Grassroots Homeownersports: Return on investment on building a shop

(Note - the property values I'm about to mention are in the close-in DC suburbs, one of the most expensive places in the country. We do OK but I'm not a rich guy)

In 2000 bought a hideous but unmolested little - like under 1k sq/ft - 1948 brick colonial for $250k in the 20816 zip code. Attached 11 x 23 garage, tiny basement, in need of thorough renovation. Come 2010 it's about finished, and is really nice, but awfully small. I work in engineering related fields where I make prototypes and I have a ~tiny~ machine shop. Mrs. motomoron finds a much larger 1950 rambler w/ a 16 x 20 machine shop space below a large master bedroom/bath expansion and a 24 x 32 detached garage in the back yard. The asking price is around $650k. We talk to the selling agent and our agent and call the bank who tell us we can swing it.

Long story short, we buy it for $618k, and sell out place for about $615K the week it goes on the market. A month later, the buyer, having strung us along with tiny requests and negotiating contingencies, voids the contract mere hours before forfeiting their $100k earnest money.

So I continued to renovate house #2 like slave, hoping to get as much finished as possible before moving in, and we waited until February to go back on the market. Once we did, house #1 sold in a week for $625k and late March we moved into #2 with money in the bank, much more space and a mortgage that was a much smaller percentage of our annual incomes than when we'd bought #1.

So, how does this relate to shop ROI?

The new place had space for my machine shop to grow and the garage could have all the fab shop gear I'd ever wanted. A job opportunity as a contractor to a government institute came up and my ability to do comprehensive prototype machining and fabrication was a key factor to my success. I acquired the assets of a small machine shop that was being liquidated. Once combining it and what I already had and selling the excess, I was well equipped. Since then I managed to obtain another small shop that was surplus to it's owners and fully depreciated.

If I look at the cost of the move and the amount our mortgage increased vs. my income tied to having the shop, we're way ahead. Having a dedicated race shop 40' from my machine shop is a huge quality of life thing for me. So, if having the shop can potentially improve your earning potential - or just make life better in a tangible sense, I'd do it, and go big.

I was recently in your situation, and in my home search, I found that 2 things seemed to be true in regards to houses with outbuildings.

1. The sellers typically placed a much higher value on the outbuildings than the average buyer would assign them.

2. On the rare occasion that a nice home with decent quality outbuildings hit the market and wasn't ridiculously overpriced they saw a very competitive pool of buyers snatch them up very quickly, and often sold for more than asking price.

If your plan is to only stay in the house for a few years, I'd be pretty surprised to see any ROI on an extra garage (barring bizarre market trends). Add to that the fact that you won't be building much equity in those first few years, and the fact that you'd have to pay realtor fees when selling, and the financial picture gets pretty grim. But, as others have said, if having it will improve your quality of life while you live there, and you're aware of the financial implications, then you may be able to justify the costs.

I am getting a huge kick out of reading ON THIS FORUM that a shop has no value! Trust me, your real-estate agent knows the value, but puts it under the heading of "Stuff that I get the owner to toss in for free so that I can make a quick sale". Much the same as "You have to stage" and "Must have granite counter-tops or it will never sell"

When the time came to have a shop, I went looking for house with shop. Good luck finding a nice shop with a nice house. (shop= big detached garage). Knowing that I wanted a shop, the realestate agents certainly knew how to play up the value to me.

The house next to mine has a very nice shop. Last time it sold there was a bidding war because of the shop.

Knowing that there are motorheads like y'all out there who covet a nice warm shop, I WILL add some value if and when I decide to move. But foremost, I think I will save money by knowing who to advertise to and skip the real-estate agent; I will stage the garage not the house.

In reply to NOHOME:

I can't do any better than that. Well said.

NOHOME wrote: Trust me, your real-estate agent knows the value, but puts it under the heading of "Stuff that I get the owner to toss in for free so that I can make a quick sale".

Perhaps, but any Realtor who actually practiced that could loose their license. They have a fiduciary responsibility to the seller.

I agree with your comments and sentiments. I am just answering the OP's question from a practical perspective of 30+ years in and around the real estate market.

Reality is that if you have 2 equal houses in the same neighborhood and 1 is priced $30K higher for a shop, the higher priced property is almost always going to sit longer.

(Although I'd buy the one with the shop ).

In reply to NOHOME:

I think the sentiment is that it definitely has some value, especially to people like us. But that doesn't mean there will be any positive ROI when you consider the cost of building it, insuring it, being taxed on it, etc. We all do things that add value to our lives, but hobbies rarely make economical sense.

STM317 wrote: In reply to NOHOME: I think the sentiment is that it definitely has some value, especially to people like us. But that doesn't mean there will be any positive ROI when you consider the cost of building it, insuring it, being taxed on it, etc. We all do things that add value to our lives, but hobbies rarely make economical sense.

Houses that you live in (AKA "The American Dream") as an investment, is the one of the best scams ever pulled off. It is actually the seed-stock for the "buy stuff to drive the economy" that is now coming to an end. To put it in your terms, I put home ownership in the "Hobby" column when it comes to finances.

Before you tell me how much you "Made"

Do inflation for the period

Do mortgage cost

Do buying and selling cost

Do taxes

Do maintenance cost.

Do insurance cost.

Other than for exceptional cases of luck and timing, the net profit is not good. Plus you can never go liquid unless you move into the street.

You can make money on a house, but you make it because you bought it for less than what it is really worth and you sold it almost immediately after some quick mop-and-glow upgrades. The garage topic is germain to this thread because it can be THE undervalued item when you buy the house that will drive the sale to a specific buyer (you only need one). If you can find a worn but cared for property with a nice shop that is not moving, and a motivated seller you have a great flip opportunity. Just don't move in. Good luck finding these properties unless you are a Real Estate Agent. (the potential for conflict of interest in the real estate game is huge and the financial benefits of surrendering to the dark side can be hard to resist.)