Finished Basement Return on Investment (ROI)
The most commonly thought-of finished basement return on investment (ROI) is when you sell your home: the financial 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.
Financial ROI When You Sell Your Home
A nicely finished basement, with the types of space and features most people want, is more appealing to future home buyers when you eventually sell your home. Your home will look more attractive in the real estate listings. And so your home will likely sell faster and easier. Plus your home will logically command a higher price than a home with an unfinished basement.
What is true of almost all future ROI’s, whether from stock, selling a home, business, or other assets, is that it is not known what that ROI will be.
Factors that impact the ROI of selling a home include the economy, the housing market, time of year you sell, how and when you remodeled your basement. Other factors include what features future home buyers value, the condition of the home, and more. While the exact future ROI is uncertain, it is logical to assume a home with a finished basement will sell for more than a home with a unfinished basement (and it will sell faster).
Finished Basement ROI While You Live in Your Home
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 the homeowner’s lifestyle, sense of style, and needs. The financial ROI is secondary and a bonus ROI.
The non-financial ROI you get from finishing your basement is the added living space, improved storage space, and your ability to enjoy and get more use from your basement. 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 dividends the moment the remodel is completed. Every day, from day one, you get to enjoy the remodel and make use of it.
- You increase this ROI the longer you live in your home, and by remodeling sooner rather than later. Why? Because the more years you live in your home with the remodeled basement, the more use and enjoyment (non-financial ROI) you get.
- This type of ROI is unaffected by the housing market, economy, or other factors you have no control over.
More about Finished Basement ROIs
The net cost to remodel your basement while you live in your home is less than the total cost you pay to remodel your basement. This is because when you sell your home, the financial ROI you get from finishing your basement offsets the actual cost you paid for the basement remodel. This reduces your net investment cost for the basement remodel over the time you enjoy your finished basement.
For example, let’s say you pay $80,000 to finish your basement and you live in your home for 16 years after you remodel the basement. The cost you pay for the use and enjoyment of your basement is $5,000 per year, which is only $13.70 a day. But because the finished basement will increase the resale value of your home, you recoup some or perhaps all of your initial investment. So your true cost is even less per year and per day.
So, if your home’s resale value is increased by $40,000* because of the finished basement, your cost per year to enjoy your home’s finished basement is $2,500 per year or $6.85 per day. And, since the home will likely sell faster, you will benefit that way as well.
And, having a place you can go to get away from the kids, in-laws or anything else and have some privacy is absolutely priceless. So, $6.85 per day is quite a good deal.
*We used a 50% cost recovery of the initial cost to finish this basement because the actual cost recovery of a basement remodel in 15 years is unknown, and 50% is easy to understand as an example. In the Hanley Wood Cost vs. Value® Report for 2019, there is no basement remodel listed in the projects where cost recovery is shown, but the cost recovery of a master suite addition is shown in the Metro DC area as 67.6%, and the cost recovery of a wooden deck is 79.7%. The Cost vs. Value report assumes the cost recovery is for a remodeling project in a home sold within 12 months of the remodel. Selling a home years after the remodel may reduce or increase the cost recovery depending on the economy, market, condition of the finished basement, etc. at the time the home is sold.
