider if you, or the buyers, will realistically utilize the space, and if the project will increase the value of the home or actually price you out of the market.

Want more renovation or real estate investment info?
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Bobby Montagne

Author

Bobby Montagne is a real estate entrepreneur with three decades of experience in commercial and residential property development, finance and sales. Having successfully overseen $15 billion in career transactions, he is among an elite class of real estate innovator that has consistently delivered high quality returns to partners and investors.