To Finish or Not Finish the Basement?

Question

My investment group just picked up our first rental property. It is 1200 sqft bungalow 2 bd, 1 ba single family on the east side of Cleveland, OH in a safe a decent neighborhood. The rental comp research we did determined we will get approximately $850 to $925 a month in rent.

The basement is currently finished poorly. We have to tear out the basement, and put in a B-Dry waterproofing system in this house, so we would be basically starting with a blank canvas. There is an abundance of electrical outlets, and the ceiling is plenty high enough. We are considering if there is adequate ROI to finish the basement and increase the square footage of the house. Also is it worth it to add another full bath in the basement

We plan to keep this as a long term rental property. Would finishing the basement and/or putting in a full bath have a good ROI? We are obviously looking to get higher rents, and make the property more appealing to tenants.

Rob K. · Answer

I've purchased many homes with poorly finished basements. Most of them are also an electrical wiring nightmare that could go up in flames at any minute. I usually "unfinish" the basement and completely gut it. I don't want people sleeping or living down there. I paint the walls white and the floor gray. It gives it a nice clean look and it's very cheap to do. I usually pull out most of the electric down there too. I only want an outlet for the laundry and a few lights with pull chains. I like to keep it simple.

Steve Babiak · Answer

If the basement has any chance of getting wet (they all do if there is a water heater that will some day leak), no carpet; instead, vinyl plank is a better choice IMO. It won't soak up water ... Baseboard trim is optional IMO, based on your other plans. (This is exactly what I have in a basement in a house I just rented out BTW, so it isn't a bad plan from what I was able to gather from the prospects who walked through.)

Christopher Boggs · Answer

UPDATE: B-Dry / Waterproofing - I had B-Dry come in twice. One of the times was after it rained for 3 days straight. They said that I do not need any kind of waterproofing system, and that the wetness/mold was due to the water loss from burst pipes. So good news I have a dry basement and don't need to spend any money on waterproofing. I have had the plumbing problems addressed also. After considering the costs I don't think I will get the value out of adding a bathroom to the basement, but finishing it might be a good idea. I already tore out the existing water damaged finished basement. Again to clarify this basement was water damaged from frozen pipes bursting NOT water seepage. After considering the costs and all the posts above I thought of this - Scrap and paint the block Paint the drop ceiling framing and put in new tiles Surface mount the existing electrical outlets Put in cheap carpet Put in cheap baseboard trim DONE. Nothing fancy, but finished and usable as living space. Also there will be no drywall to get damaged or moist. To clarify this is only half of the basement, and the basement is split by a concrete block wall. The other half with the laundry and utilities will remain unfinished. What do you guys think?

Steven Hamilton II · Answer

I'm a big fan of making sure it doesn't take on water first. Then stain the walls and floor. If you get carpet as cheap as I do then throw in the cheapest carpet you can get and go from there. Do no more or less. I WOULD however, add in at least a half bath down there. -Steven

Dave Savage · Answer

I am not sure about OH, but in NY if you finish the basement with a permit you are going to need an egress window which can be another $2-4k depending on your contractor. I agree with Steve Might that a simple french drain system may solve your problem cheaper than a commercial system - something to consider as it has worked for me in the past.

Mark Forest · Answer

Chris, on one of my houses that had a water problem in the basement I got a quote from B-Dry. Their fee was about 90% of the purchase price of the house. They are a large company and their prices seemed over the top to me. I just went to work with a sledge hammer and installed drain pipe and gravel. Now all the water goes into the sump pit and I do not have issues with it. Finishing a basement is asking for more work down the line. If the sewer backs up, or there is a flooding issue your tenant will expect you to restore it to what it was. If they initially just rent a house with a bare bones basement they will not expect anything more.

Christopher Boggs · Answer

Rob K - My home inspector has assured me that the electrical was done correctly, and the B-Dry installers said that it will not need to be removed in order to install the waterproofing system. Assuming the basement is finished correctly what is your objection to finishing the basement and adding square footage? Chris Masons - As I stated in the initial post we are tearing out the current finished basement because it is a little wet, and dropping $4800 on a B-Dry waterproofing system. So the basement should be dry as a bone after that. The basement isn't even that wet, but has been seeping water slowly for many years without the problem being addressed. So we will be basically starting with a blank canvas. Except there will be adequate electrical outlets.

Chris Masons · Answer

I am usually am for finishing a basement if you plan to hold long term... That being said, before I would finish a basement and sink money into it you need to be sure it doesn't get water in any way shape or form. IF you just purchased the home you may not know if a heavy 24 hour pouring rain storm may cause water in basement. Just be careful, go with ceramic tile if you plan to put flooring down. But yeah finihsed basements doen right is a great way to double your living space and or get additional rental income. Chris

Kyle Hipp · Answer

If you are planning to keep the property as a long term rental then I think it should be a great investment. I would definately add a bathroom in the basement as well. It is amazing how much value a second bathroom can add to not only the property value but also the value on the rental market. A lot will depend on layout but if you can add a bathroom and a bedroom either upstairs and living room downstairs or just a bedroom downstairs that would give you a lot of value. On big thing to keep in mind is to make sure you have the rest of the house in good shape and the electrical and plumbing all cleaned up and in great shape before you close in the basement ceiling. If you do something very basic in the basement like adding a bathroom and framing, insulating, drywall, plenty of outlets and lighting in the rest with basic trim and flooring you should be able to come in under $10,000. If you can figure out how to properly add a bedroom for more cost that will be even better. Even without the bedroom you should be able to get the value dollar for dollar easily on the property value. This is great as it sturdies up the property value for financing abilities. As for rent, I would imagine the extra usable space and especially the bathroom you should be able to get another $150/m. So you should be able to count on $1,000/m minimum. If you add do this for $10,000 and get another $150/m you are looking at a 18% return which is pretty great and that doesn't include your backend value added to the property. It should also improve rentability as it opens up a larger market with more usable space and the extra bathroom.