From 2 Bedroom to 3

I am buying a 2 bedroom brick town house next week. My plan is to hold long term and it will cash flow a little. There is a lot of room in the basement to add a 3rd bedroom with a window, door and closet space. My questions are:

  1. Have any of you added a bedroom to a basement before?
  2. How difficult was the permit procces in your state? (I’m in Md.)
  3. Does this have immeadiate impact on the appraised value of the home?
  4. If so, can this new value be use to get rid of PMI by reducing the LTV?

Thanks for your thoughts.

Permits? What are those? (smiles). If you’re doing interior work just forego the permits, trust me. Pulling permits means you’ll have to get licensed contractors to do the work (more money), means you’ll have to pay the permit fees (more money), and also means you’ll have to pay increased property taxes on the new appraised value of the house (yup, MORE money). Exterior work is much more difficult to get away with, as it’s in plain view of any city official. Although… I’ve found out that you can generally get away the first time by just playing dumb.

Adding a bedroom in the basement isn’t a big problem at all. However, it’ll never be worth bedroom on the main or 2nd story. Rent-wise, however, you should be able to get at least $100 more a month for the rent.

How much is the LTV right now? Im assuming it’s higher than 80%, seeing that you’re paying PMI. You do realize that you’ll likely have to get a new appraisal and pay all the closing costs yet again to re-structure the loan, right? Depending on your situation this may cost you thousands of dollars to save $50 a month on PMI. Basically, you’d probably have to hold the property for at least 3 years just to break even.

So… unless this is an outstanding deal or is in an area expected to experience extremely rapid appreciation, why are you doing it? Doesn’t really seem to add up investment-wise in my head… then again, I am 5 states away and don’t have all the facts.

Well - it’s a pretty good deal - not great, but pretty good. It will cash flow about $100 a month (the right way - after PITI, mantainance, vacancy etc).

But, I wanted to explore options for even more cash flow. Like adding the bedroom for $100 more a month rent.
Also - the mortgage company appraised it a lot lower than the comps in the area, I assume this is normal? My mortgage company said that after I build the bedroom, they would only charge for an appraisal again to drop the PMI. Since I’m holding long-term, 5+ years - the additional $350 is ok with me.

What about liability? - if someone gets hurt in a bedroom that is not permitted to be there?

Thanks for your insight.


I wouldnt worry about the liability. The only thing I can imagine causing personal harm in a bedroom (within reason) would be faulty wiring. If you aren’t familiar with working with electricity then that may be the one thing you may wish to pull permits for. Electrical work isn’t nearly as difficult as one may think, though, and a wiring book from Home Depot will show you how to run the lines for the room… 1 2-way switch and a few outlets.

I’m good at wiring, so no problems there. I guess I was thinking about a fire and how a sleeping person would get out. Do you know of a web site that gives required dimensions for windows or anything like that?

That will be governed by the state building code…check your state’s website. Also governed will be the requirement for a smoke detector and possibly a carbon monoxide detector…CO is heavier than air and will settle in the basement if it has a way to get there…


Building codes vary from state to state and from within county to county within those states. It’s been a while, but Im pretty sure my code here is that the minimum size is at least 20" wide and 24", (minimum of 5.7 sq ft) and the bottom must be no more than 44" from the ground, allowing a person to escape in the event of a fire.

Rules here for smoke detectors require one in each bedroom and adjoining hallway. You can now purchase a smoke detector and CO detector as one unit for a slightly elevated price.