return on investment of partial basement finishing?

[revheck]

Folks,

I am loooking for advice on modest ways we can improve the function and value of our basement.

We bought a 60-yr old home last summer with a dark and unattractive block basement. It is always dry, but only because the previous owner installed effective french drains and a sump. There is efflorescence on the walls and the sump is active during rain, so there is water coming through the walls.

We would like to improve the basement for our own use and for future resale value. My understanding is that a full basement remodel typically returns less than 50% of cost. I don't expect 100% return, but I don't want to spend piles of money that we can't posibly get back at resale.

So I am wondering if--like modest kitchen upgrades--a partial basement upgrade will have a better ROI than a full remodel.

My idea is to do modest upgrades to simply make the basement look clean, bright and bone dry. My list so far includes:

• Add downspout extensions and re-grade soil to slope away from outside basement foundation, to reduce outside water flow during rain.

• Clean basement walls, repair cracks, seal and repaint with waterpoof masonry paint.

• Replace 5 old Hopper windows and rebuild wells.

• Paint basement floor.

• Electrical: Untangle electrical mess of wires, install good lighting, multiple electrical sockets

• Add an emergency marine-battery sump pump.

• Maybe add simple baseboard heating.

I would value other thoughts and suggestions.

Thanks.

[Edwin Pawlowski]

Your list sounds reasonable and on a track to do it "right". Are you selling your house in six months? Six years? 16 years?

Forge the ROI if you plan to be there for a while and consider the enhanced use for your family. There is a value to that aside from money.

[revheck]

We may sell within 5 years.

We do want to enhance use for family, but ROI is also important to us--at least to the extent we can minimize actual loss.

[Bob]

[Colbyt]

Painting the floor might be a negative if the next folks want ceramic tile.

I am under the impression that the paint interferes with thinset adhesion.

Maybe someone else can confirm or deny that.

Colbyt

[trader4]

• Add downspout extensions and re-grade soil to slope away from outside

basement foundation, to reduce outside water flow during rain.

This is important to have done correctly regardless of what you intend to do with the basement. I would put this at the top of the list.

• Clean basement walls, repair cracks, seal and repaint with waterpoof masonry paint.

This I would say depends on what condition they are in now. If they really look like crap and need it, then it can make it look nicer and make it more marketable for low cost.

• Replace 5 old Hopper windows and rebuild wells. This depends on what condition they are in. If they are shot, then replace them. If just a coat of paint works, then consider doing that.

• Paint basement floor.

I think this is a good idea. It makes it more attractive and keeps dust down. You can do it for minimal cost. Just make sure to do it right, with proper prep work.

• Electrical: Untangle electrical mess of wires, install good lighting,

multiple electrical sockets

Hard to tell what exactly the mess of wires entails. If it's stuff a home inspector is going to flag and/or a safety issue and you can do then I would probably do it. As far as lighting/outlets, that depends on what you're gonna do with the space. Unless you need this for what you intend to use it for, I would only make sure it has adequate lighting. I wouldn;t go overboard, nor would I worry about outlets. A buyer is unlikely to even notice how many outlets there are.

• Add an emergency marine-battery sump pump.

Good idea to avoid a disaster. I'd also consider the pumps that run off city water. That way you'd have backup indefinitely, as opposed to only a battery's worth.

• Maybe add simple baseboard heating.

I'd only do that if it's needed for what you intend to use the space for.

[Wes Stewart]

What difference does it make? Why on Earth should a homeowner worry about what a next owner might want?

Houses are to live in. Cars are to drive. People who think of them as "investments" are deluding themselves just like governments that claim they are "investing in the future."

If you want to put money in investments buy stocks or bonds. If you insist in owning real estate buy REITs.

[Joseph Meehan]

...

I was all ready to jump on this one and suggest do nothing but clean out all the junk down there. Nothing left there (maybe washer and dryer) but not furniture boxes etc. And just clean and make repairs.

You beat me to it. You list sounds good. Just remember to get all that stuff (Remember George Carlin?) out of there, and out of the rest of the house before you show it. Rent a storage space. (that also makes moving less stressful.)

[trader4]

1. Wes Stewart Feb 2, 4:20 pm

"What difference does it make? Why on Earth should a homeowner worry about what a next owner might want? "

Maybe because he's thinking of making several types of improvements, all of which he could use and enjoy, but he wants to factor in which have the most impact on resale price. Sounds very reasonable and smart to me, as long as one doesn't let this be the overiding issue.

"Houses are to live in. Cars are to drive. People who think of them as "investments" are deluding themselves just like governments that claim they are "investing in the future.

If you want to put money in investments buy stocks or bonds. If you insist in owning real estate buy REITs. "

Maybe he already has investments in stocks and bonds. And which has performed the best over the last 5 years? Stocks, bonds, reits or single family homes, investment genius?

[revheck]

I am under no illusion that this is an investment, in the sense that I would actually make more money than I put in.

But some remodels are smarter than others; refacing kitchen cabinets, painting and replacing faucets and hardware can spruce up a kitchen and give higher return than a complete remodel.

Im just trying to follow the same philosophy for our basement.

[Colbyt]

The overall question was adding value at minimal expense.

A large part of that very much depends on what the next owner wants. I have never lost money on any of the houses I have owned nor do I expect to when I sell the ones I own.

I do agree that REITS are a better choice for most people.

Colbyt

[Edwin Pawlowski]

You said you wanted to improve function, but now you say you don't want to improve it for your use. If that is the case, just clean it up, paint anything that can be painted with a light color and be done with it. There will be little ROI on a half assed job that the next owner is not interested in. Invest that money elsewhere.

[Joseph Meehan]

..

I think it is rather clear that the revheck knows that. He seems to have a level head on his shoulders.

[MCG]

Too much work for negligible return. Sell the place as is and get a place that suits your needs better than this one does. Phil

[Wes Stewart]

Well now lemme see... I bought Simon Property Group (SPG) on 11/14/01 at $28.68 a share. I had a stop loss order in place and sold at $51.10 on 4/12/04. A slightly bad move but I worry about preservation of capital. When it was clear that I had found the bottom, I bought it back on 4/16/04 for $51.32. It closed today at $82.95.

GGP has performed (no surprise) the same and had I not pulled cash out of it to sink into this house I would be money ahead. But I put the money in the house knowing full well that I will not recover my expenditure, but I will add to my quality of life.

Capital Automotive was a great winner, so good that someone bought the whole thing and took it private. My annualized return over a slightly less than five year period was 23.46%. (All dividends reinvested)

All of the above are REITs BTW.

Now I don't know how my house has appreciated in the same time period, but it doesn't match that but what does it matter? I have to live someplace and if I sold it, I'd have to replace it with something else equally inflated. And while I don't have a mortgage, the monthly payment never ends. I'm still buying insurance, paying for maintenance and my county assessor is delighted to raise my "rent" based on my new found "windfall." If anyone thinks that they really own their homes, they should see what happens if they don't pay their property taxes.

Certainly if someone sells a house in San Francisco and moves to Fargo, they might realize a big gain, but who wants to live in Fargo?

I stand by my assessment.

[trader4]

"Well now lemme see... I bought Simon Property Group (SPG) on 11/14/01 at $28.68 a share. I had a stop loss order in place and sold at $51.10 on 4/12/04. A slightly bad move but I worry about preservation of capital. When it was clear that I had found the bottom, I bought it back on 4/16/04 for $51.32. It closed today at $82.95. "

And what does any of that have to do with considering which of several home improvements one is considering would add the most value to a home? BTW, the statement "when it was clear that I had found the bottom...", is a dead give away as to your expertise in investment matters. Anyone but a rank amateur knows that it's never clear that a stock has hit bottom, which is only clear from hindsight. Plenty of investors in Enron and Worldcom thought those stocks had bottomed at dozens of points, all the way to zero. And getting stopped out at one price, only to buy it back later at a higher price doesn't look to smart either, does it?

"Now I don't know how my house has appreciated in the same time period,

but it doesn't match that but what does it matter? "

Then you must be pretty ignorant of what is going on around you. I have a pretty good idea of what homes are selling for in my area. Just because you happen to like to live in blissful ignorance doesn't mean we all should.

[Wes Stewart]

My response was more to a subsequent poster's comments than to the OP, so I think it's applicable. It's called "topic drift." The question was asked about what I thought was a better investment, stocks, bonds, REITs (really a stock) or single-family houses (by this I mean a primary residence). I offered an assessment.

It makes sense if you travel a lot and can't have the latest prices at your fingertips. Most of my stuff is in index funds, but a (fairly small) fraction is "play money" that is more activily traded, if you want to call reinvesting dividends "active" trading.

Of course my observation was from hindsight, I never said otherwise. I was on the road but stopped out at a nice profit, so what's the problem with that? When I got home and it looked like "irrational panic" was the driver for the price fall and that had subsided and the fundamentals still looked good, I bought it back at a few cents more than I sold if for. Big deal. It's appreciated nicely since then and had I never owned it in the first place you wouldn't have a thing to complain about.

No, I like living in a custom home in a semi-rural area where there aren't daily sales of cookie-cutter houses with paper-thin walls next door to use for "comps" and I'm not about to get appraisals made on a yearly basis to determine my "profit." The tax assessor and my insurance agent seem to do that for me.

I need shelter. I don't want to live anywhere else. If I sold this house only to buy another equally inflated one in the same area, the only "profit" from the deal would go to real estate agents, title companies and the rest of the leaches in that business. Frankly, I wish the prices would fall, taking my tax and insurance bills with them.

And if I had a basement (I don't) and wanted to paint the floor purple, I'd paint the floor purple and not worry that the next guy might want to put tile down.

I'm only suggesting that (IMHO) thinking of your primary residence as an "investment" is flawed. If you think of it as an ever-inflating investment, do this experiment: stop putting money into it. Do no further maintenance, do not upgrade appliances, don't paint, don't replace carpet, don't water the plants, etc. See how much growth you get when you quit sinking new capital into it.

I'm all in favor of home ownership and making improvements that improve quality of life. I simply disagree with the idea that decisions of this sort should rely so heavily on ROI criteria.