Author Topic: Basement apartment or some other RE investment? That is the question.  (Read 1186 times)

Zoot Allures

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About a year ago I bought a small craftsman bungalow in a hot neighborhood in Portland, Oregon. It's my principal residence and I plan to stay for several years. The unfinished basement was a big part of the house's appeal for me, because I saw the potential for an apartment. Thanks to the improvements I've made to the house since buying it and the continued appreciation, I was able to open a HELOC for $90k. This will more than cover the cost of building a nice 700 sq. ft. apartment (with new windows and entry, full kitchen and bath, separate utilities, etc.). Construction costs are high in Portland, but so are rents. I would price the apartment at about $1300/month.

It would cost me about $300/month to service the HELOC, which means the apartment would cash-flow about $1000/month before other expenses. Not sure if I would try to aggressively pay off the HELOC or just refinance the house. Probably the latter.

It's not easy for a real estate novice like me to make cash-flowing investments in Portland, so this is definitely one way to do that. It would be an easy apartment to manage. I could even do some short-term/airbnb experiments with it. And yet, I hesitate to pull the trigger because I wonder what else I could do with that $90K. For example, I could buy another small SFH, fix it up a bit, and keep it as a rental. In that case I would be servicing the mortgage as well as the HELOC I used for the down payment and rehab, so any cash flow would probably be minimal. But owning a SFH in Portland certainly has other advantages. I've also thought a lot about investing out of state and am very intrigued by the idea.

I guess it comes down to my goals. I already have one SFH rental and it's doing well for me. I like the idea of creating cash flow sooner rather than later, as I'm hoping to transition to flexible/part-time work in about 5 years.

Thoughts? Anyone been in a similar situation?
« Last Edit: November 06, 2015, 11:52:36 AM by Zoot Allures »

undercover

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Re: Basement apartment or some other RE investment? That is the question.
« Reply #1 on: November 06, 2015, 04:53:52 PM »
I would personally rather have a rental right under me that cost $50-90k (I think you can do way better than $90k since you're not building from scratch) than worry about a second SFH. There's no doubt you'll see a better return by renting your basement apartment as well. Heck, you might even be able to fix that one up, rent it, and then finance a third property. If, by other advantages from a SFH home, you mean tax advantages, I still don't think you're going to come anywhere close as running your home as a duplex. It's going to be much cheaper, less headache, greater flexibility (easier to manage as either a LTR or STR) and ultimately yield higher returns. I would start there, and then look for other investments if you can find them.

Zoot Allures

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Re: Basement apartment or some other RE investment? That is the question.
« Reply #2 on: November 09, 2015, 02:30:19 PM »
Good feedback, undercover, thanks. I agree with your take. The appeal of another SFH lies mostly in the appreciation that I would expect to see over time, but certainly a duplex in my neighborhood will appreciate nicely as well--even if one of the units is below ground.