How to Convert Bonus Space in Investment Property

Converting Bonus space in a property is one of the best ways to create value for you and a tenant. This could include attics, basements, garages, or even large closets. In the context of investment properties, these spaces often represent untapped opportunities that, when effectively converted, can significantly enhance the property’s value and appeal.

For real estate investors, maximizing every square inch of space is crucial for increasing rental income and property value. Converting bonus spaces not only adds functional living areas but also attracts a wider range of potential tenants or buyers. It’s a strategic move to differentiate the property in a competitive market and can lead to higher returns on investment.

This article aims to guide property investors through the process of transforming underutilized spaces within their investment properties. From assessing the potential of these areas, navigating legal requirements, to executing the conversion and marketing the newly developed space, this article will provide a comprehensive roadmap.

So, how do you use this space to create value for your investment property?

Well, that depends…

Can It Become a Bedroom?

A bedroom is almost always going to be the highest value use of any bonus area, so let’s try that first. So, it’s time to look up your local health/building codes to determine the requirements for a bedroom.

The International Residential Code, which most states follow, has several requirements to be considered a bedroom. States and municipalities are free to add on top of this, and some areas don’t use the IRC as their code.

Most places have a square footage requirement and also require a window and a closet. But, different states/municipalities may have different requirements so look them up.

Once you know the requirements, you can determine if a simple project can convert this random bonus space can be used as a bedroom. For example, if it just needs a larger window, simply hire someone to install it. If you need a closet, get one put in.

It becomes more challenging if you need another egress added to a basement though.

A. Identifying Types of Bonus Spaces:

The first step is to figure out exactly what you’re working with and what it can look like when you’re finished.

The first step in converting bonus space is to identify what type of space you have at your disposal. Common types of bonus spaces in investment properties include attics, basements, unused garages, sunrooms, or even large storage closets. Each type of space has its unique characteristics and potential uses. For instance, attics might be ideal for creating additional bedrooms, while basements could be transformed into entertainment areas or home gyms.

Regardless if it’s in an attic, basement, porch area, or whatever, it’ll need to be finished with drywall, paint, floors, lights, and heat/ac. Your bonus space probably has some of these already, but often not all.

B. Evaluating Structural Integrity and Legal Considerations:

Before any conversion project, it’s crucial to assess the structural integrity of the space. This involves checking the foundation, walls, roofing, and overall condition of the area to ensure it can support the intended use. Additionally, understanding legal considerations is paramount. This includes zoning laws, building codes, and any restrictions specific to your area.

Basements are usually cool and damp, so you may need extra heat during the winter and a dehumidifier in the summer.

Attics are really hot, so you’ll need to add extra air conditioner. Also, you need to make sure your roof is ventilated properly before completely finishing an attic so take that into consideration before adding drywall to the rafters.

Every area will have it’s own unique considerations before starting the project. It’s often advisable to consult with a professional to ensure that your conversion plans are feasible and legal.

Popular Conversioin Ideas

To maximize your investment, it’s important to align the conversion with local market demands. Researching the local real estate market can provide insights into what potential renters or buyers are looking for. For example, in a neighborhood with many young families, converting a space into an extra bedroom or playroom might be more beneficial than creating a home office.

Understanding your target market and tailoring the conversion to meet its needs can significantly increase the property’s appeal and value. The best thing to do is to look at comparable sales in your market area. Look at what most other people are putting into their properties, then just copy them.

Home Office:

With the rise of remote work, a dedicated home office is highly desirable. By converting a bonus space into a well-equipped office with good lighting, ample storage, and a quiet atmosphere, you can appeal to professionals who work from home. This addition can significantly increase the property’s rental value due to the growing demand for home office spaces.

Guest Bedroom:

Adding an extra bedroom can directly increase the property’s value and rental price. A comfortable, well-designed guest bedroom, especially with an en-suite bathroom, can make the property more appealing to families or groups looking for extra living space. This conversion is particularly valuable in areas popular with tourists or where short-term rentals are in demand.

Children’s Playroom:

Transforming a bonus space into a vibrant, safe playroom can be a major selling point for families. Incorporating durable materials, bright colors, and creative storage solutions can make the space both fun and functional. This addition can make a property stand out in family-oriented neighborhoods.

Home Gym:

A private gym space with proper flooring, mirrors, and sound insulation can attract fitness enthusiasts. In urban areas where gym memberships are costly, this feature can significantly increase the appeal and rental value of a property.

Art Studio:

A bonus space with natural light can be converted into an art studio, appealing to artists or hobbyists. Features like easy-to-clean floors, storage for supplies, and good lighting can make this space highly desirable, potentially increasing the property’s value in culturally rich or artistic communities.

Entertainment Lounge:

A well-designed entertainment area with a home theater system, comfortable seating, and perhaps a bar or games area, or dartboard can be a major draw. This kind of luxury addition can significantly boost the rental price, especially in markets catering to young professionals or high-income tenants.

Library and Reading Nook:

A quiet, cozy space with built-in bookshelves and comfortable seating can appeal to book lovers and those seeking a peaceful retreat. This conversion can add a unique charm to the property, potentially increasing its value and attractiveness to a niche market of tenants.

Music Room or Recording Studio:

Soundproofing a bonus space to create a music room or recording studio can attract musicians or podcasters. This specialized use can significantly increase the rental value in urban areas or locales with a vibrant music scene.

Craft or Hobby Room:

A space dedicated to crafts, sewing, or other hobbies, equipped with ample storage and work surfaces, can be a unique selling point. This addition can make the property more attractive to creative individuals or hobbyists, potentially increasing its rental appeal.

Yoga or Meditation Retreat:

A serene space designed for yoga or meditation, with minimalistic decor, natural light, and a calming atmosphere, can be a unique feature that sets the property apart. In areas where wellness and self-care are valued, this conversion can increase both the property’s appeal and its rental or resale value.

Understanding Zoning Laws and Building Codes

Before embarking on a conversion project, it’s essential to understand the local zoning laws and building codes. Zoning laws can affect what types of conversions are permissible, while building codes set standards for construction and safety. For example, if converting an attic into a living space, you must ensure it meets requirements for ceiling height, egress, and ventilation. Failure to comply can result in fines, legal issues, and the need to undo costly renovations.

Obtaining Necessary Permits

Most conversion projects will require permits from local authorities. This process typically involves submitting detailed plans and undergoing inspections during and after construction. The purpose of permits is to ensure that all renovations are safe and up to code. While obtaining permits can be time-consuming and involve fees, skipping this step can lead to significant legal and financial repercussions.

Ensuring Compliance with Safety Standards:

Safety is paramount in any construction project. This includes ensuring structural integrity, especially in spaces not originally designed for regular use, like attics or basements. Additionally, electrical and plumbing work must meet specific standards to prevent hazards. Fire safety is another critical aspect, which involves proper egress routes, smoke detectors, and fire-resistant materials, especially in sleeping areas.

Execution of the Conversion Project

Executing a conversion project requires careful planning, effective management, and a focus on quality and compliance. By paying attention to these details, property owners can ensure that the project not only adds value to the property but is also a safe and attractive space for future occupants.

Sourcing Materials and Hiring Contractors

The execution phase begins with sourcing the right materials and hiring skilled contractors. It’s important to choose materials that are not only cost-effective but also suitable for the intended use of the space. For instance, moisture-resistant materials are essential for basement conversions, while soundproofing materials are crucial for music rooms. Hiring reliable and experienced contractors is equally important. Look for contractors with good references and a track record of completing similar projects. It’s advisable to get multiple quotes and check for licenses and insurance to ensure quality work and accountability.

Managing the Renovation Process

Effective project management is key to the success of the conversion. This involves coordinating with contractors, ensuring materials are delivered on time, and keeping the project on schedule and within budget. Regular site visits and meetings with the contractors can help address any issues promptly. It’s also important to maintain open communication with neighbors, especially in densely populated areas, to inform them of construction timelines and minimize disruptions.

Addressing Challenges and Setbacks

Renovation projects often encounter unexpected challenges, such as structural issues, delays in material delivery, or budget overruns. Being prepared for these setbacks is crucial. This might involve setting aside a contingency budget (typically 10-20% of the total project cost) to handle unforeseen expenses. Flexibility in dealing with these challenges is important; sometimes, it may require altering plans or timelines.

Quality Control and Compliance

Throughout the renovation process, maintaining a high standard of quality is essential. This involves regular inspections and ensuring that all work complies with the relevant codes and standards. Hiring an independent inspector or using the services provided by local authorities can ensure that the work meets all necessary requirements.

Final Steps and Preparing for Occupancy

Once the construction work is completed, the final steps involve cleaning up the space, installing fixtures and fittings, and ensuring that everything is in working order. This is also the time to arrange for final inspections by local authorities to obtain the necessary occupancy permits. Preparing the space for tenants or buyers involves staging (if necessary) and taking professional photographs for listings, ensuring the space is presented in the best possible light.

Finishing Touches and Marketing

By focusing on these finishing touches and employing effective marketing strategies, you can enhance the desirability of your converted space, attracting tenants or buyers willing to pay a premium for these unique features. This not only maximizes your return on investment but also sets your property apart in a competitive market.

Interior Decorating and Furnishing

Once the structural work is complete, the focus shifts to interior decorating and furnishing, which play a crucial role in maximizing the appeal of the converted space. Choose a decor style that enhances the functionality of the room while also appealing to a broad range of potential tenants or buyers. For example, a minimalist and modern look might be ideal for a home office, while a cozy and warm style suits a guest bedroom. High-quality finishes and thoughtful touches can significantly boost the perceived value of the space.

Marketing the Converted Space to Potential Tenants or Buyers

Effective marketing is key to ensuring that your investment pays off. This involves creating compelling listings with high-quality photographs and detailed descriptions of the space and its features. Highlight the unique aspects of the conversion, such as a custom-built home office or a fully equipped gym. Utilize various platforms, including online real estate portals, social media, and traditional real estate agents, to reach a wider audience. Consider hosting open houses or virtual tours to showcase the space to potential tenants or buyers.

Additionally, it’s important to set a competitive price that reflects the added value of the converted space while remaining attractive to your target market. Research similar properties in the area to gauge an appropriate price point.

Advertising Bonus Space

The next step is to advertise your bonus space. You’re either listing this property for sale, or listing it for rent (it’s an investment property, right?).

It’s important to bring attention to the bonus space, especially if it’s not listed in the square footage or other information about the property. This is really common for basements and attics.

In this situation, bring attention to it and make people image what they could use it for, but don’t specifically say it can be used for things that it shouldn’t be used as (such as a bedroom). People will often use the space however they want, including as a bedroom, but you should not encourage this if it’s not a legal bedroom.

So, you’d could potentially say something like:

There is an extra 400 square feet of finished bonus space in the attic that could be a game room for you and your friends, media room for late night movies, or whatever else you can imagine! It is heated, cooled, and has everything you need to enjoy it day and night all year long.

But you’d never want to say something like

There is an extra 300 square feet of finish bonus space in the basement that could be used as a media room, den, game room, or even an extra bedroom when friends come visit.

…assuming the bedroom is not legally a bedroom in your jurisdiction.

Charging For the Space

It’s hard to say what bonus space is worth, at the beginning. The best thing to do is a comparative market analysis but for rent prices instead of value. Here is a general breakdown of the process:

• Market Research and Comparative Analysis: The first step in setting the right price is conducting thorough market research. This involves analyzing the prices of similar properties in the area, especially those with comparable features and upgrades. Look at recent rental listings and sales to understand the current market trends. Comparative analysis helps in understanding what potential tenants or buyers are willing to pay for similar properties, providing a benchmark for setting your price.
• Evaluating the Value Added by the Conversion: Consider the specific enhancements made during the conversion and how they add value to the property. For example, an additional bedroom or a specialized space like a home office can significantly increase a property’s market value. Quantify the added value by assessing how much these features are sought after in your target market. This assessment should go beyond just the cost of renovation; it should also factor in the increased desirability and functionality of the space.
• Pricing for Your Target Market: Understanding your target market is crucial in setting the right price. If your property is in a family-oriented neighborhood, the added value of a playroom or extra bedroom might be higher compared to a studio in a bustling urban area. Similarly, a home office might be more valuable in a market with many remote workers. Align your pricing strategy with the needs and financial capabilities of your target demographic.
• Consideration of Ongoing Costs and Profit Margins: When setting a rental price, consider the ongoing costs associated with the property, such as maintenance, property taxes, and insurance. Your pricing should cover these costs while ensuring a reasonable profit margin. For selling, factor in the return on investment (ROI) you aim to achieve from the renovation.
• Flexibility and Adjustment: Be prepared to adjust your pricing based on feedback and market response. If your property is not attracting interest, it may be priced too high. Conversely, if you receive a lot of interest quickly, it might be priced too low. Stay flexible and be willing to adjust your pricing strategy to align with market dynamics.

Converting Your Bonus Space – Conclusion

The journey of converting bonus space in an investment property is both challenging and rewarding. By transforming underutilized areas into functional and appealing spaces, property owners can significantly enhance the value and attractiveness of their properties. Whether it’s creating a cozy guest bedroom, a sleek home office, or a vibrant playroom, each conversion has the potential to meet specific market needs and increase rental or resale value.

Throughout this article, we’ve explored the various stages of this transformative process, from assessing the potential of bonus spaces and navigating legal requirements to executing the renovation and setting the right price. The key takeaway is that successful conversions require careful planning, a deep understanding of market demands, compliance with legal standards, and effective marketing strategies.

Property owners who embark on this journey should be prepared for challenges and setbacks but also for the immense satisfaction of seeing an underused space turn into a desirable and profitable part of their investment property. With the right approach, these conversions can not only boost the financial returns on your property but also provide enhanced living experiences for tenants or buyers.