Is it a good idea to build a home addition to build equity?

Question

I want to put an addition on my home - I want more living space for my family and to change the look of my home.

I am also looking to become a real estate investor.

Is it an ok strategy to build the home addition, which will in turn increase my home equity (by more than what I can build it for) which I can then access to fund other real estate deals?   Or is it foolish to build the addition, and I should  use the funds I have first to invest in real estate.

Thank you

Bob Ross · Answer

What I’m saying is,  this shouldn’t be considered “throwing money away,” it COULD be used as a way to increase equity which would leave me with more money (via equity) than I started with to then reinvest in real estate.

Denis Ponder · Answer

It all depends.  It sounds like you want/need additional space for your family so that might take priority over your immediate investment goals.  If your area will support the addition and the return is there, that's a bonus added on to using the space for your family.  However, if the only way you can move forward with investing is utilizing equity in your primary residence, proceed with caution.  Make sure you understand the risks and have money set aside to weather storms.  You don't want to put your primary residence at risk.

Personally, I would prefer to live in a smaller space and use the money to acquire an investment property and start the journey.

Janet Behm · Answer

Bob,

I am excited that you are moving into investing.

You mention "strategy." This is not enough information to know if this is a good strategy.

I recommend you do a local search for "Certified Tax Coach."

They will help you plan your REI trajectory, for cash flow and wealth. Those folks love to 'run-the-numbers' to help you see the consequences of various approaches.

Good Luck

Johann Villalvir · Answer

A home addition can increase the equity in your home if the value of your home goes up. But this is not always the case. Look at what other properties in your neighborhood have sold for, if higher, look at the additional things they have and build those.