Two types of ROI (Return On Investment)

Financial ROI

The homebuyer market values square footage, but not just overall square footage. Unfinished basements are not typically included in appraisals because they do not contain living space, and therefore are not used for the purpose of determining the value of a home.

So, what is livable square footage? Generally, in order to be included in your home’s square footage, the area must be finished, be accessible to other finished areas of the home, and have met specific ceiling height requirements. 2013 ANSI (American National Standards Institute) Standards states,

“Wall and ceiling finishes include but are not limited to painted gypsum wall board (drywall), wallpaper-covered plaster board, and wood paneling. Floor finishes include but are not limited to carpeting, vinyl sheeting, hardwood flooring, and concrete floors with decorative finishes but do not include bare or painted concrete”

One study determined that your home value will increase by 30% for every 1,000 square feet you add. So, you’re $200,000 home would be valued at $260,000 for 32 feet by 32 feet finished area.

Another study estimates a 70% ROI for a basement finish. Meaning that spending $80,000 on your finished space will yield an increased value of around $56,000.

Now what you do with the space effects these numbers as well. Even different locations such as Blue Springs and Lee’s Summit versus Grain Valley and Pleasant Hill or Leawood, KS verse Kansas City, MO play a role in these returns. Some renovations are in higher demand and will bring more value to your investment. Here are a few of those:

Bedrooms

The second most valued aspect behind square footage a homebuyer looks for (and sometimes the most valued) is the number of bedrooms. Adding a bedroom or two not only increases the asking price, but also expands the market for your home to more buyers. When you searched for your current home, did you set a minimum bedroom count in your search criteria?

Additional bedrooms are not only looked at as sleeping quarters, but also for office space, play rooms, or a guest room.

The ROI for a bedroom roughly generates a 150-180% return. Meaning for every $100 you spend; you can see an increase of as much as $180.

Bathroom

Want to add even more value to your home? To compete with newer homes being built, older homes typically need more bathrooms.

Plumbing and sewer are the costliest part of adding a bathroom. However, with a return of 8-9% value increase to your home. It makes sense to consider this while creating that finished space. Think about it, would you really want to have to go upstairs every time you need to use the bathroom if you had a great living space to enjoy?

In our experience, the biggest regret of a basement finish our customers have stated is when they chose NOT to add a bathroom. Trade secret: It costs more to do it later once everything is finished.

So, that 8-9% return on that $200,000 home is an additional $18,000.

Second Kitchen

While the main kitchen is the heart of your home, a second kitchen is also setting an initial impression on a potential buyer of the home.

The ROI on a second kitchen depends on many factors such as the size and usability of your first kitchen as well as the size and usability of the second kitchen. The quality of materials also plays a role in this. For most second kitchens, you will at least recoup your investment and your home value will increase by as much as you spent on adding the kitchen.

Overall Finished Basement

Adding a common area, bedroom, bathroom, and kitchen creates a true suite that is great for in-laws’ quarters or a more independent space for an older child. It can also serve as a separate space to enjoy with friends and family. This is one of the ways to maximize the space and yield the biggest return.

The Second ROI

The second finished basement ROI is non-financial but arguably is as important, if not more important, than the first. And it is the reason most people remodel.

Most people don’t remodel their home primarily for the financial ROI. They do it because their home needs to be remodeled to better fit their lifestyle and needs. The financial ROI is typically secondary and simply a bonus.

The value you get from finishing your basement is the added living space and your ability to enjoy and get more use from your basement than just a storage area. There are additional benefits from this ROI compared to the financial one.

The ROI of improvement to your home while living in it starts paying for itself the moment the remodel is completed. Every day after completion you get to enjoy your new space.

By starting this project sooner, rather than later, you increase this ROI the longer you live in your home. This is because the more years you live in your home with the finished basement, the more use and enjoyment you get from it.

This type of ROI is unaffected by the housing market, economy, or other factors you have no control over. It is simply your family enjoying a new space that it needed.

So, what does that space looks like for you and your needs? Is it a guest suite for friends or family? What about a bar/entertainment room for the big game and get togethers? Perhaps a full-blown theater room for family movie night. Whatever it is, Make your space your own!

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