Accessory Apt or NICE Movie Theater Rm? What Adds More Value?

Question

I just closed on a new primary residence for me and my family here in Utah. The intent was to buy a home with awesome potential that we could work on for the next 3-5 years (build sweat equity) then sell for a nice profit. The basement is unfinished and I want to know what will bring more value to the home - adding a legal accessory apartment or a nice movie theater room in the basement?

More about the home, neighborhood, and long term plan:

Maybe a little more about the home will help shed light on the decision. This home is really custom with high end unique features like incredible 40 ft vaulted ceilings, sky light windows, custom mosaic travertine floors, archways, radiant heat in the floors, lots of land right against the mountain with incredible views, orchard, and over 3000 sq ft in main and 2nd floor living (not including basement sq ft). Basically, the home has high end potential but the previous owners sort of let the home and yard go - so we got an incredible deal on it.

The neighborhood is nice (all homes built after 2000) but not all custom like this home.

Long term plan for this home is to live in it for the next 5 or so years while putting sweat equity into it - making it feel more "high end". However, I do realize that there is a chance that we will not want to leave...

Which Should I Do? Accessory Apt or Movie Room/Man Cave?

In the end, I want to know whether I should work to get a legal accessory apartment permit for the basement and finish it as a rental income source to offset the mortgage, or whether I should go all out and add a nice movie theater room / man cave.

What do you think will add more value? I think they may end up costing the same amount to finish due to the fact that I would have to knock out a wall to add a separate outside entrance and a few other things for the apartment.

Joe Splitrock · Answer

@Chris Watkins I think @Mindy Jensen has a great point that you need to consider what a future buyer would look for in a home. Although a rental may not be of interest to buyers, having a separate space for a Mother-In-Law or young adult child could be a selling point. If you are very careful in how you finish the space, you could have the kitchen area double as a bar area. Honestly I have seen basements that have bar areas with full refrigerator, dishwasher and even a small stove. For a family it gives a second area to entertain. Add a stacked washer/dryer in a closet, separate bathroom and bedroom with a large family room and you could easily have a multi-purpose space. In my part of the country this is called a mother-in-law apartment because it is not a full duplex and they are located in neighborhoods that are not multi-family.

As far as the theater... It is awesome but you would use it less than you might think. I would prefer the $600 in pocket each month. But to play devils advocate, people buying high-end custom homes like theaters. Tough call. My rental property bias may be clouding my view.

Ebony S. · Answer

I would go with the basement apartment since I KNEW I planned to sell it later. If I planned to use it as my home forever, then I MIGHT go with the movie theater.

I have aging parents so even if I didn't want tenants, I could appreciate a separate space for my parents or even a relative or someone like that living in the space (and not so much in mine). Also, some families who buy the house may not want a movie theater, they might prefer an open space for children to play in or something like that.

It's easier to convert an apartment basement to various things than to remove a Movie Theater. A Move Theater will probably limit the number of folks seriously interested in your house when the time comes to sell it.

~ Ebony

Joel Owens · Answer

I am an audio snob. What people consider move theaters is not the real deal. Professional music and movie systems for the house can be over 100,000.

I had one back when I was 20 but eventually sold the pieces as the basement developed an outside water leak and the whole house would need to be regraded. It was the house I grew up in and my dad passed away suddenly when I was 16 so it had a lot of deferred maintenance. We sold instead of dumping a ton of money into it.

One tip if you are going to do a high end system for cheaper. The REALLY RICH people buy new audio equipment every 3 to 6 months to brag to their friends they have the latest thing and so they trade in all the time barely used very high end equipment. You go into a specialty store and can get almost brand new stuff at 50 to 60 cents on the dollar.

That's how I put my original system together. A 7,000 class A amp you could get for 3,000 that was a few years old or less.

The movie theater make sure you are selling within 5 years as the equipment starts to get outdated and loses some value as technology improves.

Apartment for income makes the most sense for dollars. I am the type to NEVER - EVER have a renter in my house period. I keep investments 100% separate. Some people it does not bother with a separate entrance and basement but it will never be for me. I love my sanctuary.

Roger Vi · Answer

It sounds like you want the Movie Theater but you don't need it. If you are like me, $600/month in my pocket feels a lot better than a 10K expense I kind of want. Depends where you are in life, but it sounds like you are in the building and expanding mood. Delay gratification so you can have 2 theaters in the future.

The thing that would make this a no-brainer for me is that you can convert it into a livable apartment space and then easily change it to a theater with a bathroom in the future if you think it will sell better or you want it more. Having a theater and then trying to change it later would be harder and you wouldn't get any income having a theater in the beginning. If you are just comparing the 2 situations, you are really paying $500-600/month plus initial expenses to have the theater.

Hope this helps.

Chris Watkins · Answer

@Mindy Jensen - You are right - most people that would buy this type of home don't think like us about rental income and being a landlord. I do worry that I would scare away buyers if there were an accessory apartment. So maybe that is my answer. It would be nice to be able to have the best of both worlds - like somehow find a way to inexpensively put accessory apt in basement and rent it out as such, and then when we are ready to move, do a few quick modifications and have that theater room set up...

@Ashley Schroeder - Great questions.

Have you looked into what rental units would run for? If the cost is worth it?- Yes, we could rent it for around $600 per month and it would pay for itself within about 2 years.

Also, would you be renting out that space?  Or would it sit until you sold the home? - I definitely would be renting out the space while it was there. I did that in my last home that I just sold as well. It wasn't perfectly convenient but it was worth the inconvenience to have that income.

Would you use the man cave/theater room space while you lived in the home or would it sit? I would also use the movie room/man cave every day as well. I work from home and would have a separate office down there as well as movie nights with friends (which I used to do a lot in my last home as well).

Do you need the extra income? No, I don't NEED it but i'm not doing well enough to turn it down if it's a good long term option :).

What are properties in your area like? The market here is such that many people have accessory apartments. It wouldn't be extremely rare to have that. If I did the apartment idea, it would be cool if we ended up finding the right buyer would be offer a higher price to purchase the house because he was planning on the income from the basement to offset the higher price.

Have you checked into any restrictions regarding placing a rentalable space in your home? We are not part of an association and the city is modifying their accessory apartment regulations so I believe I will be able to get it permitted if I wanted to.

These questions sure made me think deep about the situation... thank you for the thoughts.

Ashley Schroeder · Answer

Have you looked into what rental units would run for?  If the cost is worth it?  The taxes aspect is going to hit you no matter what improvements you do to the property (government always wants their cut of the money too).  Also, would you be renting out that space?  Or would it sit until you sold the home?  Vs. Would you use the man cave/theater room space while you lived in the home or would it sit?  Do you need the extra income?  What are properties in your area like?  Here in WI we utilize our basements for a separate living area.  There are very few to no rental units below grade (it's gets pretty cold here in winters, and no matter how you heat it, full living spaces in basements are not very attractive).  Also, you stated this seems to be a newer and nicer neighborhood... have you checked into any restrictions regarding placing a rentalable space in your home?  Some neighborhood associations may be against these or have special rules/codes that will require a larger investment than you initially thought regarding a rental space.  I definitely like what Joe had to say regarding trying to make it duel use for future home owners.  Even if you would like the extra income potential, not everyone wants to be a landlord, especially in their custom home.

Mindy Jensen · Answer

@Chris Watkins, Think about the neighborhood and future buyers. Is this neighborhood going to be filled with investors who want to rent out part of their basement, or is it going to be filled with people who want the latest and greatest amenities?

Is a future buyer of an amazing, custom house going to want to have to deal with tenants?

I would rather have an apartment I could rent out, but I'm not your target market. Think about who is going to buy this house from you, and what would make it easiest to sell. A person who is in the market for a custom-everything house is probably not going to want to be a landlord.

Joe Splitrock · Answer

@Chris Watkins I have some experience in this area. I finished my basement with a home theater. A nice one too with 110" screen, raised seating, in wall speakers, AV built ins, the whole works. I put a nice bar area in downstairs and there is a huge family room for entertaining. My reward was that my property taxes went up considerably. In other words my wonderful man cave is costing me forever. The theater cost well over $10,000 for which I could have gone to movies for the rest of my life. Don't get me wrong, I LOVE my theater. Had I instead added a door downstairs and finished bar area off with a full kitchen and separate entrance, I could have rented the space. It would then become income producing and in hind sight I should have done that. If you are careful when you finish the space, you can make it dual use, so that if someone doesn't want to rent it out, it can just become a lower level living area. Apartment is the smart move and just use the money to go to the movies.

Account Closed · Answer

I would be sure to know my HOA rules for whether or not an accessory apartment used as rental is within the guidelines.  I would sure hate to go to all the trouble to find out afterwards that it is against the rules!

Colleen F. · Answer

The other thing with a basement apartment is if this is a high end custom home sometimes families will have a nanny or babysitter.  This in law could be a live in unit for such  a caregiver.  I am not sure I would go for a full rental apartment in that type of area.

Accessory Apt or NICE Movie Theater Rm? What Adds More Value?

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