Should I add a third bedroom?

Question

I purchased my first property 2 years ago and it's a 1250 sq foot 2BR 2BA townhouse near Portland, Oregon. The master bedroom has a very large walk in closet that's attached to a laundry room. After a little creative inspection I feel that I may be able to add a third bedroom to the townhouse, but it will be very small (around 85 square feet). To put the bedroom in I'd need to move laundry into a large bathroom (there is room), add an egress window, remove a few walls, add a door, and re-carpet. I think I could do it all for under $10,000. I'm trying to decide if this would be worth it or not. My house's zillow estimate is about $307k (2BR, 2BA 1250 square feet) and there are 3 BR's across the street in the same development with more sq feet that zillow estimate about $350-360k (3BR, 2BA 1405 sq ft). I'm a newbie investor and am wondering if anyone can weight in on wether this is worth it to add a 3rd. Thanks!

Lance Nelson · Answer

@Mathew Wray That's a good point, but this particular townhouse does not have an HOA. I guess it could be in the rules and regs somewhere else though. Thanks for the response.

Mathew Wray · Answer

Morning Lance,

You might also check with your HOA (if you've got one) before you get too far. Some of them may have their own rules about interior remodels that you'd need to contend with-independent of the other advice here.

Mathew

Lance Nelson · Answer

@Michael Tal Thanks for the response. Good point about them only being estimates. Sometimes I think I put too much weight on the zillow estimate.

@Kuba F. I'm not sure, but in this case I'm wondering if the premium for the other property is that 3 bedrooms are more desirable in this market. I'll work on getting actual values versus the estimate values. Thanks for the "per square foot price" suggestion. That should help.

@Marcia Maynard My thought process was to attempt to turn this into a cash-flowing rental. Currently, my mortgage is about $1700 and it would rent for around $1800. After expenses I would be losing money on this property. My thought was to add a third BR and rent for $2000, making it cash flow. Bottom line is that I'm not sure if it will fetch the higher rent with such a small third bedroom. My thought was that it would be attractive to a family with two small children. It's in a good school zone and a nice, safe neighborhood with close walking to amenities.

@Brandon Halley I think you're right. It's pretty damn small.

Max T. · Answer

under 100 ft sq is not a legal bedroom around here

Brandon Halley · Answer

An 85 sqft bedroom is VERY small and almost below the minimum standard to even be considered a bedroom. Minimum width in any direction of a bedroom is 7'. I'll guess yours is 8'x10.5'. Add the necessary closet and the entry door you are now down to about an 8x8 of floor for a bed. A queen is 5'x6.5'. That leaves an 18" path around 3 sides of the bed. Not a bedroom I would personally feel comfortable in. Add in that it is now sharing a wall to the master bedroom which is generally undesirable and my guess is that it will not add value.

Marcia Maynard · Answer

Why mess with it?  I doubt you would see a good return on your money if  you are not adding extra square feet to the overall footprint of the  unit.

Sounds like the house is fine as it is.  Large walk-in closets (storage) and real laundry rooms are a favorable features. Much more desirable for working professionals than a tiny extra bedroom.  What market are you aiming for?

Also consider the maximum occupancy that is possible. We set two persons per bedroom, which is reasonable and unlikely to be challenged.  HUD properties allow two persons per bedroom plus one.  Adding another bedroom will make it attractive to households with more people. Is that what you want?

Kuba F. · Answer

@Lance Nelson

Making broad generalizations here, and you shouldn't use the Zestimate to determine value, but for illustrative purposes let's say that that is indeed the determined value of those properties.

The $/sqft of the larger properties is $350,000/1,405 = 249$/sqft

The $sqft of your property is $307,000/1,250=246$/sqft

There is usually an inverse relationship between the square footage of a property and it's $/sqft so a smaller property should fetch a higher $/sqft.

As you can see the above is not holding true, so that there seems to be a premium added for the larger properties, why?

You should figure out what that $/sqft is on average for properties in the 1250 sqft range.

Say it's around 253$/sqft

If they are all finished to the same level, and are very similar then you could make a case that a bedroom is worth around $10,000 in that neighborhood.

($307,000+10,000)/1,250=253$/sqft

If a bedroom adds 10,000 to the value of the house, then spending 10,000 and the time to do it seems unnecessary to me.

First thing you need to do is to get actual values not Zestimates to begin your analysis.  Then you need to figure out the value of the feature that you're about to add.  If it doesn't add significantly more than the cost to add it, then there is no reason to do it.

Michael Tal · Answer

Briefly glancing at those figures, I don't think a $10k cost for a 3rd bedroom will increase the property value by that much to outweigh that initial cost. Another thing you should keep in mind is that the estimates written on Zillow are merely ESTIMATES. They are definitely not representative of your true house value or the other houses across the street.