Should I Add a Bedroom? Your quick opinion PLEASE

Question

I'm trying to decide whether or not to add a bedroom to a basement unit of an up and down duplex here in Spanish Fork, Utah.

Currently, the property has a shared laundry room and 2 small storage rooms in the back of the basement. I have checked with the city to make sure there were no red flags and they gave me options to make it work. If I did most of the work myself I estimate the cost would be more or less $10,000 to add the bedroom.

The duplex is currently a 4 bed 2 bath all brick built in 1933. It is only 1800 square feet including the basement.

The bedroom would be added where 2 storage units currently are (side by side). The laundry area would stay a nice spacious laundry area for the basement. The stairwell going downstairs to the shared laundry area would then be removed at that space in teh upstairs would become an area for a stack-able washer/dryer closet area for the upstairs unit.

I bought the property 1 month ago and have nearly finished updating the upstairs unit (electrical, plumbing, new bathrooms, new kitchens, flooring and paint) and am moving to the downstairs unit shortly.

Here is what I see, what am I missing?

Pros to the additional bedroom:

Estimate an additional $125-$150 per month in rent for the additional bedroom in the basement.
I then wouldn't have to provide shared laundry units for the tenants because they'd provide their own separately. (less cost to me)
Avoids the hassle and complaints that would be associated with the shared laundry.
There aren't any good comparables to estimate the value of the additional bedroom but a guess would be $15,000 of added value.

Cons to the additional bedroom:

Cost of the renovation could go up if/when something goes wrong on the renovation.
To access the bedroom you would have to go through the laundry room so not an ideal floorplan with the change
Extra time required to complete the project (+1 month & the associated extra mortgage/holding costs were built into the 10k project cost)

What would you do?

Chris Low · Answer

@Chris Watkins - I ask myself this same question often when looking at properties to flip. Generally, the cost of adding an extra bedroom doesn't pencil out because it won't raise the ARV enough (generally). However, on a buy and hold, I might reconsider. As you've described it, the one question I thought of is are you also going to be able to add a bathroom downstairs or is one already there? Without that, I don't think I'd do it. Your downstairs tenant is not going to want to make trips upstairs to use the bathroom. Just a thought.

Sam LLoyd · Answer

Is this a flip or hold? If it's a flip, I'd leave it be, get it sold, and move on... If it's a hold, you'll have to make your decision based on what the demographic is. I tend to think that couples or families with one kid that rent a 2bd will easier on the unit than having a bigger family in a 3bd. On the other hand, I think you might be underestimating the pros.... if the building comes with outside storage sheds, and each unit has their own laundry, in addition to the unit being larger (I'm assuming the downstairs unit will become a 3bd.... If your remodel is done well, this will become a more desirable couple units. So, if it only takes a month more... you have the money.... and you aim to hold it for a while... I would do it.Another note: I don't think this will help the sales price much.... the outside sheds probably won't add to the appraisal, and the appraiser may not call it another bedroom since the only access is through another room (laundry).... so your appraised value may not go up much.

Loren Clive · Answer

There is more value in extra bedroom. Sounds like you're getting 50% roi on your cash in. Do it!

Nathan Bell · Answer

nice ! Get a lock . I am in a similar spot not a bad idea. Basement has moisture issues that have to be handled correctly I would get an exhaust fan for the room and hopefully it has an working window.

Nathan Bell · Answer

Hard to say. Storage is nice to have people might just pay more for that with less management. If it was going to be it's own unit then prob yes . But not for 150 $ to deal with an extra person. I feel like it's easier to rent small homes. Just me

Chris Watkins · Answer

Thanks for the input @Chris Low - I would be adding a bedroom downstairs to the basement unit. It would all be on teh same level. I am really hesitating because of the issue of the small entryway. Don't think someone could move in a queen bed in the basement if I took out the 2nd entry in teh back of the unit.

Sam LLoyd · Answer

Yes, check with an appraiser to see if this will count as a bedroom. I'm only speaking from experience with appraisers in Alaska, but I'm thinking weather or not it is a bedroom, and/or weather this affects the appraised value is going to be determined by which appraiser you get on your refinance. Make sure you have plenty of room in your numbers when you go for the refinance.

Chris Watkins · Answer

Thank you @Loren Clive for the opinion. @Sam LLoyd - This would be for a long term buy and hold. Great points underestimating the pros. I agree with your comment about tenants in a 2 bedroom will typically be easier on a unit. That should be added to the cons. One thing that comes to mind as you bring up the appraised value - from an ROI perspective the only way to recoup the cost of the storage sheds would be in the rent rates since the appraiser wouldn't count much of that towards appraised value. Great point. Since this is a BRRRR strategy, I am anticipating a cash out refinance in a year, and would want to recoup some of my investment.If I go through the process of city permitted changes then the county records would reflect the additional bedroom addition. I would assume the appriaser would go off of that information? I should probably verify that with an appraiser, eh? Awesome feedback, thank you!

Chris Watkins · Answer

Thanks for the thoughts @Nathan Bell. I do recognize the value of storage. As part of the budget for the bedroom addition, I included the cost to buy outside storage sheds in the backyard for each unit to replace the storage sheds removed by the bedroom. Thoughts?