For rental property owners, maximizing your investment is the goal. Sometimes, this involves remodeling, upgrades, or even home additions. For example, one common question investors have – “is it worth it to add a finished basement to a rental?” While this is one upgrade with excellent ROI potential, the cost can sometimes be out of reach for some landlords. So, along with the benefits, there are many considerations before upgrading to a finished basement in a rental. Continue reading below for helpful advice on deciding whether or not this rental property upgrade is the right choice for you.
Will a Finished Basement Add Value to a Rental?
In short, yes – adding a finished basement or remodeling an underutilized basement space can add value to a rental. Also, a finished basement is a selling point if investors are looking to fix and flip or sell later on. So, to help understand the potential benefits, check out these advantages of adding a finished basement in a rental below.
Additional Living Space
Depending on the size of the basement, finishing it can add significant useable space to your rental home. This extra space is invaluable in a post-pandemic world where many individuals work or attend classes from home. Both renters or potential buyers will appreciate an additional bedroom, full bath, or bonus space.
When considering a remodel of any kind, it typically involves significant financial investment. However, for landlords that have some construction experience, this could spell considerable savings. Doing some of the finishing work, drywall, or framing on your own frees up funds for more specialized tasks such as HVAC or electricity. In addition, the choice of materials is vital to keeping costs down to ensure a healthy return on investment. Remember, everything does not need to be high-end. Instead, focus on good quality and durable materials that stand up to the higher turnover in rental properties.
A finished basement in a rental creates added living space, even if not counted as square footage for resale. However, that does not mean the investment is not worth it. On average, finished basement remodels see around 70% return on investment. That said, landlords must evaluate their finances and the local market to ensure that the added rent potential balances out the costs.
Understanding the Need for Proper Egress
While adding a bedroom to a finished basement in a rental is a great idea, it is not as simple as throwing up a few walls. Rental owners must follow all applicable safety and building codes in order to classify the space as a useable living space. This includes meeting the standards of proper egress.
“Egress” refers to the method of escape in an emergency, and any basement bedroom must have two ways for occupants to exit. Typically, this refers to a basement doorway leading to the outside and a window that allows a resident to exit. Basement bedroom windows must follow the International Building Code’s standard of egress, which states that openings must be –
- At least 24 inches in height
- A ledge no greater than 44 inches from the floor
- Dimensions that allow for an opening space of 5.7 square feet
- No tools or keys needed to access the window from the inside
In addition to meeting safety codes, there are some basic standards for bedrooms and converting to a finished basement in general. These include, but are not limited to –
- Ceiling height of at least 7 feet
- Minimum floor area of 70 square feet
- Adequate electrical outlets
- Proper heating and ventilation
- Legal stairways (meeting all clearance, height, width, and accessibility standards)
- Compliance with all building codes
- Perform a radon test
Is a Finished Basement in a Rental a Good Idea?
Deciding to upgrade to a finished basement in a rental property can involve considerable costs. That said, this can vary depending on the size and scope of the project, as well as if owners opt to DIY some of the work. However, a finished basement can offer added square footage and increased rental or resale value. This is especially true if landlords can create an additional bedroom or bath in the existing space.
For rental properties, added value comes from added square footage, specifically extra bedrooms or flex space. As so many people still work from home after the pandemic, additional space is high on every renter’s list of must-haves. Thus, a finished basement in a rental can allow owners to increase the monthly rates and, in turn, potential profits. But, before making the plunge into a costly remodel, carefully evaluate the following –
- What is the property’s rental value as-is versus adding a finished basement?
- How much will the intended renovation cost?
- Will the finished basement increase the rent, and by how much?
- How long will it take to recoup the cost of the renovations?
The Costs of Putting a Finished Basement in a Rental
Like any landlords’ decision, the numbers must add up to profit potential. So, how much can landlords expect to pay for a full basement remodel? That depends on many factors, including the size of the space and its intended use. According to Bob Vila, the average cost of completing a finished basement in a rental is around $18,000. However, costs can be as low as just a few thousand dollars to soaring well over $30,000.
Typically, just to finish a basement space involves the following –
- Electrical Installation
That said, this is only a shortlist for basic finished space. Additional costs will add up quickly if owners intend to add a bedroom, dedicated laundry room, home office, or bathroom. However, adding these can boost rental desirability and value.
- Cost to Add a Bathroom to a Finished Basement in a Rental: $3,000 to $15,000
- Cost to Add a Bedroom to a Finished Basement in a Rental: $2,000 to $20,000
Also, keep in mind that basements will require waterproofing that can range from $1,500 to $5,000 or more. While these costs are only an estimation, it does show that this is a decision landlords must weigh carefully to ensure the potential profit is worth the investment.
Do You Know What Your Rental Property is Worth?
Success in the rental property industry involves careful planning, due diligence, and responsible financial decisions to protect valuable profit margins. As a rental owner, understanding how renovations can impact your bottom line can seem complicated. After all, deciding to add a finished basement in a rental could pay off big or leave you barely breaking even depending on the local market.
At Bay Property Management Group, we work alongside owners to help you make an informed decision regarding your rental business. Our team of property managers and leasing experts understand the local market and work together to maximize profit potential. So, if you need to know how much you could be getting for your rental property or are interested in learning more about full-service property management – give us a call today.