This question is about crunching numbers under certain assumptions.
Let's say my house of
1,000 square feet was purchased for
$250,000. Homes in my street and neighborhood go on average
$225/sqft. So if I add
1,000 sqft to my house, I should be able to sell
2,000 square feet @
$450,000. This means that I could spend
$200,000 on the remodel?
Well that part I'm pretty sure is correct. What I want to know is: Does there exist a more precise formula people use to calculate things like this? Maybe that include interest, fees, appreciation?
Okay, I've done some more math and think I've got something. Remember, we're just going to operate under some assumptions here. I'm trying to figure out the 10-year outlook. So Assuming I can get
$225/sqft now, that's
$450,000. Let's assume that homes appreciate at 3% (it's actually higher now) that gives makes me a potential home sale of
~550k in 10 years. Then I computed what would be left on the balance in 10 years and subtracted that
~200k and I'm left with
~350k of future dollars to remodel. Today thats
~260k assuming 3% inflation. Then I just have to figure out how much of the costs I want to recover. For example, I will have spent
~100k in interest in 10 years so I'd like to just spend
~160k on the remodel to recoup those costs. It's not perfect but I think I'm getting somewhere.