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.
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