Is it worth it to finish a basement? This is a common question among real estate investors, especially in northern states where basements are often required. Many factors come into play when determining whether or not finishing a basement is worthwhile, including budget, timelines, and your overall business goals–making the question and answer much more complex than simply calculating the ROI of a finished basement.
In this article, we’ll break down the pros and cons of a finished basement and different options to help you truly answer the question: “Will a finished basement add value to my investment property?”
Let’s dive in.
In this article, we’ll break down the pros and cons of a finished basement and different options to help you truly answer the question: “Will a finished basement add value to my investment property?”
Let’s dive in.
How Much Does Finishing a Basement Increase Property Value?
In the United States, finished basements garner a 75% return on investment on average. That means a $100,000 renovation to a finished basement will increase property value by about $70,000. These estimates also depend on the location of a property. For example, on average, Pacific Coast properties have a higher ROI (86%) than New England properties (80%).
The Pros and Cons of Renovating a Basement
Before deciding whether to finish an investment property’s basement, it’s good to weigh the pros and cons of a renovation project.
The Pros
- Increased Property Value: In the right location and with the right renovations, a finished basement can skyrocket a property’s value.
- Higher ROI: In terms of ROI, a finished a basement’s return on investment is the fourth highest of all investment renovation projects, behind replacing doors, windows, and garage doors.
- Added Homebuyer Appeal: 1 in 5 homeowners request a finished basement when building a new property. With a growing demand for home practicality and spatial optimization, finished basements are only continuing to gain popularity.
- Increased Marketability: A finished basement can make a home more appealing to a wider range of buyers, giving them the option to add a flex space or accessory dwelling unit (ADU) to house family members or create a passive rental income stream.
- Lower Costs Per Square Foot: On average, a basement renovation costs between $30 – $50 per square foot, significantly lower than the average costs per square foot of all other areas of the home ($100).
The Cons
- Higher Upfront Costs: Will finishing a finished basement add value to your property? Yes. Will it cost substantially more upfront? Also, yes. A basement renovation can cost anywhere from $3,000 to $100,000, depending on floor plan, materials, amenities, and appliances. Adequate and reliable funding is essential to a basement renovation project.
- Time and Effort: A basement refinish can take anywhere from 4 to 8 weeks, depending on labor availability, complexity of the project, and permitting processes.
- Can Outprice Potential Buyers: While finished basements are in high demand, today’s homebuyers emphasize affordability. A fully renovated basement may not be a practical cost for first-time homebuyers entering the market.
To Finish or Not to Finish
While the pros outweigh the cons, there are still many factors to consider before embarking on a basement renovation:
What is your budget?
If a basement renovation is not in your financial cards, it’s best to steer clear. If it is, determine the budget you are willing to spend before shopping. If you’re working with a lower budget, consider cost-effective improvements that still increase the value of a finished basement, including:
- Painting walls and ceilings
- Add an accent wall
- Update lighting and wall fixtures
- Increase storage and shelving options
Does a partially finished basement add value?
Yes! If your budget limits what you can do, renovating a section or room in your basement is another cost-effective way to add value and appeal to your investment.
Yes! If your budget limits what you can do, renovating a section or room in your basement is another cost-effective way to add value and appeal to your investment.
Is the Basement Usable?
If your property’s basement is already usable, minimal updates may be enough to increase property value while saving money and ensuring the home stays in a reasonable price range.
Is the Basement Safe?
If your property’s basement has structural issues, water damage, or any other hazards, these must be addressed before the home goes to market or any renovations are considered.
Is the ROI Worth It?
A 75% ROI is great for homeowners living in and taking advantage of the basement’s improvements. However, determining how valuable it is for an investor depends on the property’s location, the project’s timeline, and your project goals. For long-term investors who are renting the property and benefiting from the additional space over time, the answer is much more cut and dry.
However, short-term fix and flip and new build investors should research the market and neighborhood trends and communicate with local real estate agents to gauge the ROI, demand, and overall value of a finished basement in that area.
Final Thoughts
Will a finished basement add value to your investment property? At the end of the day, the answer to this question is yes. However, determining whether renovating a basement is the right choice for you depends on your property’s location and market trends, as well as your budget and overall business goals.
A Financing Partner For Your Home Renovation Needs
It doesn’t matter how much value a finished basement adds to your property if you lack adequate financing to renovate. Implementing the top ROI finished basement renovations requires flexible and accessible funding. That is why Finance of America (FACo) is regarded as one of the best capital-providing partners in the real estate market.
For over a decade, FACo has provided short- and long-term investors with reliable and versatile lending programs. Our financing options give investors the capital and resources to purchase, rehab, and sell their property at an optimal return.
For home flippers, our Fix and Flip Financing offers:
For over a decade, FACo has provided short- and long-term investors with reliable and versatile lending programs. Our financing options give investors the capital and resources to purchase, rehab, and sell their property at an optimal return.
For home flippers, our Fix and Flip Financing offers:
- Flexible Terms
- Up to 100% of the rehab budget
- Easy, mobile-friendly draws with Snap Draws DIY
- Property Type Eligibility: SFRs, 2-4 unit properties, Townhomes, Warrantable condos
Additionally, FACO’s team of industry experts can simplify home renovation planning and help investors answer questions such as: “Will a finished basement add enough value to my investment property?”
If you’re ready to optimize your investment properties by generating more appeal and higher ROIs, let the team at FACo help you succeed. CLICK HERE to schedule a FREE consultation today.
If you’re ready to optimize your investment properties by generating more appeal and higher ROIs, let the team at FACo help you succeed. CLICK HERE to schedule a FREE consultation today.
