Leak in a finished basement, How interest rate changes affect value


Dear David,

With the spring thaw, we are nervous about a foundation leak. Our basement is finished, how can we tell if we have an issue? – WATERMARK

DEAR WATERMARK: If you see evidence of a leak, a finished basement can make it harder to identify the source, but there will be clues. Don’t tear down your wallboard right away — instead, locate the top of your foundation wall from the outside and examine it for cracks. Shallow foundation cracks are common and most don’t leak, but if you have one that aligns with water damage inside, you may have found a culprit.

Check your basement window seals, especially if it’s an older home (many were never intended to have basements finished). If window frames are in good repair, a leak can often be fixed with caulking. To prevent long-term issues, make sure grade-level windows have window wells installed. Check that the grade slopes away from your home to prevent pooling water, and install downspouts to divert water a safe distance from the foundation.

While you’re at it, check your utility room. Occasionally, damage can be caused by a water heater that has sprung a leak or a sump pump that isn’t working properly. Depending on the location, interior plumbing fixtures (such as a loose dishwasher hose or slow-leaking toilet) can also be sources of water damage in the basement. Start by doing some detective work yourself, then if you need to, you can call in a professional. I would be happy to recommend someone.


Dear David,

We own a triplex that is coming up for a mortgage renewal, and we are trying to decide to keep it or sell. We heard that interest rates might be going up again, will this have any impact on its value? – INVESTED

DEAR INVESTED: The simplest way to understand the value of your triplex is to compare it to a GIC. Let’s say that today, a GIC is making a 3 percent return. It would be logical to expect a triplex or investment property to make more than this, given the work and risk involved in ownership. Currently, the rate of return (or cap rate) for a triplex in our area is sitting in the 5 percent range (which is low).

Imagine that interest rates go up by one percent. At this point, a GIC would be paying out at 4 percent. Accordingly, a new triplex investor would have increased expectations for return on their investment.

Let’s say your triplex makes a profit of $20,000 each year, which represents a 5 percent return on investment — the property would be worth about $400,000. If a new owner purchasing it is suddenly expecting a 6 percent return (because of a one percent interest rate increase), the value of the property drops to about $333,000 (-17%) to accommodate the adjusted expectations. Ouch!

Because of the thin returns that can accompany these types of properties, I advise my clients to pursue safer, more lucrative investment strategies that aren’t affected by small interest rate fluctuations.