Should I build up or out?

Now is a great time to build as the housing market cools, the price for building materials is going down. Sheetrock is still fairly high, but it too will fall in price.

Some of my site visitors have asked me whether they should build a home with stairs or build a single level.

This really depends on the person the house is for, but all things being equal, a house with stairs is a much better value.

It costs a lot to build out. Homes with an upstairs are cheaper to build so they give more equity.

For example, a 2,000 sq. ft. home with two levels would cost about $80,000 for materials. The same house on a single level would cost around $110,000 for materials. The excavation and concrete for foundations is expensive.

Now, let's say that the house is for an older couple and the stairs would make life difficult for them. The clear choice would be a single level home.

In the scope of what we are trying to achieve a two-story home makes the most sense. We are trying to build a home that gives us the most equity. The least expensive home to build would give the most equity.

Let me make one point here. A basement isn't considered a two-story home. In fact, a basement isn't considered at all. It's really a stupid rule that realtors have made over the years to help determine value. If you have a 1,000 sq. ft. home on the ground and a 1,000 sq. ft. basement, your home is valued by the comparative approach as a 1,000 sq. ft. home with a basement instead of a 2,000 sq. ft. home.

If your goal is to build a home to gain equity, a basement is a bad choice. It's better to build up. Stairs are usually one of the biggest selling points for homes anyway.

Appraisers try to find the correct value for homes by using the comparative approach. That has a lot of flaws, but it is still the most commonly used valuation method for residential dwellings.

Us homeowners who want to gain high equity can use that to our advantage. Homes are compared to other homes that have recently sold.

Homes that have a lot of fancy extras are considered "diminishing returns" for investors. It's best to build a simple home every time.