Is it worth adding expanding my home?

Question

Hi everyone,

I currently live in a 3bd/1.5ba home in South San Francisco, CA.  I'm thinking about upgrading the 0.5 bath to a full, and adding about 500 sq ft extension to the back of the house. This extended portion would be a small living area with kitchenette, a full bedroom and bathroom. I could use it as a guest room, or a private portion of the house to airbnb/rent out. I've gotten a quote from a contractor for about 220k to get everything done and I'm here to get some perspectives on whether or not the price is reasonable, and if it's worth the upgrade. I am meeting with a few more contractors this weekend, but wanted to see if I can get some thoughts here first.

A few facts:

-Assume all permits and drawings are approved by the city.

-Most homes in my neighborhood are 3bd/1ba. Am I over-upgrading my home?

-Homes here sell for about $600/sqft, so if the expansion is approx 600 sqft, then it would add 300k to value of home. Is this too optimistic?

-We have a 640 sqft shed in the back that needs to be demolished. (quoted 15k, included in the 220k full estimate)

-The 1/5 bath needs a shower, and because it's small, we need to move everything around, and also move shift the door a few inches. (quoted 27k, included in the 220k)

Please let me know if I can provide any additional details and thank you in advance for your help!

Jeff

Jeff Hsieh · Answer

Hi all! Thanks for your responses so far. I've updated my post above with additional information after speaking with some more contractors this weekend.

@Nicholas Leone- thanks! I received another quote for about 130k to do the project. He quoted only about 1-2k to demo the shed, instead of 15k. Sounded much more reasonable.

@Carolina Solorzano - We bought the house in 2014.  If we do this remodel, the idea is we would stay in this home for at least 5-7 more years. One of the contractors I spoke with is going to the city on Tuesday, and I asked him to speak with them for me to make sure they don't see any issues with this project.  If signs look positive, then we will probably proceed to get an architect/engineer involved to do drawings and pay for the permits.

Carolina Solorzano · Answer

It all depends on when you bought your house. If you have equity from at least 5 years ago, then I would say that's a good sign in the peninsula. You also should speak to a qualified realtor in SSF who knows your neighborhood to give you a realistic value of your property once you've done the reno.

Here is what worries me- 220K- that's just the physical labor. The city will want plans with drawings and then you'll have to pay for the permits. For my large addition it was an additional 40K.

Now, saying all of this, I would only move forward if you plan to stay at that location for at least another 3-5 years as your primary residence... better to play it safe with a high investment then to lose it all once the economy flips again.

Jeff Hsieh · Answer

@Vinay H.- the 220k includes upgrading a separate half bath to a full, completely moving a full bathroom (so layout isn't weird), demo'ing a shed, and then finally adding the expansion. But it definitely sounds pretty steep. I'm crossing my fingers and hoping the other quotes come back more reasonable!

Travis Rasmussen · Answer

@Jeff Hsieh

Oh Sweet, if you're paying cash than no worries. I was talking for example, if I purchased a property with a loan and the expenses come out to $1400, I want to make sure at a minimum in case STR goes haywire, I can rent it for $1400.

Vinay H. · Answer

220k for a 500 ft addition? Omg. This is what it takes to build houses everywhere else.

I agree houses can be at 600 a sq ft but that includes the cost of land etc which is probably very significant in the Bay Area. I would recommend getting a few more estimates.

Jeff Hsieh · Answer

@Sherwin Gonzales- thanks! Yeah I've got 2 more contractors coming in tomorrow to provide a quote, we'll see how it goes. Thanks for your help so far!

@Travis Rasmussen- that's a great point about speaking with a local realtor. I don't imagine the $600/sqft scales linearly. Can you elaborate a bit more about it breaking even if putting a long term renter in there? If I am not financing any portion of it, I won't have any monthly payments. At most there would be some additional utilities and cleaning expenses, but that *should* be easily covered by the airbnb price based on my research of homes in my neighborhood on airbnb.

Travis Rasmussen · Answer

@Jeff Hsieh

You might want to touch base with a local Realtor and get their take on the new value add. As far as Airbnb, as long as regulations are still favorable it might be a great addition. When we purchase property for it though we always make sure the cost of the property (or in your case, value add) would break even if we had to put a Long Term Renter in there.

If your curious what properties are renting out for on Airbnb, go to the website and browse local properties that are booked up with good ratings and see what their average rate is for a 7 day stay for different months/seasons.

Sherwin Gonzales · Answer

@Jeff Hsieh, that sounds like a great plan! For my bathroom addition, I got at least three quotes from different contractors and I would suggest you do the same. Contractors' bids differ from city to city and sometimes their schedule dictates their pricing.

I'm not sure if your home would have to be re-appraised right after the project or if it would affect your property taxes. I would suggest you consult a real estate broker or your lender. The reason I got my property re-appraised was because I was refinancing my loan.

I hope this helps and don't hesitate to let me know if you have any other questions!

Jeff Hsieh · Answer

Thank you for your response @Sherwin Gonzales! I am in a similar situation as you where I do want to add value and also have a place for my out of town family/friends to stay when the visit. When friends/family are not visiting, I'd keep it open for airbnb.

Right now we rent out 2 of the other bedrooms to friends so we have no room for guests.  If I were to do this expansion, I would forsee myself stay in this property at least 5-7 years more until we have kids and may want to consider moving to a better school district.

Do you (or anyone you know) have an idea of the amount I was quoted is reasonable? This would be my first step into any sort of renovation project and I'm having a hard time grasping reasonable costs.  And sorry, one more question, would my home have to be reappraised right after the project, and if so, would that affect my property taxes going forward?