I have a client who has been looking in Lehi, Draper, South Jordan, and Riverton. Lately we’ve been focusing on Lehi because there are some good buys there for a home built after 2004 with a 2 car garage, from 2,500 to 3,100 sq feet. There are a lot of bank repos and short sales and if buyers are patient with the shorts and are willing to jump on the REO properties, then they have a good chance at getting a good, solid buy. Inevitably the question for some of these buyers becomes, do I buy a home with an unfinished basement for around $212K-$220K, or do I just pay a bit more up to $230K range and get one with a finished basment? Even if you’re price range is more than this, the following example will still give you a good idea of what to do with your great buy you want to pick up. This is similar to the email I sent my client:

Here’s the things I would look at when considering an unfinished basement or a finished one.

 1) Payment. Let’s just say you paid $228,000 for a bank owned listing with a finished basement  and did an FHA loan with a 5.25% mortgage rate. Your monthly payment would be $1,215. Add taxes of $105/ month, HOA of $57, and mortgage insurance of roughly $100, and you’ll be looking at about $1,477 total. Now say you buy this other short sale listing with an unfinished basement for $211,800 with the same terms. Your monthly payment is $1,128, property taxes of $105, then an HOA of $57, and the mortgage insurance of roughly $100 as well, leaving you with an out the door monthly total of $1,390. The difference between the two scenarios is roughly $87 per month.

 

2) Are you going to finish the basement? I called a builder we have worked with and asked him what he can finish a basement for these days. He said a good number to start with is $20/sq foot for this grade of house. Granite countertops, knotty alder cabinets, upgraded carpet, tile and or wood floors, etc. Obviously this number can go up or down depending on how nice you decide to finish it, but this will get you started. Meaning, if you buy the unfinished basement house, you should plan on spending about $23,000 to finish it, effectively putting you INTO the house about $234,800 (more than the house with a finished basement), and a lot more cash out of pocket. (about $30,000 with your down-payment for the FHA loan AND the remodel, assuming the seller pays your closing costs. Compare that to roughly $8,000 down-payment ONLY if you buy the finished basement and do an FHA loan with seller paying closing costs ).

 The biggest reason I bring this up is resale value. If you don’t plan on finishing the basement, then I think you will probably be better off buying one that is finished. Let’s say the properties appreciate to be $270K-$280K properties a few years down the road. Your demographic of potential buyers is still probably a younger couple with a couple children, and they tend to be more strapped for cash, meaning they probably won’t have the funds to come in and finish a basement even if the house is priced $15K-$20K lower. They’d rather just buy a finished product and have little bit higher monthly payment as shown in example #1 because they need and want the finished sq footage.  There is always the couple where the husband is a handyman and can do some work himself, but if you’re playing the odds, I personally wouldn’t bet on that.

To sum up, I wouldn’t completely rule out an unfinished basement, but I would make sure you are getting a really, really good deal on it or else I would rather finance more and have a house that is ready to be lived in after some touch up paint and maybe some carpet. I would want to make sure that by the time I pay all the cash out of pocket to finish the basement, that it is still in line with other comparables with finished basements.