Can I Gain Equity by Finishing My Basement?

Finishing a basement in your home can give you a double bonus. It will provide a lot more living space, with room for an entertainment area, a playroom for the kids or a home office. A well-finished basement will also add value to your house when you sell it. While a finished basement can increase your home's equity, don't expect to get back every dollar you spend. On average, you'll get back about 69 percent of what you invest in your basement, but only if you're smart about where you put your money.

Finishing a basement can run you $10 to $35 per square foot on a national average, but will vary by region. The average cost of a basement remodel is about $18,500, but you can easily spend much more. If you plan to add a wet bar, full bath and high-end finishes, the price can easily jump to $87,704, according to Remodeling Magazine. Costs will depend a lot on whether you have to waterproof the space or add windows to provide more light or meet building codes. Bedrooms, for instance, must have a window large enough to use as an escape route during a fire. Adding windows or replacing small ones can increase your costs. Costs will also jump dramatically if you do any plumbing for a bathroom or wet bar or add a lot of electrical circuits. You'll save money if you do some work yourself, but do so only if you can produce a professional looking finished product.

When looking for a return on your investment, how you layout and design your basement remodel matters almost as much as the amount you spend. Never block access to important appliances like your home's furnace or hot water heater. You won't want to see these things when enjoying your new basement, but making them hard to access will turn buyers off. Keep the space as open and airy as possible, especially if you're working with a low ceiling or cramped quarters. Utilize as much natural light as you can and make the space bright, even if it means adding more lighting. Make the space as multi-functional as possible so that future buyers see it as an asset rather than dead space they probably won't use.

If you have room on your property for an addition, you might find yourself wondering whether your remodel money should go into the basement or an above-ground space. Finishing a basement is generally rated as two to three times more cost efficient than building an addition. The reason is that adapting an existing basement space costs less per square foot than building a new space from scratch. While the average cost to finish a basement is $18,500, the average cost of an addition is a much higher $47,427.

How much value or equity you gain will depend on how the basement is finished and how your house compares to others in your area. Real estate agents and appraisers look at the square footage of the main house first, then add any basement space. If a substantial portion of your home's square footage is in the basement, you may not fare well if space in neighboring houses is all above ground. On the other hand, a basement may help you sell the house faster and give you space neighboring homes don't have.

When you're planning to sell also affects a decision on basement remodeling. If you plan to live in the home a few more years so you'll enjoy the remodel, go ahead. If you're planning to sell fairly soon, you may want to skip the basement finishing project. In some cases, an unfinished basement may actually sell your house more quickly. Allowing the new owner to finish the basement affords him a chance to build equity in the home quickly and lets him design his new space on a blank canvas. If you haven't taken the plunge and finished your basement already, doing so right before you sell probably isn't worth the effort or expense.