Forced Appreciation - Single Family - House Hack

[Victoria Radcliff]

I am looking to do a house hack and I am finding a lot of 2 bedroom homes in my area. In Pittsburgh you can only have 3 people in a home that are not related. So I can't look for a 4 bedroom single family home. With a 2 bedroom home with an unfinished basement would you consider making it into a 3rd room to force appreciation? Water is very common and makes me nervous if it is not don't proper and could get pricey quickly. Is this a good idea or should it be avoided and if so why?

[Michael Tyler]

I’m no expert on this, but I did look into it for Pittsburgh area. The challenge is that reno often costs more than what it adds to property value. A 25k basement conversion doesn’t add 50k to the value. Might not even add 25k. Basements aren’t counted in square footage even when converted. But the appraised value leans a lot on square footage. So it really only works from a cashflow perspective, not a forced appreciation play.

Then you have issues with moisture, and often need to build expensive windows for legal egress points.

You’d have an easier time forcing appreciation by looking for a 2br with an unfinished attic. Add a closet, proper windows, and supplemental heating. Give tenants a window AC for summer. 

The place where finishing a basement works is Section 8. Joseph Asamoah (podcast #356) figured out that in his market, there is a huge bump in HUD's rent calculations when you hit five bedrooms. So he finds three bed houses with big basements and converts to five beds. However he's doing high-end renos on expensive houses, so the basement conversion is smaller in proportion to other costs.