Author Topic: Your thoughts solicited: basement apartment conversion  (Read 6573 times)

waltworks

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Your thoughts solicited: basement apartment conversion
« on: August 11, 2016, 12:46:24 PM »
We have a 2000 square foot (!) basement that sits basically empty under our house, which is in a fairly desirable resort community, so we're thinking about spending about $75k (including furnishings/appliances/etc) to convert about 1200 square feet into a 2 bedroom or 3 bedroom apartment.

I'm curious to hear from folks who have done this, especially if you've done both nightly rentals and long term. In our case, we'd like to try nightly (there are a variety of events here during which enormous amounts can be charged for rent) but the town is struggling, like many, with the VRBO/AirBnB legality questions so we want to make sure the apartment is set up (ie kitchen, laundry) for long term renters (long term rentals of this type of space are completely legal here and would not be a problem no matter what).

So, I guess this is a sort of "should I buy this property" question, in a way.
-Cost up front $75k. We'd just pay cash, no mortgage. We could cut costs back here but we want the place to be nice enough that we'd be ok living in it ourselves (the upper portion of the house would rent for ~$3500/mo).

-Assessed value of the house would increase ~$30k (we'll be pulling permits and doing everything legally, of course) so I'd anticipate about an extra $200/year in property taxes.

-Long term rental rate would be roughly $1200-1500/mo, or maybe a little more if we made it a 3 bed. Not sure we want to do that (3rd bedroom) just because we might end up with parking problems for the tenants in our 4-car max driveway.

-Nightly rentals of similar type go for $100/night in the offseason and up to $300/night during events like Sundance.

-There is a spring mud season, but otherwise the town is very popular for tourists year round. My survey of VRBO and talking with a couple of nightly rental owners in the area indicates I can expect something like 60-80% occupancy and an average $150/night. Being a bit more conservative than that and saying 50% occupancy and $125/night, I'm still at $22k or so gross, which is obviously quite a bit more than the $15k or so we'd gross renting long term.

-The layout has been carefully set up to avoid tenant/owner interaction or hearing each other unless mutually desired. I've got lots of landlording experience, so I'm not worried about fixing broken stuff or screening tenants or any of that.

-We'd retain about 800 square feet of basement (with separate access) for storage. I don't think making a 4/2 basement apartment (ie using all the space) makes any sense, because it's still... a basement apartment.

It looks like a slam dunk to me, which is making me question the whole thing, because I'm inherently wary of slam dunk too-good-to-be-true deals. I guess my worst case scenario involved nightly rentals being banned (and that ban enforced) but even then it makes perfectly good sense as a long term rental (or place for us to live while renting the top part of the house, if we really feel like FIREing early).

Thoughts?  Would you do it?





rothwem

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Re: Your thoughts solicited: basement apartment conversion
« Reply #1 on: August 12, 2016, 05:50:13 AM »
Thoughts?  Would you do it?

Fuck yes, I would, that sounds awesome.

Also, are you the same waltworks that makes the custom bicycle frames?

lhamo

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Re: Your thoughts solicited: basement apartment conversion
« Reply #2 on: August 12, 2016, 05:55:25 AM »
I would do it and go with the 3br option. You wouldn't necessarily be renting to three adults. I could see this being a great option for a divorced parent with part time custody of kuds, for example. Plenty of space but for lower cost.
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Ensign1999

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Re: Your thoughts solicited: basement apartment conversion
« Reply #3 on: August 12, 2016, 09:08:01 AM »
I think I would totally do it.  75K to get 30K equity, and then depending on how you rent it anywhere from 15k a year (20% ROI) to 22K (30% RIO) are great numbers.  As for 2 or 3 bedrooms, it would all depend on how you would furnish it.  Maybe two bedrooms + a murphy bed to increase the living area, but have the same number of beds as a three bedroom.  Decide what your target renter looks like and design towards that.


waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #4 on: August 12, 2016, 09:28:18 AM »
Thanks guys.

-The 3rd bed idea for certain (part time custody, didn't think of that) situations is a good one. Given that we're already planning to pay for the electrical and HVAC/ductwork for that 3rd bedroom just so it's ready, maybe we'll just cough up a few more thousand bucks and have it finished.

-Yes, I'm the custom frame guy.

-Agree that we need to design for our anticipated renters. We are in the somewhat sticky situation of having the nightly rental option possibly go away at some point, though, so we have to keep an eye on long term (ie washer/dryer and full kitchen, which we probably wouldn't need for nightly rentals). So to some extent we have to try to make it do it all.

Thanks for the feedback!

ShoulderThingThatGoesUp

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Re: Your thoughts solicited: basement apartment conversion
« Reply #5 on: August 12, 2016, 09:45:30 AM »
The big risk here is that you have to sell the place before you've gotten paid back the money for it, right? $75k to get $30k equity means that if you got a health issue tomorrow and couldn't keep it up, or you had to leave it for any other reason, you're out $45,000. I am pretty sure you can afford to lose $45k but it's still a serious amount of money.

totoro

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Re: Your thoughts solicited: basement apartment conversion
« Reply #6 on: August 12, 2016, 09:59:09 AM »
Yes, do it.  Put money into soundproofing between the floors.  I would go for two bedrooms only myself for vacation rentals where you are also on site.  That is the most popular size for our rentals (we have 1, 2 and 3 bedroom) and you get too many people on site with three and not that much more money either for a short term rental and another room to clean.  I suppose you could do three and lock one room off for short term rentals and only use it for long term if you do that later.  I would definitely do two bathrooms.

$75,000 seems a bit high for the conversion.  We've put in two suites and I'd say that soundproofing is number one as mentioned and then I'd do separate hot water tanks, tile in kitchens and bathrooms and wood or high end laminate elsewhere.  Avoid carpet.  It does not wear well and people don't like it as there are lots with allergies these days.  I like a completely separate entry point for the main house and suite.  We have two places with completely separate parking areas and that works the best.

The good thing about this plan is that once it is operational you likely gain the equivalent of $400,000 invested with a 4% withdrawal rate in monthly income for as long as you own the asset for an investment of $75,000.  Of course it is not passive, but it can certainly jump start ER.  And it gives you options for putting up visiting family and friends.

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #7 on: August 12, 2016, 10:00:00 AM »
Yeah, I'm estimating randomly on the equity number. I can't find a reasonable answer on what apartments/mother in laws add to the value of a house, so I'm going with ~40% of the cost to build. I don't think anything in terms of home improvements usually returns more than 50% in equity at most and not everyone wants someone living under them.

So that is a great point. If we had to move, say, the day after the place was finished, we'd be out $45k or so. Definitely worth thinking about, though I think in our situation that risk is acceptable (losing $45k wouldn't matter that much to us in most plausible scenarios), especially since one of the potential solutions in that case would be to move into the apartment ourselves and rent the upper part of the house for ~$3500/mo (at which point we'd basically be FIRE).

-W


waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #8 on: August 12, 2016, 12:40:31 PM »
FWIW, the $75k includes quite a bit of excavation and concrete pouring, full electrical and plumbing (the existing basement has none and we need to cut the foundation in multiple places), adding egress windows and wells, as well as the interior framing/insulation/paint/etc. That budget also includes furnishing and equipping/decorating the space for nightly rentals and engineering/architecture fees.

Does it still seem high with that included? I'm being pretty conservative and assuming our GC's bid will end up being exceeded in some places as we build it out, and that we'll need to buy new/decent appliances. We may be able to get decent used stuff or find other ways to save money, but I think $75k will cover even going with all new stuff.

-W

rothwem

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Re: Your thoughts solicited: basement apartment conversion
« Reply #9 on: August 12, 2016, 12:54:10 PM »
I honestly don't think that the basement apartment will add much equity, if any, to the value of the home unless you're adding square feet.  In fact, around here, being classed as a "multifamily" will drop your comps and make your house worth less.  Make sure you don't do that. 

With that said, I still think you should do it.  Think about the math.  Lets say that you can't do the AirBNB or VRBO thing and you have to rent it for 1000/month.  That's still $12000/year, or a 16% return the first year.  There's not many investments that you can get that kind of return from.  And honestly, I think it will be more than that, since I don't think AirBNB or VRBO are going anywhere. 

The big risk here is that you have to sell the place before you've gotten paid back the money for it, right? $75k to get $30k equity means that if you got a health issue tomorrow and couldn't keep it up, or you had to leave it for any other reason, you're out $45,000. I am pretty sure you can afford to lose $45k but it's still a serious amount of money.

Don't be a 'fraidy cat.  That risk sounds fairly small, it sounds like the OP is paying cash for this thing, so the worst case is that he rents it and cashflows. 

totoro

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Re: Your thoughts solicited: basement apartment conversion
« Reply #10 on: August 12, 2016, 02:10:18 PM »
Where I live a nice suite adds at least $50,000 but it is a HCOL area and having a suite is the only way a lot of people can afford to buy something. 

I did excavation for plumbing through the concrete floor, new plumbing for bathroom, kitchen, and laundry, concrete work, new access, upgrade electrical to 200amp and rewire separately (for separate metering), separate hot water tank, architectural 3d rendering, and furnishing for a small suite for 35k.   75k seems high but I don't know the prices where you are and we did some of the work ourselves and used second hand nice furniture and cabinets.  What we started with was a main floor unfinished workshop/laundry/storage area.

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #11 on: August 12, 2016, 02:18:41 PM »
In conversations with other folks who have similar setups and our realtor friend, I think the apartment adds some value. Homes here are advertised as having apartment additions when they go for sale, and they appear to sell for a premium.

That said, I'm not counting on that equity for anything in particular here, the intent is to generate an income stream with the investment.

We are in Park City, UT, so very very HCOL and also high construction costs in general. And we're doing roughly 1200 square feet of finished space, which I personally wouldn't consider "small" (though in the context of our ridiculous house/neighborhood, it probably is). The GC is a personal friend and while I don't think he's giving us any sort of particular special treatment, he's also not gouging us. No interest in doing the work ourselves, we have a 2 year old and 4 year old and many fun hobbies - though I will probably build the handrails, since it seems a little silly to hire a professional welder when I am one myself.

-W

totoro

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Re: Your thoughts solicited: basement apartment conversion
« Reply #12 on: August 12, 2016, 03:37:22 PM »
Seems worth it given the ROI.  I calculated our payback time at three years - our suite was half the size yours will be.   Seems pretty good to me given that we also get the increase in home value, increase in appreciation on the higher value, and an ongoing revenue stream.  I don't think I know of any safe investment that would reliably return at least 20% other than a suite in your primary residence.  In Canada if you use less than 50% of your floor space on a suite the entire capital gain is tax exempt when the home is sold.

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #13 on: August 12, 2016, 05:09:44 PM »
I think you guys are being a little optimistic on ROI. Using 50% rule, I'm figuring ~$11k/year as a nightly or $8k/year long term. Not sure if 50% rule is appropriate here given that there's little/no external maintenance to do and I've already calculated in vacancy, though. Probably not.

In any case, I'd love to be happily surprised, but I'd be ok with a "mere" 10-15% ROI here too.

-W

totoro

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Re: Your thoughts solicited: basement apartment conversion
« Reply #14 on: August 12, 2016, 07:03:05 PM »
Maybe.  We invested $35k and make 18k in gross rents per year.  The 50% rule is silly in a HCOL area imo.  Same house in a low cost of living area might meet the 50% rule. 

In our case we deduct a floor space % of utilities, property taxes, and mortgage interest as these are permitted deductions.  Fact of the matter is that on a primary residence adding a suite really only adds the lost opportunity cost on your investment to do the reno plus utility increase because you would pay the same mortgage anyway to live there unless you are refinancing to reno (and then you'd have an interest deduction increase).   

The biggest cost is the income tax burden on net profits as we can't claim depreciation without losing our capital gains tax exemption on a primary residence.

sun and sand

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Re: Your thoughts solicited: basement apartment conversion
« Reply #15 on: August 12, 2016, 10:17:31 PM »
Do it!  I have made basement apartments in homes I have lived in and it is great to have the extra income.

Kroaler

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Re: Your thoughts solicited: basement apartment conversion
« Reply #16 on: August 15, 2016, 08:47:19 AM »
Thoughts?  Would you do it?

Fuck yes, I would, that sounds awesome.

Also, are you the same waltworks that makes the custom bicycle frames?

Way to derail my mind.  Next thing I knew, I was off browsing waltworks bicycles.... 

Awesome looking bikes, you must have the hands of a surgeon...

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #17 on: August 15, 2016, 09:42:29 AM »
Haha, and that's when Kroaler's FIRE was set back several years.... muahaha!

Just kidding. Thanks for all the input, everyone. We're doing it. Hoping to have construction drawings/engineering done this week so we can get permits.

-W

Dicey

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Re: Your thoughts solicited: basement apartment conversion
« Reply #18 on: August 15, 2016, 12:30:54 PM »
Glad you're doing it. You mentioned upthread the possibility of you moving downstairs and renting out the top of the house. Does that pencil out better?
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waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #19 on: August 15, 2016, 02:38:45 PM »
Glad you're doing it. You mentioned upthread the possibility of you moving downstairs and renting out the top of the house. Does that pencil out better?

That is an interesting question. We aren't really "house people" in that we mostly use our house as a place to sleep/eat, and spend most of our time outdoors riding/skiing/hiking/etc. So fundamentally, a 1200 square foot basement would be just fine for the 4 of us.

The upstairs of the house (about 2500 square feet, 4 beds, 3 baths) would rent for something in the range of $3500/mo long term. I'm not sure if it would make any sense as a nightly rental due to it's size, but who knows. I wouldn't even try to guess on a number for that without doing a lot more research.

The problem with that scenario is that my workshop is our (ridiculously large) garage. I have lots of 2000+ pound machine tools and welding equipment and all sorts of crap in there, basically none of which could easily be moved into the basement without some real rigging work on my part (and then it probably could never come back up). So I need/want the garage to myself, which hurts the rental value of the upstairs portion of the property quite a bit... I think. We live at a ski resort, so most people are going to want to park in the garage!

In theory, renting out the top part/living in the bottom puts us at FIRE, though, even with no income from my business. FIRE with VERY limited wiggle room on spending, though. 

I guess the bottom line for me is that I enjoy what I do and I don't really want to quit. I have plenty of fun hobbies, but not enough to fill a whole day. I enjoy my customers and interacting with them, and I enjoy messing around with metal. I only work 20-30 hours a week as it is most of the time so I'm not ready to pull the trigger on fully quitting anytime soon. That could change, I guess, which is why I want the basement set up nicely enough that we'd be happy living there.

I HOPE I am not just the kind of person that feels like living in the basement is somehow a step down/lower status/bad and that we *should* live in the top of the house because that's what you do. I will need to examine my feelings on that a bit more, though.

-W

Goldielocks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #20 on: August 16, 2016, 04:40:34 PM »
If you are looking into air BNB... I suggest you consider the following:

1)  Get a Bed and Breakfast type business license.  Many traditional BNB's also list on AirBNB and it deals with the city requirements nicely, and is not that expensive here.   (unless your area is prohibitted from home based businesses).

2)  Make both bedrooms have their own Ensuites, or have a one bed & Bath (no full kitchen) able to be locked off from the other (with kitchen).  It is best if you could choose by season to have two separate BNB rentals, or revert to one large rental apartment lease...

3) 1200 sq.ft is a lot of space to clean... which is partly why I suggest #2.  You can also deal with damage in one "unit" while renting out the other unit if needed.   

4)  In suite laundry is NOT needed for short term rentals, and just an added cost.   Renters here like them, but only 50% of the basement suites have them.  On the other hand, include a small dishwasher in the unit with a kitchen, so most guests will put dishes into them for you instead of leaving them in the sink.

5)  LOTS and LOTS of daylight windows -- dig out larger /more than you think you need, and use better quality materials in kitchen and bath.  Top dollar for your business..

Where this comes from...
My grandparents ran a small motel for 15 years and regretted their choice of building 1 and 2 bedroom suites pretty quickly.  Three times the work to clean / turn over for less profit per square foot.

People like white, bright and clean in their rental choices.

lhamo

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Re: Your thoughts solicited: basement apartment conversion
« Reply #21 on: August 16, 2016, 07:55:09 PM »
4)  In suite laundry is NOT needed for short term rentals, and just an added cost.   Renters here like them, but only 50% of the basement suites have them.  On the other hand, include a small dishwasher in the unit with a kitchen, so most guests will put dishes into them for you instead of leaving them in the sink.

He's in a ski resort area.  In ski or beach areas, I personally would not rent a house without laundry.  Nobody wants to be schleppng their wet snow gear and towels down to the laundrymat when they are paying a fortune for a vacation.

 
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waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #22 on: August 16, 2016, 09:26:33 PM »
I agree that the laundry and size are both ridiculous for a nightly rental situation. However, as I mentioned earlier, there is the possibility that:
1) Nightly rentals in our area will be banned (and that ban actually enforced in some way).
2) We would want to move in to the apartment ourselves.

Great points, thanks! We'll definitely err on the side of large on the windows and try to make it as light as possible.

-W

totoro

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Re: Your thoughts solicited: basement apartment conversion
« Reply #23 on: August 17, 2016, 07:14:57 AM »
Laundry is an important addition.  When you have same day turnover you will be happy with two sets and guests want laundry and dishwashers.  Smaller is better for cleaning.

KMB

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Re: Your thoughts solicited: basement apartment conversion
« Reply #24 on: August 17, 2016, 07:48:11 AM »
I think you guys are being a little optimistic on ROI. Using 50% rule, I'm figuring ~$11k/year as a nightly or $8k/year long term. Not sure if 50% rule is appropriate here given that there's little/no external maintenance to do and I've already calculated in vacancy, though. Probably not.

In any case, I'd love to be happily surprised, but I'd be ok with a "mere" 10-15% ROI here too.

-W

I don't see how your expenses will be anywhere close to 50%. Increased utilities and taxes should be all that you'll have to pay in addition to what you pay to live in your house right now. Maybe you'll have an eviction or other type of PITA that could come up.

I'm curious what your sound proofing solution looks like. In multi-unit construction the standard would be 2" of gypcrete on top of the upper unit subfloor, plus stuffing the truss with sound bats. But you probably don't have trusses between your basement and first floor and your existing joists probably can't carry the load. Plus you don't want to rip up your existing flooring... Can you ask your designer what your STR (sound transfer rating) will be?

Also, I think 2,000 square feet of space is plenty big for 2 - 2 bedroom apartments. You could share laundry space between them. Have you considered this?

rothwem

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Re: Your thoughts solicited: basement apartment conversion
« Reply #25 on: August 17, 2016, 08:02:29 AM »

The problem with that scenario is that my workshop is our (ridiculously large) garage. I have lots of 2000+ pound machine tools and welding equipment and all sorts of crap in there, basically none of which could easily be moved into the basement without some real rigging work on my part (and then it probably could never come back up). So I need/want the garage to myself, which hurts the rental value of the upstairs portion of the property quite a bit... I think. We live at a ski resort, so most people are going to want to park in the garage!


I wonder...do you have enough land to build a freestanding shop?  I'm thinking that if you did that at the same time as the basement reno, you might be able to get a better deal. 

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #26 on: August 17, 2016, 09:33:08 AM »
I don't see how your expenses will be anywhere close to 50%. Increased utilities and taxes should be all that you'll have to pay in addition to what you pay to live in your house right now. Maybe you'll have an eviction or other type of PITA that could come up.

I'm curious what your sound proofing solution looks like. In multi-unit construction the standard would be 2" of gypcrete on top of the upper unit subfloor, plus stuffing the truss with sound bats. But you probably don't have trusses between your basement and first floor and your existing joists probably can't carry the load. Plus you don't want to rip up your existing flooring... Can you ask your designer what your STR (sound transfer rating) will be?

Also, I think 2,000 square feet of space is plenty big for 2 - 2 bedroom apartments. You could share laundry space between them. Have you considered this?

Appliances will break, carpet/paint/trim has a limited lifetime, pipes can leak, etc. 50% rule includes management costs, too (which we'll handle ourselves, but that's not free money, it's a job). I agree that the 50% rule is probably crazy in this situation, though.

To fit 2 apartments I think we'd need to do basically a giant parking structure (no way we'd get permits for that!) in our front yard. Neat idea, though.

We will do our best on sound transfer. The apartment will be under a portion of the house we seldom use so that will help.

-W

Goldielocks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #27 on: August 17, 2016, 09:36:41 AM »
4)  In suite laundry is NOT needed for short term rentals, and just an added cost.   Renters here like them, but only 50% of the basement suites have them.  On the other hand, include a small dishwasher in the unit with a kitchen, so most guests will put dishes into them for you instead of leaving them in the sink.

He's in a ski resort area.  In ski or beach areas, I personally would not rent a house without laundry.  Nobody wants to be schleppng their wet snow gear and towels down to the laundrymat when they are paying a fortune for a vacation.

 

Ah, but you would rent a room if you did not need a full house.   Access to laundry is always nice, air BNB often allow access to laundry...

Goldielocks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #28 on: August 17, 2016, 09:41:23 AM »
I agree that the laundry and size are both ridiculous for a nightly rental situation. However, as I mentioned earlier, there is the possibility that:
1) Nightly rentals in our area will be banned (and that ban actually enforced in some way).



Definitely get a Bed and Breakfast license now, then, while you still can.  They don't cost much here, and would allow you nightly rentals even after nightly air BNB rentals are banned.

Nightly rentals are a bit of work to turn over for the next customer... so seriously think about lock off rooms and limiting the size to make it easier for you to match the price with the work involved.

Dicey

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Re: Your thoughts solicited: basement apartment conversion
« Reply #29 on: August 17, 2016, 09:48:36 AM »
Walt, I just spent a week in Aspen and was shocked at how many places did not have garages. In the rent out the upstairs scenario, it might not have quite the negative impact on rent you think it will. Next, is rothwem's suggestion a possibility?
Finally, since you're in a resort area, anything you do to make the place multiple-tenant friendly will likely have a greater than average payoff at resale, especially if everything's permitted.
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waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #30 on: August 17, 2016, 10:20:16 AM »
Yeah, Aspen is an even weirder place than Park City! All of this is up in the air, really, and I think all of these ideas are intriguing:
-Move to basement, build separate shop (probably hard to get a permit for this, but who knows... we have 1/2 acre of land), rent out up. Result: giant piles of passive income minus shop building costs (maybe 30k? No idea on costs for something that needs heat/electical but not plumbing)?
-Move to basement, rent out up and keep garage in use as shop. Result: giant piles of passive income minus losses from not having garage available as part of rental?
-Move to basement, rent up, quit working. Result: potential boredom, limited passive income but just enough to get by on current spending. Small kids will need stuff and college, etc.
-Stay up, rent lower. Result: small amount of passive income.

I could be talked/convince myself into any of those but for now building the thing at least makes sense to me. If there's any interest I'll keep this thread updated as we go.

-W

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #31 on: September 15, 2016, 02:31:49 PM »
I'm bumping this necro-thread to solicit some additional advice.

Things have not gone particularly well with this project. The county seems to be unable to provide accurate information on code requirements and permitting, so we still have no permits (a month after we intended to start work). That's bad. What's even worse is that the costs seem to be piling up to infinity - what was originally going to be a $50k or so job has already ballooned to $80k - and that's *before* any of the usual surprises/problems that always happen in construction projects OR furnishings/appliances! I'm sort of anticipating that the project will end up costing $100k...or more.

So as a followup - would anyone still do this? I'm thinking of pulling the plug on the whole idea.

-W

Kroaler

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Re: Your thoughts solicited: basement apartment conversion
« Reply #32 on: September 15, 2016, 06:23:53 PM »
The cost are getting crazy.  I *think*I can build an entire freestanding 3/2 house in my area for that kinda $. 

But I'm no real estate investment guru. Maybe someone else can provide their thoughts.

FIFoFum

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Re: Your thoughts solicited: basement apartment conversion
« Reply #33 on: September 15, 2016, 07:09:56 PM »
That doesn't sound promising.

Also, just reading through the thread, I didn't see anyone mention that even if the airbnb option remains or you can get an actual b&b license instead, you still would have to want to manage (or pay to manage) a hospitality business. The returns can be much higher than long term rental, but the work you do is a lot less passive. Not clear if you have the interest in doing that or paying for it (and once paying for it, that is more cost to add in to the calculus).

So if it really is just a long-term rental potential, is it worth it for $100,000K +?
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waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #34 on: September 15, 2016, 07:12:53 PM »
I have to admit I'm dumbfounded. Every single thing ends up being some sort of massive disaster/cost increase. The sewer district wants $2500 per room to sign off on plans. The fire department requires the *whole house* be rewired for new integrated smoke alarms and *possibly sprinklers* as well! The planning and engineering staff don't appear to talk to each other or have the same set of requirements. Permit requirements seem to change week to week so every time you've satisfied one requirement, another new one pops up.

I think I'm probably just going to kill the idea, and pay the engineer and architect for their time. Maybe at some point in the future the plans will be useful for something.

Sigh.

-W

bpleshek

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Re: Your thoughts solicited: basement apartment conversion
« Reply #35 on: September 16, 2016, 03:22:57 PM »
Just to put some math on it.

Just on the basis of cost and forgetting about the increase in equity for the moment, the $75k initial expense would take using your numbers 750 rental nights(at 100/night) or 62.5 rental months at $1200/month.  That does seem like a long term strategy.  I don't know the area that you are in, so maybe i'm totally off base, but even your 50% occupancy rate on the nightly rentals seems quite high.  Maybe the monthly rentals would have better occupancy, but 62 months is over 5 years.

Still that's a decent return on investment.  I'd want to make sure about my numbers before I started.  The idea above seems "back of the napkin" so far.

As to your info about the updated wiring, sprinklers, sewers stuffs, it still might not be a bad thing.  But the addition of $10k just to sign off seems like it might be excessive(3BR+kitchen/living area).

Good luck,

Brian
« Last Edit: September 16, 2016, 03:29:37 PM by bpleshek »

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #36 on: October 05, 2016, 02:55:55 PM »
Update, for those still interested (Buehler?)

We did some finagling, redesigning, and kept showing up at the building department and managed to eliminate about $5k worth of permitting/fees as well as maybe $10k worth of construction costs (partially though getting more bids, partially by making better use of the existing layout/window wells and HVAC). So that's good.

We've also discovered that in a fancy-pants resort town people are *constantly* remodeling and dumping appliances, vanities, mirrors, TVs, etc. I think we'll end up furnishing/outfitting the place with really nice stuff for well under $5k.

So I'm hopeful that we'll end up coming in between $60k and $70k. Which seems like a great setup (right around 2% rule as a monthly/long term!)

We are hoping to be done in 3 weeks or so. Framing and waste lines are done, HVAC is done, plumbing is happening on Monday... but of course all it takes is one delay to push everything back. We'll see if (when) we get tripped up by a sub.

-W

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Re: Your thoughts solicited: basement apartment conversion
« Reply #37 on: October 06, 2016, 09:20:19 AM »
Posting to follow.
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Re: Your thoughts solicited: basement apartment conversion
« Reply #38 on: October 06, 2016, 09:50:21 AM »
Really glad you were able to work through some of the red tape and press forward.  I hope the rest goes well for you guys.

pbkmaine

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Re: Your thoughts solicited: basement apartment conversion
« Reply #39 on: October 06, 2016, 10:01:47 AM »
Please post photos when you are done!

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #40 on: October 06, 2016, 12:14:31 PM »
I will take a few photos when I get a chance. I think my indoor photography skills might not be up to the challenge of showing anything useful in a framed but unfinished space (ie, it will look like a big grey space full of 2x4s) but who knows.

We have a long string of inspections over the next 10 days (plumbing, engineering, HVAC, then electrical) so I'm sure we will have some minor disasters in the process. Who knows.

-W

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #41 on: December 05, 2016, 08:17:05 PM »
Sorry, no photos yet. But we're almost done. End cost looks like (with all the furnishings/appliances) it'll be about $70k. AirBnB tells us we can get something like $800/week. We'll see if that's the case or not.

Unfortunately we're going to be finishing up just before the holidays (big $ time of year for vacation rentals here) but will be out of town ourselves - and we'd rather not be out of town during the break-in/test-out period, so I think we'll refrain from listing it for rent until we return in early January. It's almost physically painful to give up what would likely be $1000+ in rent, but I don't want someone to be unhappy with something (or something important to be missing/in the wrong place) and start things off on the wrong foot.

If we happen to be up and running by, say, December 15th or so (unlikely but possible) then maybe we'll get a few people in during the last week we're in town and see how things go before making a final decision on the holidays themselves.

Exciting times!

-W

sammybiker

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Re: Your thoughts solicited: basement apartment conversion
« Reply #42 on: December 06, 2016, 04:27:24 PM »
Good move I think to wait until you set everything up - you'll learn a lot with the first couple of airbnb rental periods and this is a key time to really lock in excellent reviews so that you can slowly bring prices up to what the market will bear.  Don't forget to take advantage of the free PRO photos that airbnb offers.

Looking forward to seeing photos soon! :)

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #43 on: January 11, 2017, 06:04:07 PM »
Just FYI, for those few who are still interested - it's done. It took almost 2 months longer than expected and ended up costing $73k (including all furnishings).

You can see the (crappy photos by us taken just to get the listing up, pro will photograph tomorrow) the listing here if you're curious:
https://www.airbnb.com/rooms/16693811

Advice/feedback on any of the elements of the listing (or pricing strategies) would be great. I'm far from a marketing pro!

We have 3 bookings thus far covering 10 days (so we're basically booked out for the Sundance film festival/end of the month) and will net about $1800 after costs of stuff like utilities, soap/shampoo, and cleaning supplies. I'm hopeful that a few good reviews at the beginning will get us a lot more bookings for the remainder of ski season, and then we'll see if we can attract some business in the summer from mountain bikers and others.

No actual dollars have hit our bank account yet (not until next week) but things are looking pretty good so far!

-W

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Re: Your thoughts solicited: basement apartment conversion
« Reply #44 on: January 11, 2017, 06:38:35 PM »
Looks great!   I'd actually be MORE interested in visiting in the summer, as we are not skiers, but I would love to come for the hiking.  And DH would probably totally geek out about your bikes.....
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Re: Your thoughts solicited: basement apartment conversion
« Reply #45 on: January 11, 2017, 06:59:16 PM »
Waltworks, really cool basement apt. The pictures on airbnb are quite nice.

I see no reviews there, you need reviews for the airbnb if you want more occupancy! (Probably because you have few or no guests)

waltworks

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Re: Your thoughts solicited: basement apartment conversion
« Reply #46 on: January 11, 2017, 07:59:11 PM »
Yeah, no reviews yet - we have some bookings but the first guest won't arrive for another 5 days. We will be busting our butts to get some good reviews but no way to do that without actually hosting someone!

-W

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Re: Your thoughts solicited: basement apartment conversion
« Reply #47 on: January 12, 2017, 06:51:27 AM »
Looks great and kudos to you for working through your local approval process and pulling the trigger! Hope it turns out to be a great investment!

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Re: Your thoughts solicited: basement apartment conversion
« Reply #48 on: January 12, 2017, 07:08:44 AM »
Nice looking place! You might want to post a picture of the outside too, so people know what house they should be pulling up to.  We had that problem with an AirBNB we stayed at in Asheville--it was a basement apartment with a rear entrance.  We pulled up, but there was no house number and I had no idea which house was theirs. 

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Re: Your thoughts solicited: basement apartment conversion
« Reply #49 on: January 12, 2017, 07:34:53 AM »
posting to follow,  looks like we have a friend renting the basement soon, so now we have to fix it up for him, and improve it for future renters too