(MONEY Magazine) – "The house never felt small until our boys got to be over six feet," the parents of two teens say of their 1936 Georgian colonial. Reluctant to add on to the back of their three-bedroom, three-bath house because it would mean sacrificing the yard where the boys played sports and Mom gardened, the owners opted instead to convert their attic into a finished third floor. When city zoners nixed their architect's plan for three dormers across the front of the house, which is located in a historic Nashville neighborhood, room sizes were scaled back and a planned laundry area was axed. Still, the homeowners gained about 700 square feet of space, consisting of a 12-foot-by-12-foot bedroom with a 12-foot-by-7-foot alcove, a large walk-in closet and lots of windows; a 14-foot-by-19-foot rec room; a kitchenette; and a well-appointed bathroom. The house is now 3,230 square feet (the renovation included turning a covered first-floor side porch into a stately study), and when both boys outgrow the space--one's already in college--the third floor will be the ultimate southern guest suite. Money well spent, from top to bottom.

Support systems To make the unfinished attic into a comfortable and energy-efficient space, the owners installed a combination of blown-in, rigid foam and paper-backed batt insulation ($3,100) and a separate central heating, ventilation and cooling system ($5,600). They also shored up the house's foundation with two steel posts ($350) so it could handle the extra weight of the new third floor.

Steps above Building a staircase to the third floor meant reconfiguring the second-floor hallway. (Two second-floor bedrooms donated closets that backed onto the hall wall, and two bedroom doorways were relocated.) The new third-floor hall has a 14-foot-long open kitchenette with an undercounter Marvel fridge ($1,383), custom maple cabinets and a granite counter and backsplash ($7,400); built-in bookcases ($1,550); a custom skylight ($1,350); and wall-to-wall carpeting ($3,400).

Social study The rec room has a desk for homework plus a seating area with a TV, a CD player, built-in speakers ($370) and a ceiling fan ($130). Costs were kept down by eliminating a proposed $3,400 built-in entertainment center, which also made for a more flexible floor plan. The original half-moon windows were replaced with two energy-efficient radius models ($5,100), and three casement windows ($3,800) were added. Recessed lighting was another $1,800.

Crib notes Built-in floor-to-ceiling bookshelves ($1,550) line a short wall in the new third-floor bedroom, while a bank of three casement windows ($3,800) line the wall above the bed. After the dormers were outlawed, the homeowners splurged on an alcove ($2,800) with a custom radius window ($1,675) and more built-in bookcases ($1,350). Even though you can't stand upright in the alcove, it offers additional storage and makes the bedroom seem bigger.