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Is a Home Addition Worth the Investment?

If your family is growing, or if you simply want to add more space for a library, den, or rec room, you might find yourself considering a home addition. Before diving right in, though, it’s important to think of the cost, changes to your property tax rates, and the potential return on your investment.

How Much will a Home Addition Cost?

First things first, it’s important to think about the overall costs associated with a home addition. In the United States, the average cost of adding a room to an existing home is just over $40,000. If you’re adding to a luxury home and incorporating the same high-end materials, this cost can soar even higher. In fact, you may pay up to $300 or $400 per square foot. Factors that may influence the cost include whether you’re building out (adding a room to the ground floor) or building up (adding a second-story room), the size of the room, and the cost of the materials involved.

home additionWill Building an Addition Raise My Property Taxes?

In just about every major metro area across the country – and some non-metro areas, as well – an addition will most likely trigger a tax reassessment. Renovations can significantly increase the overall value of a home, and because you pay your taxes based on your home’s assessed value, it’s likely that your taxes will go up. Aside from simply adding a room to your home, finishing your basement or attic to add living space can also increase your tax rate. You’ll be required to get permits to complete major renovations, so prepare yourself for a new assessment once those renovations have been completed.

Will I Recoup What I Spend?

Finally, homeowners often want to know whether they’ll be able to recoup their costs on a new home addition should they choose to sell their homes in the future. There are many factors that go into determining this. In most markets, including Denver, the average return on investment for an addition is anywhere from 80% to 100%. This means you won’t likely get all of the money you spend returned to you should you sell.

Should I Build an Addition?

Because you’re not likely to actually make money on your addition, most real estate agents agree that you should always add to your home because it benefits you, and not because you want to increase its value at the time of sale. If you need more living space, or if adding another room would make you more comfortable, then you should proceed if you have the funds to do so comfortably. Otherwise, if you simply want to increase your home’s overall value, an addition may not be the best way to do it. Renovations of the kitchen and bath, especially if they’re outdated, may be the best course of action in this case.

A home addition is a wonderful way to add some extra living space, but you should only consider it if you’ll be staying in your house for several years and the addition would make your home more comfortable. While you may receive your investment back at the time of sale, this isn’t always the case.

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