Detached Buildings and their Return on Investment

How to determine the ROI on a Detached Building Project

By Mark J. Donovan

Question: I live in a metropolitan area. The neighborhood is upper middle class, with a range of ages and sizes of families. It is an area that children, who grew up here, years ago, are returning because it has remained a very stable environment and good for raising children and pets. It is situated right next to a growing university, and the price of housing has not been affected by the downturn in national home market values. Properties are in the $450K to $800K range with some very nice ones exceeding $1 Million.

There are very few detached buildings on residential sites in our housing development (i.e., a green house, detached garage or workshop). There are also few swimming pools.

My question is that I want to build a detached greenhouse and workshop building on our property however my wife says that I will not get a full return on investment (ROI). The cost of building the greenhouse/workshop is around $5K – $7K on a piece of property worth around $650-$700K. The plan is to build it to match the lines and siding of our existing house.

It will take up approximately 20-25% of the usable yard. So how do I get some hard facts about such an endeavor and its ROI?

Answer: Your best bet is probably to talk with some local realtors about the interest in homes with detached buildings. In my opinion, if the detached building is designed to serve multiple purposes, and is aesthetically attractive, you have a good chance of getting your return on investment and maybe even more. From my experience there are many potential homeowners out there interested in having homes with extra storage space, or play rooms for their children that are detached from the main home.

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Having additional separate space that has water and electricity also opens the possibilities for small office space for self-employed homeowners.

In addition, at around 1% of the value of the property the investment is “in-the-noise”. If someday you decided to sell the home, just convincing your prospective realtor to take a 1% lower commission rate will enable you to recover your investment, and that’s at today’s home prices. Usually there is some give in real estate commissions so keep this in mind.

Finally, you also have to look at the non-economical side of this project as well. If you enjoy woodworking and gardening then a $5-7K outlay amortized over 5, 10, or even 20 years is relatively a small investment in a hobby.

My advice, check with your local building inspector and read any covenants you may have in your housing development to ensure there are no restrictions to detached buildings on your property. If the building inspector accepts your plan and there are no covenant restrictions, I’d say go for it and enjoy your new space.

Detached buildings and Return on Investment

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