3 Home Additions Worth the Investment – The Motley Fool

Key Points

You could earn a pretty sizable return on investment with an addition to your home.
Adding a garage or carport is practically a no-brainer.
On trend right now are “granny flats” and accessory dwelling units.

With home prices up 18.6% from September 2020 to September 2021, according to the Case-Shiller U.S. National Home Price index, homeowners are gaining equity — making this a perfect time to use that newly gained equity to improve their homes. One improvement that really makes a difference in day-to-day living while adding value to a home is an addition.

How much value does an addition add?

There’s no question that a properly executed addition done by a licensed contractor adds value to a home. The question is, how much value does it add? Additions are expensive, so if you’re considering doing one just to add value before a sale, you might be better off just selling as is.

Additions are for people who intend to stay in the home awhile after completing the project. The reason: You’ll almost never be able to recoup the entire cost of the addition right away, but you could still earn a pretty sizable return on investment by doing one.

Here’s a look at three common additions and how much value they add to an investor’s bottom line.

Image source. Getty images.

1. Garage or carport

If your home doesn’t have a place to park a car, adding a garage or carport is practically a no-brainer. Garages can be attached or detached from the home. An attached garage is more convenient and affordable. A two-car garage should cost $35,000, according to Fixr.com, and typically has an ROI of 80%, says HomeAdvisor, which is part of Angi.

A detached garage could pay off, particularly if you add a second story, which you could use as a workshop or additional living space. You could even use this area as a rental unit if zoning allows for that. If so, you could make a monthly income from the addition. A detached garage with a livable room on top should cost between $60,000 and $100,000, according to Fixr.com estimates. If you use this space for rental property, you could have an ROI of over 100%. A single-story, two-car detached garage should cost about $53,000.

No room for a garage? Consider a carport, which costs between $3,000 and $10,000, according to HomeAdvisor. It’s conceivable you could recoup all your costs when it comes time to sell.

2. Granny flat/ADU

Whether you can add a “granny flat” or an accessory dwelling unit (ADU) depends on the zoning for your area. If you can, you’ll be on trend. Particularly since the advent of COVID-19, people like having living space for family members who come to visit or who need to live nearby full-time. Many people also rent the space. These facilities are typically 600 to 750 square feet. It costs between $90,000 and $120,000 to build one that comes complete with a bedroom, bathroom, kitchenette, and living room. ADUs can increase a property’s value by 20% to 30%, according to Architects LA.

3. An extra bedroom

While an extra bedroom addition doesn’t have a great ROI — around 50% — if the choice is buying a new house or adding to your existing one to get an additional bedroom, adding a bedroom to your existing home might be the better solution. Most bedroom additions are done by adding a room to the side of the house. Adding a second level is another option, but this is often cost-prohibitive.

Building on the side should cost between $10,000 and $25,000, according to LendingTree. The only possible downside is that although the bedroom adds square footage to the home, it takes away outdoor space, which is also valuable. A bedroom, however, is typically worth more than outdoor space. This addition typically raises the value of a home between $8,000 and $10,000.

Adding a second story is a big undertaking, which typically involves reinforcing walls and the home’s foundation to support the weight of a second floor. This requires input from a structural engineer. This project also involves taking off the roof and adding a staircase. But when complete, this adds square footage to your home without sacrificing yard space.

If you’re going to add an additional story, you have two options: adding a full second story to your home or adding just the bedroom. The cost of adding a full second story to a one-story house could run you between $150,000 and $200,000, according to Legal Eagle Contractors. To add just a bedroom should cost between $90,000 and $120,000, according to HomeLight. You should discuss with a real estate agent what the possible value add would be for this type of project.

So is an addition right for you?

Fashionista Tim Gunn used to advise people to shop their closet first before buying new clothes. The same can be said for houses. Before you only consider buying a new home in this market, it might be better to work with what you already have.

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