Basement Conversions - An Investment
Strategy
Basement conversions can be a way to quickly
make a home more valuable. Just be sure to do the math before
you try this. You should also plan for a few surprises.
Why should you convert basements into living
space? Because unfinished basements are the most under-valued
space out there. Finish them, and you can quickly and efficiently
raise the value of a home. You can even make an investment strategy
of buying homes with large unfinished basements, in order to
resell them for a profit.
Basements are not common in all areas of
the country. They also take many forms, such as the "Michigan
Basement," which is essentially a hole in the dirt that
the house sits over. The basements you want for this strategy
are known as "full" basements, meaning they have the
same square footage as the floor above them.
You also want basements that are absolutely
dry. Look for damp corners or water stains from previous seepage.
Unless you know for sure that you can resolve any moisture issues
- and at a reasonable cost - don't buy the house. You also want
to check to see if basement space really does sell cheap in your
area. Basements, like anything else in real estate, can be valued
differently in different parts of the country.
A Basement Conversion Example
Suppose you find a neighborhood where the
1500 square-foot, 3-bedroom homes have been selling for around
$135,000, and the 1000 square-foot , 2-bedroom homes without
basements are selling for around $90,000. You notice also that
the two-bedroom. You also notice that 2-bedroom homes with full
basements sell for about $100,000 - just $10,000 dollars more
for that extra 1000 square feet of unfinished space.
You talk to a contractor. If done simply
he can panel the walls, put in two walls for a bedroom on one
side, install ceiling tiles, electrical outlets, carpet and two
special windows - all for $16,000. He can do it in about two
weeks time. The windows make the space legally habitable by allowing
an exit in case of a fire.
Other alternatives include a sliding glass
door and patio if the land dips low on one side. You might make
two bedrooms as well. Put at one end of a basement, two bedrooms
require just two new walls. Painting the basement wall without
paneling them is possible too, if the cement blocks have a decent
appearance. Light colors will brighten up the space.
You wait for the right opportunity, a 2-bedroom
home which because it was a rental is dirty. You make an offer
of $86,000 and eventually get it for $89,000. You decide on a
family room in the basement, with a slider opening to a patio,
and one small bedroom as well. This costs you $22,000. With closing
costs and one month's holding costs, you now have $114,000 into
the property.
You also have a three bedroom home with
2000 square feet of finished space - more square footage than
most of the 3-bedrooms in the neighborhood. It takes two months
to sell, but you get $139,000 for it. Holding costs added another
$1,750 in expenses, a 5% commission cost you $6,950, and other
closing costs were around $1300. That means you had a total of
$124,000 into the project, giving you a profit of $15,000.
That isn't a large profit, but on the other
hand, you are paying people to do all the work. If you find that
this strategy can be replicated, you could have several projects
going at once.
Another possibility? You could also
look for homes with basements to convert in order to get more
rent from a property. There are families that need four bedrooms,
and a 2-bedroom home could be made to accommodate them. You might
not be able to get cash flow by buying a renting out an existing
four-bedroom home, but in this way you could have positive cash
flow.
Copyright Steve Gillman. This article was an excerpt from 69 Ways To Make
Money In Real Estate. Want to know the other 68 ways? Visit http://www.99reports.com/make-money-in-real-estate.html