Would converting my garage to another living space increase my home's resale value?

Dear Dave,

I own an older home, built in the 1980’s. I’m doing some upgrades this spring and am considering adding on to it. I recently saw a home that was a similar age and when they remodeled they turned the 2 car garage into a living room and opened up the adjoining wall into the house.  Something like this might suit our needs perfectly.  What are your thoughts on this? Is it good for potential resale or would I be better off leaving it as a small garage and not adding living space.

Thanks - I would appreciate the advice.

John - Grand Junction, CO

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John,

This one is a tough one. If you need extra living space, it does not get any more convenient or inexpensive than to convert the garage to a new living room or couple of bedrooms. Keep in mind that the conversion does come at the expense of valuable resale space, the garage. I am one of those who believe the garage is sacred space! Where would one put his duck decoys, bikes (motor of pedal), ATV’s, kayaks, canoes, dog kennels, gun safes, hunting gear, tool boxes, work bench etc.? I am sure you see my point. A garage, especially here in Western Colorado, is valuable space and hard to replace. Oh, and I nearly forgot, you might even have enough room to park your car!

For resale purposes I am of the belief that the conversion will generally cost you money and not increase your value. That being said, if you convert and add 2 bedrooms and go from a 3 bedroom home to a 5 bedroom home, you might find someone who has a large or blended family that has a specific need for the extra bedrooms. In this specific scenario I could see the possibilities of the conversion adding value.  Outside of this specific situation I think the loss of the garage outweighs in cost and function the addition of added living space.

The last thing to consider is to go ahead and make the conversion, but do so in such a way that you will be able to easily convert it back when/if you sell in the future. By doing this you will have a cost effective addition and keep the flexibility to convert it back easily. This is a common practice and is easy to remedy when the time comes to sell.

“As you can see, I am a fan of garages and believe that having a garage is an important and valuable feature.”

As you can see, I am a fan of garages and believe that having a garage is an important and valuable feature. I will close with this, if a conversion will fit the needs of your family perfectly, then go ahead and do it and enjoy living there with the added living space. Converting and then converting back in the future will surely be less expensive than selling and buying. If the rest of the house fits your needs, just convert and do so in a way that leaves you the flexibility to easily convert back if needed. Hope this helps!

Dave Kimbrough
The Kimbrough Team

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Should We Add a Basement to the Home We're Building?

Grand Junction Real Estate Advice

Dear Dave,

We are making plans to build a home in the next year. As you know, there are so many decisions to make as we go into this process. As we are considering builders and building plans, we are trying to make a decision on whether or not to have a walk-out basement in our new home.

Do you consider a basement to be a good use of building costs? Do you think it is a good idea to have a basement or not? We have options for what type of basement to have, just want to know what your opinion is on this.

Thanks for the help!

Don and Linda, Grand Junction, CO

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Don and Linda,

Trust me, there are more decisions to make than you can possibly imagine! The commitment to building is high, but so are the rewards. I have been through the process many times and often times the number of decisions to be made can prove to be overwhelming, even for the most prepared. Of all the decisions, to have a basement or not to have a basement may prove one of the easiest!

From a cost perspective, I believe it is hard to find a more cost effective place to add living space than a basement. A basement can prove to be a valuable asset for anyone who needs to inexpensively expand their living or storage space, but can also provide a wonderful and inexpensive option for a woodworking shop or hobby area. Basements are very popular features to most home buyers (something to consider for resale down the road), however don’t expect to get the same value from your inexpensive downstairs living space as you do from main floor or even second story finished living area.

It is a VERY common mistake to assume that living areas below grade are valued at the same price as their above ground counterpart. Unfortunately, that is NOT how it works. Generally speaking, you can assume that the added value of basement square footage is no more than 50% of the above grade value. This means that if you have 2,000 square feet above grade that is valued at $175 per square foot, your below grade value is likely in the $75-$85 per square foot range (even if it is of the walk-out basement variety)…NOT $175 up and $175 down. Most people think all levels are valued the same, but when it comes to establishing value - below grade living space is just not as valuable as the space above ground level.

“To answer your final question, I personally believe basements are a valuable addition to most any home and will be attractive to the majority of future home buyers.”

To answer your final question, I personally believe basements are a valuable addition to most any home and will be attractive to the majority of future home buyers. It’s a great way to pump up your living space, while remaining budget sensitive. I say, “go for it!”

Lastly, Merry Christmas to everyone! What a wonderful time of year to focus on friends and family and take time to invest in those closest to us. What I love most about Christmas is the generosity this holiday inspires in people and that the act of giving is pushed into the spotlight. Not to be cliché, but when I stop and think about it, I honestly wish every day could be like Christmas!

Dave Kimbrough
The Kimbrough Team

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Investment Property Strategy: How Many Properties Should I Buy?

Grand Junction Real Estate Advice

Dave ‑

I have about 150K that I am wanting to invest in a rental property. I was all set to find my property and my realtor suggested that instead of buying the property with cash, that I use that money to buy several properties which I would have smaller mortgages on.  I really don't like the idea of taking on any mortgages but I want to make the most of my money. What is your advice? 

Jarred, Grand Junction

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Jarred,

Great question! I will start by applauding you, looking to purchase investment properties right now to diversify your investment portfolio is a great idea!

To assess which is the best route for you and your family, you must determine what your long term goals are and how much risk you are comfortable with. I do not believe there is a right way and a wrong way to purchase investment properties, just different ways. There are two ways to look at the purchase of your properties and that is either to purchase with cash, which is the route that presents the least amount of risk or purchase with a mortgage which will introduce some limited risk. 

To make a cash purchase makes great sense, because it creates an instant income source. If you need to quickly generate income, then a cash purchase is the best way to proceed. When you purchase with cash, and therefore have no mortgage, you also remove the risk of market rent fluctuations, because you can easily “go with the flow” and adjust to any potential rent changes. Also, with no mortgage you should be able to easily weather a month or two without a renter. If your risk tolerance is low or you need to generate month to month income, cash is your way to go.

“On the other hand, if you take your $150,000 and put $75,000 down on two properties then you have doubled the long term investment potential of your $150,000. ”

On the other hand, if you take your $150,000 and put $75,000 down on two properties then you have doubled the long term investment potential of your $150,000. This should still “cash flow” nicely for you and allow you to have room if there are rental market fluctuations. This will allow you to take advantage of the favorable market and also take advantage of low interest rates that remain historically low. You will be somewhat leveraged, but if done correctly and thoughtfully, and as always with the help you’re your accountant, you should be able to create a wonderful long term return with a little, but limited risk. Make sure to plan it out, be deliberate, but be ready to act when the right thing comes up!

The best thing here, you are taking positive steps toward your goals, thinking things through and are willing to look at all the angles to make an informed decision! Reaching for your goal, is the first step in obtaining it! Great job. Feel free to call if you need further information.

Dave Kimbrough
The Kimbrough Team

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Would owner financing on the sale of our home benefit our retirement portfolio?

Dave,

My wife and I wish to sell our home and retire to Arizona. We are in a position that we would  consider doing “owner financing” when we decide to sell. Our money market investments are a lousy return and doing owner financing with the sale of our home appears to us as an opportunity to earn 4% - 6% with minimal to moderate risk. The way we look at it, if the buyer fails to make the payments, we simply get the house back and reassess our options. Is this right? What experiences, good or bad, have you had with sellers who have done an “owner carry” with the sale of their homes? Any advice would be appreciated, Merry Christmas.

Jim and Marybell, Grand Junction

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Jim and Marybell,

Great question! The move to Arizona sounds like an excellent idea, as we near the dog days of winter. Please remember, I am not a financial adviser and will only be providing an opinion that is based on my personal experience. Should you decide to move forward with an owner carry on the sale of your home, I would urge you to discuss any ramifications with your financial adviser or accountant. If done correctly, this can be wonderful addition to your retirement portfolio.

There is no doubt money markets are not a high yield investment, actually they are a terrible rate of return at this point in time, but they are very safe, with virtually no risk. Money markets also provide you a high degree of liquidity that you will not receive if you do “owner financing”. Prior to stepping into an owner financing option with your buyer, you should first consider how important liquidity is in your retirement plans. Also, consider the fact that you will still have a home in an out of state location and this can prove difficult and burdensome, even under the best of circumstances. Let’s assume that you decide this is the route for you, then I can say the success of your owner carry sale is determined by the terms set up at the time of sale.

You need to decide on an interest rate that will work for you. As I am sure you are aware, current interest rates are hovering around 4%, so I would expect it realistic to get somewhere in the 5.5% - 6.5% range. You also need to decide if it will be an interest only payment or if some of the monthly payment will go towards the principle amount owed. To make things cleaner, I would suggest an interest only payment with a balloon on the full amount owed.  After coming to terms on the interest rate, you need to decide what length the loan will be, more often than not I see a 3-5 year balloon. You can get your attorney to help you work up the note and deed of trust that will spell out the exact terms of the loan and where the payments will be made, what happens in the case of default, etc. Accuracy on this document is of vital importance.

“The last detail, but the most important, is the down payment.  The owner carry deals I have seen be successful are the ones where the buyer puts some “skin in the game”, meaning that they bring a substantial amount of down payment money.”

The last detail, but the most important, is the down payment. The owner carry deals I have seen be successful are the ones where the buyer puts some “skin in the game”, meaning that they bring a substantial amount of down payment money (10-20%). The down payment encourages the buyer to stay in the deal and gives you some cushion should things not work out as anticipated. The down payment acts as your insurance policy. Another option is to charge a higher interest rate with lower down payment and this will provide you with more monthly income, if the highest rate of return is your primary goal. With this tactic there is more risk, but you get a greater rate of return. In the back of your mind, always be prepared and understand what will need to be done should your new buyer fail to perform at some point down the road. Prepare for the worst and pray for the best! : )

All things being equal, owner carry terms can prove to be a wonderful vehicle for income and quite possibly could fit in perfectly to your retirement plans. Set it up right and it should provide a good source of revenue! Merry Christmas.

Dave Kimbrough
The Kimbrough Team

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