“When do you plan to retire fully,” I asked Stan, my semi-retired friend. Stan had just called to check-in. He was on the road, driving from a client meeting to his home office. “Soon, I hope! I have things I want to do,” he said. Naturally, I asked him to tell me more.
Stan said that he had a 300-square-foot space in the basement that he would like to turn into a Cigar lounge. That piqued my interest. He said he wanted a place to enjoy a cigar and a whiskey while listening to his favorite music. Much of his basement is finished and dedicated to his wife’s arts and crafts. It is a walkout basement with plenty of natural lighting and easy backyard access. As described, his idea seemed perfectly reasonable to me. Three hundred square feet is plenty of room for a manly retreat. It would easily accommodate his adult sons, friends, and brother-in-law.
We are Cigar aficionados. We often enjoyed fine cigars and Bourbon together. That was before he moved back to the Chattanooga area. Now, during pleasant weather, Stan smokes on his deck. I am curious to know how he manages during foul weather. A Cigar lounge would become a trendy addition to his home. It would be handy during the college football season. I told Stan that I liked his plan.
This project is relatively simple. He said that a demising wall is needed. He also mentioned that the distance to the first-floor joists is relatively high, so he plans to install a drop ceiling. Otherwise, it’s just basic wiring for electrical and then putting down a floor. It is not a big project. We did not discuss an elaborate Bar setup or Cigar Humidor, so I assume a mini refrigerator would satisfy his immediate needs. We discussed HVAC only as it regards a smoke evacuation system. However, Stan did not think that would be necessary. There is a need for at least one register and a return air vent. He is not interested in doing the work so he will hire a contractor. He asked if I thought $10,000 would cover the cost. I told him that was doable. Stan can easily afford the cost of finishing this space.
Stan’s Cigar Lounge is less complicated than it would be for most. Finishing this space is entirely discretionary, solely for his enjoyment. He is on the cusp of full retirement and will spend more time at home. He and his wife have a large house and don’t need additional living space for a growing family. His home office is upstairs, and most of the basement is finished. The space will be an easy buildout. He would enjoy relaxing in his cigar bar but could live without it.
Stan’s situation is an easier decision than most.
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- He has a particular need
- It is a relatively small area
- The basement is already mostly finished
- The construction cost is not an issue
- The value of his home and neighborhood can easily absorb the investment.
Deciding to finish a basement or add additional living space is more complicated for most people. The questions the homeowner must resolve in a typical situation include:
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- Is the need for additional space mandatory or discretionary?
- If it’s mandatory, is the cost-benefit analysis favorable? i.e.,
- Is it better to sell the current home and move into something larger?
- Will you live in the house long enough to get a return on your money?
- And, of course, do you have the funds or the ability to finance some or all the costs?
Regardless of the scope of your project, whether it is mandatory or purely discretionary, you must begin with a plan. Create a floor plan and a materials list, and itemize labor costs. Consider furniture, fixtures, and equipment as appropriate. You may be required to obtain a permit, so consider having professional drawings developed, including input from structural engineers or architects if necessary. Factor the cost of those drawings into your budget. Calculating project cost is the starting point for all your decisions as you progress your project toward completion.
Once you establish a realistic project cost, you can determine if it is affordable and a good investment. Your most important consideration is the relative value of the homes in your neighborhood and the length of time you plan to live there. If the cost of your project does not significantly increase the basis in your home, and you have enough time to recover your cost, investing is probably a safe bet.
Creating a new living space in an unfinished basement can be a good investment and increase the enjoyment value of your home. However, it requires thoughtful analysis.
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Jim Weber, Managing Partner – ITB Partners
Jim Weber – Managing Partner, ITB Partners
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