Does adding rooms always add value?

[Joey Sargeant]

I have plans to add an additional bedroom in the basement of my house so I can bring in another room mate to cover my mortgage completely. 

I am curious with how beneficial adding rooms is to a property- when the plan for the property is to rent after I move out. I think I a bedroom is a always a good idea because I can get more in rent. However would adding a bathroom be beneficial? Bathrooms are more expensive to add and bring more risk to problems once it becomes a rental. It would be very convenient for me while I live in the house now to have a bathroom right beside my room, but I am trying to think long term and be smart with the money I put in. 

The same question goes for every area of the house. Do the benefits out way the cost when adding rooms or making big changes to a rental? 

[Jeff Copeland]

@Jaysen Medhurst brings up some great points. 

In terms of value, you are asking two questions (Will this increase the resale value of my home? and Will this increase the rental value of my home?)

The answer depends largely on comparable sales and rentals in your market, and in some cases, your specific neighborhood. 

Let's assume:

• Your house is a 2/1
• 2/1's in your neighborhood rent for $1000/mo and sell for $100k
• 3/2 homes in your neighborhood rent for $1250/mo and sell for $125k.

In a simplified scenario such as this, the added value ($250/mo in rent, and $25k in resale value) becomes pretty clear, and from there you can calculate the ROI.

If you can convert it to a 3/2 for less than $25k, you come out ahead. The ROI is 1:1 (for resale value) at a cost of $25k.

Note that this comparison (of features to value) is precisely what an appraiser would do when trying to make adjustments for the value of any feature such as an extra bedroom/bathroom, garage, basement, or pool. 

On that note, the best person to ask about the added value of your potential improvements is probably an experienced local appraiser who knows your market/neighborhood. You might consider finding a couple of recent comparable closed sales, ask the listing agent who did the appraisal, then chat with the appraiser(s).