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Should You Add Office Space in Your Next Flip?

Jul 16, 2020 by Liz Brumer

As a homeowner, many renovation decisions are easy because you are making choices based on your personal needs and preferences. But as an investor, it can be challenging to make design decisions because you don't know what the buyers' exact needs are. As more and more people transition into working and teaching from home as a result of the current pandemic, it begs the question of whether an office space should be included in your future flips.

What is a home office space?

A home office can be defined as a dedicated work area in a home. This can be a bedroom used for an office, designated office nook, closet converted into a desk and workspace, or even a dedicated office space in the backyard. While the Internal Revenues Services (IRS) definition of a home office defines it as a space in a house that is regularly and exclusively used as a business' principal place of business, it doesn't have to be a large space to be considered a home office but rather a designated, well-equipped, and quiet place to work at home from.

How much does a dedicated home office cost?

If you're looking at a full remodel, many features that are included in an office renovation like flooring and lighting would already be a part of remodeling any room and would thus come at no additional expense. However, there are a few common office features that can be added to a standard remodel if the space is being used as a home office including extra wiring, connectivity points, built-in desks, bookcases or shelves, and even soundproofing, depending on where the office is situated in the house.

While the extent of the remodel will vary, adding specific office features could cost you an additional $2,630 to $7,800, depending on the size of the office space and quality of the materials, according to HomeAdvisor (NASDAQ: ANGI).

Is an office space worth it?

There has been a surge in demand for home office space. According to a recent Zillow (NASDAQ: Z) (NASDAQ: ZG) study, since COVID-19, 75% of Americans are now working from home, compared to only 7% prior to the pandemic.

While this virus may fade into history, it has shown employees the potential of working from home, a trend that will likely last beyond stay-at-home and social distancing orders. A recent Zillow survey indicates that the majority would choose to continue working from home after the pandemic if allowed to. This seems to suggest that the demand for office space will continue for the foreseeable future, regardless of COVID-19.

According to HomeLight's Top Agent Insights Survey for the second quarter of 2020, a home office has an 87% return on investment. Demand is up and returns are solid, but even so, a little market research will be necessary. Employees who are able to work remotely tend to be in higher-paying positions, so if your flip is lower income or in a blue-collar neighborhood, the demand will probably not be as high and your money could be better spent elsewhere. Consult a local Realtor to determine what the current interest is in a home office in your area before deciding whether to invest the extra money in a home office for your next flip.

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Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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