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Will An Addition Add Value?

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Posted On: 01/20/2016

QUESTION:

We own a 1,700-square-foot home, which has been completely redone. We are considering putting a small casita (one room with small bathroom, shower and kitchenette) in the backyard. Is this a smart investment? We got a bid for around $10,000 to do the project and want to know if this will increase the value of our home should we choose to sell in the future.

ANSWER:

We don’t know what will happen in the future, but the idea of enlarging a home raises several ideas we can address.

According to the U.S. Census Bureau the average price per square foot for new construction was $84.07 in 2010, the latest year for which figures are available. With a $10,000 budget, this suggests that you can finance the construction of roughly 119 square feet of space, an area approximately 10 feet by 12 feet. Given that you also expect to have an additional bathroom and kitchenette, your first job is to get bids from several other contractors to nail down a solid price for the project. Be sure to ask about securing permits, zoning, timelines, materials, etc.

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The usual idea in real estate is that buyers seek the least expensive home in the most expensive neighborhood they can afford. If we assume this formula is correct, we need to then ask about your community. If you have an addition to your home will it be larger than most other nearby houses? More expensive? If the answer is yes, then it may be difficult to recapture the value of your investment in the short term if you sell. For details regarding neighborhood market conditions, speak with real estate professionals who are active in your area.

However – and importantly – regardless of sale prospects, you may still want to go ahead with your addition. If the casita creates greater comfort and utility in your home, if it makes you happy, then it may provide values that can’t be measured in pure dollar terms – values that make the expense worthwhile.

After all, it could happen that you don’t sell and as a result remain at your current residence for years. Having a spare room with a kitchen and bath could be great for guests or if an adult child wants to move back – a very common event these days. The Pew Research Center says 36.4 percent of the women ages 18 to 34 and 42.8 percent of the men in the same age group have returned home.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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