The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: TrulyStashin on July 31, 2013, 01:12:33 PM
-
I own a single family 3,000 sq ft ranch house -- 1,500 sq. ft up and 1,500 sq ft down. The downstairs has a "bedroom" (no window so technically not a bedroom but that's how we use it), a huge living space with a wood stove, and a kitchen (yes, second kitchen in my house, though small). There is also an unfinished laundry room with a 1/2 bath, utility sink, and washer/ dryer. The basement has French doors that open onto a mulched courtyard area with a table and chairs. This would be the tenant's ingress/ egress and s/he could also use the outdoor living space.
We live almost entirely upstairs. I only go downstairs to feed the dogs or do laundry. Laundry could easily be duplicated by adding a w/d set in my garage, found used on Craigslist of course!
For roughly $800-1,000 I could add a shower to the basement laundry room, paint throughout (essential), install a door at the top of the stairs with a deadbolt and rent out the space as a furnished 1,500 sq. foot "apartment" with private entry and shared outdoor living space. If I include utilities, I think I can get between $800 and $900 a month so this feels like a no-brainer. We are 10 miles from a major Army base that serves as the Army's logistics-training university so there are lots of officers or senior enlisted coming and going for 6-month stretches of course work. I'm also 15 miles from my mid-sized city's downtown core and major university.
I think this is a great plan for extra income.
Any advice? Pitfalls to avoid? Do I need additional insurance coverage? Has anyone broken through a concrete subfloor to tap off the house's main drain in order to add a drain for the shower? I'd need to do that but it seems like it should work well as the toilet and sink in the unfinished laundry room are already using that drain so it is low enough to accommodate the shower too.
Thanks, in advance!
Oh, fwiw, there is no HOA for my neighborhood and though zoning is single-family no one really pays attention and I have a 1/2 acre lot with one neighbor on either side and a forest behind me. I don't anticipate this being a problem.
-
You MUST have an ingress/egress window in any room you are using as a bedroom. I would not consider doing this unless I could add the code-required window.
-
Hmmmm, thinking freely here . . . the room we use as a "bedroom" doesn't HAVE to be the bedroom. There is 1100 sq feet of open space with two windows and the French doors. The "bedroom" could just as easily be there as in the room.
Tenant would still have privacy because the whole space is his/ hers to use. It would be more like a studio, if used that way.
After a few months of income generation, I'd spend the $$ necessary to add a window to the "bedroom." All told, that would give me a 4 BR 3 Bath house so it would add significantly to my home's value and marketability if I choose to sell.
Better?
-
In your shoes, I would add the window before considering renting the space. If the house burns and they find the tenant's body in an enclosed room with no egress window, things will go badly for you no matter what the use of the room. I personally would not have an enclosed room without that window in my house because of the safety issue.
Other than that, I think you have a good plan.
-
You MUST have an ingress/egress window in any room you are using as a bedroom. I would not consider doing this unless I could add the code-required window.
Wow...my old apartment was apparently not up to code. Not surprising, coming from that landlord.
-
Adding the window requires breaking through the concrete block foundation, adding a header, rehanging & painting the paneling on the interior, and creating a window well (it would be partially below grade). All in all, I expect it would cost a couple of grand to do all that. I get that it is necessary to legally use the space as a bedroom but it seems premature to say this has to be done before using the rest of the basement.
Do others have thoughts on this?
-
It sounds like a great opportunity to earn some extra income.
Whether you call it a studio or a bedroom, I would still invest in making it safe and legal. It may also increase the value of your home.
What could you rent it for? How long would it take for the rent to pay off the improvements? The costs of the improvements may also be tax deductible. Something worth looking into.
-
Adding the window requires breaking through the concrete block foundation, adding a header, rehanging & painting the paneling on the interior, and creating a window well (it would be partially below grade). All in all, I expect it would cost a couple of grand to do all that. I get that it is necessary to legally use the space as a bedroom but it seems premature to say this has to be done before using the rest of the basement.
Do others have thoughts on this?
If you want to rent it out legally you need to do the window work before renting it. Doing so opens you up to lawsuits and fines. A couple thousand dollars investment is a small enough risk to take to make it worth it. Like you said, it'll add a bedroom to your house increasing it's value. What do similar units rent for in your area? You say you think you can get $1500. What is that number based on? Have you looked at comparable rentals?
-
Based on researching local classified ads, Craigslist, and AHRN (military off-post housing site), I think I can reasonably expect to get $800 to $900 a month for the space.
So long as the bedroom is not located in the windowless room, I don't see any safety or legal issues beyond the base issue of having a tenant in a home zoned for single family. Where I would locate the bed would be immediately below a window and about 10 feet from the French doors. Egress in an emergency would be easier than it would be from my own bedroom.
I do not have enough cash right now to spend any on adding a window. I could easily close and lock the door to that room so it is off limits to the tenant.
-
Sounds like a good plan overall. You can check your local zoning ordinances to determine if a separate egress is required in anything used as a bedroom (it likely is). Since the downstairs has a separate entrance, it's possible that would suffice. But even if that is the case, I'd probably still do the window egress in the bedroom. Plus even if it's technically not required now, zoning laws usually catch up eventually, and you'd find you can't legally rent your space without it. With your estimates you'd recover those costs in 3 months of rental income or less, plus adding value to the home.
If you're including utilities, I'd make sure to add a very healthy amount to the rent to make sure you cover your costs. Since the tenants will have no incentive to keep costs in check, they could really run them up (taking long, hot showers, leaving lights on all the time, etc.). And if you're taking on short term rentals of 6 months, another good reason to increase the rent.
I just saw your most recent reply -- If you haven't done so already, this might be a great time to get a HELOC on this property, and you can use that to cover the costs of the needed work, which you should quickly recover. Also, it's safe to say no tenant is going to want to be deal with major renovations like walls being knocked out, so putting off the work until later is a losing game, in my opinion. If you save the work for later the place will have to be unoccupied, which means no rental income while you do it.
-
If you're including utilities, I'd make sure to add a very healthy amount to the rent to make sure you cover your costs. Since the tenants will have no incentive to keep costs in check, they could really run them up (taking long, hot showers, leaving lights on all the time, etc.). And if you're taking on short term rentals of 6 months, another good reason to increase the rent.
Thanks for this input. I'd love some more advice along these lines. I'll consider adding the window but given that my most likely tenant will be a short-term situation anyway, I could easily leave that room off limits and then add the window in between Tenant 1 and Tenant 2. I can plan ahead and get the work done in a day or two the minute T1 leaves and be ready to accommodate T2 almost immediately. I expect a fairly high turnover, given my proximity to the Army post.
other tips or advice on how to do this?
-
Could the windowless room be used for storage by the tenant? That might be very desirable if your tenants are short-term and in transition. I'd just make really, really sure they understand that for safety reasons that room is not to be used for anything other than storage (put it in writing in your rental agreement and let them know you reserve the right to check from time to time). Otherwise, padlock it. Definitely be generous (to yourself) in your estimate for utilities if you are providing them (you can always give a little back if they turn out to be frugal with the utilities and great tenants). Have an agreement in writing that spells out the terms of your arrangement, even if it is short-term. You can find forms for month-to-month rental agreements in legal forms books, landlording books, or at an office supply store. Strike out the parts you don't want and add anything extra that you do want. (I know you're a lawyer, so you know all this stuff.) You might want to check on landlord-tenant regulations in your state -- sometimes this information is available through your state Attorney General's office or a consumer affairs department or housing advocacy organization. I put a clause in my leases stating that my insurance does not cover tenants' losses and that tenants are advised to carry renters' insurance for their belongings. I don't require it, but recommend it. I think your plan sounds great. You are going to be debt-free in no time.
-
I've been researching how to add egress windows and I have some friends who I think will help me. I also found some concrete blocks on Craigslist (for the well retaining wall) for $1 each. I have some slate that can be veneered over it to make it pretty. I am thinking to DIY the egress window. It's hard but not complicated.
And I'd be one proud Mustachian!
-
Coming from a landlord of both residential and commercial property I would say:
Check with your homeowner's insurance and local code enforcement department. I was never one that liked to "fall in line" with codes and provisions, but once it bit me in the ass.. I sure did.
One other thing to consider, and take this anecdote with a grain of salt: Bed bugs are/were rampant in the Army. I have delt with this issue both personally (my college got them) and professionally (one of my rentals got them) and it is the opposite of fun. Again, we can't hide under our mattress pretending the sky is falling constantly, but since this is your home I thought I would mention it. The rental of mine that was hit was not occupied by a member of our military, but two of his brothers were in the Guard and visited often.
-
I've been researching how to add egress windows and I have some friends who I think will help me. I also found some concrete blocks on Craigslist (for the well retaining wall) for $1 each. I have some slate that can be veneered over it to make it pretty. I am thinking to DIY the egress window. It's hard but not complicated.
I just finished my basement with 2 bedrooms and full bathroom + laundry room (it was completely bare beforehand) for the purpose of renting it out as a vacation rental. I also had to install egress windows, I did one for each bedroom and 1 in the living room to let in more light, and you are right - it's not an impossible diy project. I'd recommend renting both a mini excavater (depending on you soil, it would have taken me weeks to dig the wells by hand) and a gas powered concrete saw. You'd probably spend $200 or so renting the necessary equipment and you could finish the rough in for a single well in a day, while a contractor is going to charge about $1500 per window. And, while you've got the concrete saw, go ahead and make the necessary cuts you need to add a shower. If the toilet and sink are already draining underneath your slab this shouldn't be too hard.
Good luck!
-
I've been researching how to add egress windows and I have some friends who I think will help me. I also found some concrete blocks on Craigslist (for the well retaining wall) for $1 each. I have some slate that can be veneered over it to make it pretty. I am thinking to DIY the egress window. It's hard but not complicated.
I just finished my basement with 2 bedrooms and full bathroom + laundry room (it was completely bare beforehand) for the purpose of renting it out as a vacation rental. I also had to install egress windows, I did one for each bedroom and 1 in the living room to let in more light, and you are right - it's not an impossible diy project. I'd recommend renting both a mini excavater (depending on you soil, it would have taken me weeks to dig the wells by hand) and a gas powered concrete saw. You'd probably spend $200 or so renting the necessary equipment and you could finish the rough in for a single well in a day, while a contractor is going to charge about $1500 per window. And, while you've got the concrete saw, go ahead and make the necessary cuts you need to add a shower. If the toilet and sink are already draining underneath your slab this shouldn't be too hard.
Good luck!
Thanks!
Good news . . . I decided to DIY 95% of the project (I draw the line at HVAC work to add an air return and also doing finish carpentry) and once I got underway I posted a few things on Facebook about the project.
One of my best friends responded and asked why I was renovating the basement. I told her and she said she wants to rent it! She came over and we did a walk through. She has 1/2 custody of her kids who live in my town but her fiance (soon to be husband) lives an hour + away so she splits her time between towns (crazy, I know). When she has the kids half of each week, she has to be here and has been staying at her parents' house. As you can imagine, that's not working well.
So, it looks like I have my tenant -- someone I trust and who will only be there half the time. We talked about sharing the washer & dryer which is fine with her and prevents me from having to wire/ vent another set in my garage. Remember the old TV show "Kate & Allie." Well, it's kinda like that. Her rent payment will cover half my mortgage. Hurray!
-
I`ve done all this and more. Short-term your friend might work well but plan for the long-term.
Long term- get the window done - definitely - and the separate washer and dryer. Breaking concrete to add a drain - done that twice. First time we did it ourselves and the second we hired someone. Was worth it for us to hire someone - hard on the body that job. Make sure you have sufficient slope for the drain - look to your building code. We need interconnected smoke and fire alarms where I am for a suite.
With high turnover you might want to furnish the suite. Consider soundproofing - I`ve added it to all my units using resilient channelling in the ceiling, insulation and an extra layer of drywall.
-
I`ve done all this and more. Short-term your friend might work well but plan for the long-term.
Long term- get the window done - definitely - and the separate washer and dryer. Breaking concrete to add a drain - done that twice. First time we did it ourselves and the second we hired someone. Was worth it for us to hire someone - hard on the body that job. Make sure you have sufficient slope for the drain - look to your building code. We need interconnected smoke and fire alarms where I am for a suite.
With high turnover you might want to furnish the suite. Consider soundproofing - I`ve added it to all my units using resilient channelling in the ceiling, insulation and an extra layer of drywall.
Agreed. I have to run a box along the ceiling for duct work and new wiring anyway so will rough in new wiring for a second set of W/D in my garage on the expectation that she will be short term and/ or it may kill our friendship! (joking, sort of). I have furniture if needed. The basement ceiling is one layer of drywall plus acoustical tiles glued to drywall so they appear to be a dropped ceiling -- sound proofing is pretty good.
My short term plan is to rent the basement until spring/ summer of 2015 when my son graduates and goes off to college. After that, I plan to move to a smaller place and rent out the whole house. My math shows a current CAP rate of 9% for renting my whole house which will hopefully be slightly higher in a couple years as rents are steadily rising in my area.
-
As a total cheapskate, my first thought was, could you live in the basement and rent out the upstairs?
-
As a total cheapskate, my first thought was, could you live in the basement and rent out the upstairs?
That's totally badass. No, I am not that badass!
Plus, a good friend of mine is going to rent it part-time (she lives in my town and about an hour away -- complicated). So, I have a part-time tenant for full time rent with a friend. I'm very pleased. Half my mortgage will be covered.
-
Update and time to Ask the Mustachians.
I'm 2 months into the DIY renovation and I'm getting cold feet because finishing the job will require approximately $2200 more for a total cost of $4700ish. My options for covering the rest of the $2200 cost are: 1) pay cash which will delay paying other debts off or 2) use Home Depot or Lowes 0% for 6 months financing. I do not have the cash to both pay toward existing debt and finish the job.
I could stop right now and be happy with the fact that my house is now 4 bedrooms instead of 3. I could hunker down, NOT rent the basement, and funnel cash toward debt paydown. Or I could push on and finish the reno. I am very confident that I'll be able to rent it as I've had four people inquire and 3 of the 4 have called repeatedly asking if it is ready. Rent should be in the $700/ mo range. Bare minimum, I'm in this house another 18 -19 months until son graduates HS, more likely it will be 22 months (when he leaves for college), see the breakdown below for my break-even calculations.
Extra wrinkle -- my ex-husband is appealing his child support and I will likely see a reduction of between $150 and $250 in child support income though, in response, I'm now asking for his half of all the extracurriculars and medical costs that I have NOT asked for because I figure it is a wash. Anyway, I'll see an income reduction at some point early next year and this rental income could offset that.
Estimated Future Costs:
washer/ dryer $500.00
shower $500.00
new toilet $300.00
lumber/ drywall $300.00
plumbing $300.00
electrical $200.00
Paint $100.00
Subtotal $2,200.00
Actual Costs so far:
Backhoe $325.00
Vanity & sink $65.00
Carpet $65.00
gravel $32.00
window $25.00
Light fixtures/ ceiling fans/ paint/ retaining wall blocks $1,612.00
HVAC work $400.00
Subtotal $2,524.00
Total $4,724.00
Months to Break-Even @ $650 gross/ $600 net 7.9
Months to Break-Even @ $700 gross/ $650 net 7.3
Number of months left in house Oct. '13 - Aug. '15 (son off to college) 22
Possible profit over 14 months after break-even $9,100.00
Number of months left in house Oct. '13 - Jan. '16 (2d semester of son's college begins) 27
Possible profit over 19 months $12,350.00
Do I keep going or bail and hunker down as-is?
-
You keep going at this point. In for a penny, in for a pound. Otherwise, you have simply put some money into the house (which would have gone to servicing student loan debt) you would not have normally spent. Push forward and finish. You have the renter, now you need the room finished to get the cash flowing.
(If it helps at all, my rental does not hit break even until year 3. I'd love to be in your position instead....)
And hey, if Lowes wants to loan you money for six months free of interest and you are confident you'll pay it all back in that time frame, all the better. Cash flow problem solved.
-
Finish. Not only does it make short-term economic sense, you will also increase the value of your home more with a suite than with the extra room - likely more than the cost of finishing.
-
I'd finish.
At least one of your estimates is about $200 high in my book.
I put this toilet in my house and have been very happy with it. $100 price tag. I don't take lowes up on their 0% I go for the 5% off.
http://www.lowes.com/pd_98923-70476-AT1203-00_4294737213__?productId=3126281&Ns=p_product_price|0&pl=1¤tURL=%3FNs%3Dp_product_price%7C0%26page%3D1&facetInfo= (http://www.lowes.com/pd_98923-70476-AT1203-00_4294737213__?productId=3126281&Ns=p_product_price|0&pl=1¤tURL=%3FNs%3Dp_product_price%7C0%26page%3D1&facetInfo=)
-
Agree with Hybrid and Totoro. You don't know what you will end up doing for sure, and the income you will receive for the cost incurred is worth it. Also you are probably adding more to the value of the property than the cost of the project.
-
Absolutely, finish. I would not even be questioning it if I were you.
-
Thanks everyone. I'll finish with hopes in having it ready by mid-November. One of the 4 possible tenants (Staff Sergeant) will need it then and he's at the top of my list of prospects. He gets a housing allowance of $1104/ mo. so I'm pretty sure his rent will be on time.
-
Adding the window requires breaking through the concrete block foundation, adding a header, rehanging & painting the paneling on the interior, and creating a window well (it would be partially below grade). All in all, I expect it would cost a couple of grand to do all that. I get that it is necessary to legally use the space as a bedroom but it seems premature to say this has to be done before using the rest of the basement.
Do others have thoughts on this?
Not a lawyer. However, would it be be legal to close off/lock up the room without the window and offer up the rest of the area as a studio?
-
Agree to finish, and also not to be held to your estimates--around these parts you can get a still functional, used washer/dryer for $100-200. Sometimes even free! Of course, then you can't use the financing option. Which I also think is fine to take advantage of at 0%, especially when the incoming rent will cover the payments for a while..
-
Work is ongoing. Last weekend, we ripped out the carpet and paneling in the bedroom and discovered a moisture problem in one corner. As part of the retaining wall project, we re-routed a gutter downspout so this should cure the dampness but I need to do a bleach spray and scrub/ Drylock before we re-panel those walls. We're cutting the foundation and framing in the window this Sunday the 27th. Fingers crossed.....
We also cut the laundry room's concrete floor to add a drain for the shower. That was an enormous amount of work and dirt for a small hole, but it is done and ready for plumbing. The list of plumbing tasks includes:
1) tapping into a cast iron drain pipe to add the shower drain
2) moving the emergency whole-house cut-off valve over about two feet (it is located exactly where the shower wall needs to be)
3) re-plumbing the kitchen drain pipe -- it has to be moved and we have to cut into the main drain for the house
These three tasks are very intimidating and I asked a plumber for a quote... $775! Yikes. BF and I may try to do the second two tasks ourselves to bring that cost down. Gulp.
We also have to:
1) Add supply lines for the shower
2) Add supply lines for the upstairs washer/ dryer
Once that is finished, we've got electrical work to do. I found an all-in-one washer and dryer (one machine; ventless; uses a 120 instead of 220 plug) which will fit in my pantry and save us a fair bit of electrical work. I look on CL every day for a used one. Still, we have to increase the service from 100 amp to 200 amp (need to call the electric utility for a new drop to the meter); run the line from the meter to the new panel box; re-do all the circuits in the new box. BF can do the circuits but I am hiring an electrician to do the run from the meter to the new panel box. We also need to run a 220 line up into and across the attic to feed into the laundry room in order to correctly wire for the existing dryer. Believe it or not, the existing dryer and the basement stove (which no one ever uses, heretofore) are both on the same line. Very bad. This is something I need to fix anyway, no matter what, so it's good this renovation is the catalyst.
It is highly unlikely we'll make the Nov. 7th deadline for the Staff Sergeant. Rats.
Add to this . . . my middle child (22) has broken up with SO and is moving back home, at least for a bit. I'm negotiating with MC for rent for one of the upstairs bedrooms. MC wants the whole basement but can't afford what it's worth so that'll be a big "no."
In an ideal outcome: I'll rent the basement for $700/ mo and the upstairs room to middle child for $250. That would leave me with a net house payment of <$250/ mo. which is awesome, provided that I don't lose my mind! ;)
-
I just went back and read my first post and I am laughing my ass off (ruefully) at my naive idea that I could do this project for $1000.
Every layer of "to do" has revealed itself to be more costly and complicated than initially thought. It has also been an eye-opener as to issues my home has/ had that need resolution anyway.
But as Hybrid said "in for a penny, in for a pound."
I sure hope this doesn't turn out to be another financial misstep. I'm getting too old to afford any more of those.
-
Keep it up! I am excited to see your finished project as I am planning the same thing... However, mine will most likely be a guest room or the new master depending on how nice we go!
-
I'll have to post some pictures soon. We're made huge progress this weekend. The new walls, shower, and mechanical closet are framed in and some of the trickier plumbing is done (by professionals). Turns out the framing in the laundry room/ bath was really complex. There is no way we could have done it in a cost-effective way. We would have wasted so much wood in our flailing, it would have cost far more than the $400 I paid the carpenter.
I also took all the cabinet doors off the kitchen cabinets in prep for painting with chalk paint (they're horrible right now) and began prepping the ugly olive green stove for a new coat of black paint. The laminate counter tops will be re-done with a skim coat of Ardex Feather Finish. I also made two trips to the landfill and two to Goodwill. Amazing how much stuff I've accumulated in ten years of living here.
BF cut a hole in the sill for the dryer vent, which had to be relocated, and re-routed some electrical plugs. Last weekend he removed the old electrical panel and installed a new panel with twice as many circuits. That was a HUGE job and I honestly am amazed that he is still dating me. I would have paid for a pro to do that had I known how much work it would be. We do have a pro coming out to inspect his work and make sure it's fine but he knows what he's doing so I'm not concerned with that.
We are chugging along but I must admit to feeling rather overwhelmed............ Will we ever finish? Maybe I should hire a GC to wrap it up? Sigh.
-
and began prepping the ugly olive green stove for a new coat of black paint.
We are chugging along but I must admit to feeling rather overwhelmed............
Congrats on a productive weekend! Woo hoo! You need a couple of days off, then you'll be rejuvenated.
Re: the stove...have you checked Craigs list? We got several newer (used), glass topped, self-cleaning oven, excellent condition stoves for our rentals for about $100 each. I think the most we paid was $150.
-
and began prepping the ugly olive green stove for a new coat of black paint.
We are chugging along but I must admit to feeling rather overwhelmed............
Congrats on a productive weekend! Woo hoo! You need a couple of days off, then you'll be rejuvenated.
Re: the stove...have you checked Craigs list? We got several newer (used), glass topped, self-cleaning oven, excellent condition stoves for our rentals for about $100 each. I think the most we paid was $150.
Thanks! Yes, I've been watching CL but the best I've found so far is in the $300 range. All the ones in the $100 or $150 are no better than the one I have which is near to mint condition, except that it is a throwback to the Brady Bunch days. I'll keep watching but I'll balance out cost of paint v. cost of new stove and only buy a "new" stove if the two are even-Steven.
That said, I just reviewed the to-do list and made the executive decision to out-source more of the plumbing, electrical, framing & tile work. The list of simpler DIY stuff (e.g. painting) is still monster-long and will suck up every weekend through the holidays. I'm going to lose my sanity and my BF in short order. So, apologies to MMM, but I'm going to spend some $ on professionals.
-
FYI, your 6 month renter in town for training might not care much what color the range is. They're not throwing thanksgiving dinner there :). If it works you should be fine. Think about this: if you paint it can you raise the rent? Why are you painting it? That's not YOUR range, it's a business decision and you might be paying extra for unnecessary fluff!
-
I've done some additional market analysis and while the soldier on temporary duty is still a target market, I've decided to also appeal to more traditional tenants too. The rental market here is tight and a 600 sq ft 1 BR without utilities is $865 and up, typically. I can offer a 1500 sq. ft, 1 BR, fireplace, with utilities and far greater privacy than a complex (beautiful 1/2 acre backyard with outdoor seating, firepit and surrounded by woods. My analysis shows that I'm competitive in that market, especially among adult professionals, @ $850 to $900/ mo. But in order to play in that pool, I need to have a unit with upscale touches. An olive green stove, ugly dysfunctional cabinets, etc will hurt my unit's appeal. It would be nice to have a traditional tenant who would stick around for years, rather than the constant churn of soldiers which will cause higher management costs.
Stove paint is super cheap (< $50). Kitchen upgrades, which I hadn't planned on originally, will add a couple of hundred dollars to my costs but have a high ROI in my ability to appeal to a "better" tenant as well as the soldier on TDY (who has a fat housing allowance anywhere from $1100 and up). This is MMM's rationale in deciding to do the poured-pan shower in his rental unit so it seems sound when applied to my situation.
I think it is worth a little (not a lot) extra money and time. We'll see...... Any veteran LL's out there have thoughts on this?
-
I've done some additional market analysis and while the soldier on temporary duty is still a target market, I've decided to also appeal to more traditional tenants too. The rental market here is tight and a 600 sq ft 1 BR without utilities is $865 and up, typically. I can offer a 1500 sq. ft, 1 BR, fireplace, with utilities and far greater privacy than a complex (beautiful 1/2 acre backyard with outdoor seating, firepit and surrounded by woods. My analysis shows that I'm competitive in that market, especially among adult professionals, @ $850 to $900/ mo. But in order to play in that pool, I need to have a unit with upscale touches. An olive green stove, ugly dysfunctional cabinets, etc will hurt my unit's appeal. It would be nice to have a traditional tenant who would stick around for years, rather than the constant churn of soldiers which will cause higher management costs.
Stove paint is super cheap (< $50). Kitchen upgrades, which I hadn't planned on originally, will add a couple of hundred dollars to my costs but have a high ROI in my ability to appeal to a "better" tenant as well as the soldier on TDY (who has a fat housing allowance anywhere from $1100 and up). This is MMM's rationale in deciding to do the poured-pan shower in his rental unit so it seems sound when applied to my situation.
I think it is worth a little (not a lot) extra money and time. We'll see...... Any veteran LL's out there have thoughts on this?
We've been fortunate with some of our tenants… and not so fortunate with others. Some have been nitpicky, but I'm surprised just how NOT picky some tenants are. There have been times I've shown a rental and said, "We were thinking about replacing ___," only to have the potential tenant say, "Why? Looks fine to me." :)
So… you're correct that certain upscale touches will help you appeal to higher-paying tenants… but sometimes that's just not what is important to a person. Until you get people in there looking at it, you won't know.
We've never had short-term (less than one year lease) tenants, so I can't comment on that. But I will say we love it when tenants stay for 2+ years, because it means a lot less work! Plus it makes me feel like we must be doing a decent job as landlords. We're definitely not the cheapest or nicest rentals in town. We seem to be hitting a bit of a sweet spot.
-
We have egress!
The window went in yesterday -- a 36 x 42 double-glazed casement that I scored on CL for a mere $25.00. My contractor-friend Jeff helped us and refused any payment. I'll be sure to remember that and pay it back or forward, when the opportunity arises.
Approximate total cost for excavation, retaining wall, gravel, window, and lumber - $1500.00. Not bad.
I now have a 4 bedroom house.
-
One more pic of the open window from inside.
-
We're getting close to the end.......... Finally!
Last weekend was backbreaking as we pushed hard to get this project wrapped up. Saturday included: priming the new drywall and all of the old paneling, sanding the concrete (skim coat over old laminate) countertops, sanding the beautiful wood stairs in prep for new finish, ripping out some old tile, and cleaning up all the accumulated junk from months of renovation.
Sunday included removing old latex paint from the concrete floor in the bathroom and acid washing the floor in prep for new stain, re-installing the door at the top of the stairs and adding a deadbolt lock, more priming of drywall and some caulking/ spackling too. For better or for worse, we lost power on Sunday night which forced me to stop working. I dropped like a rock.
The new wall-to-wall carpet (installed over the VAT) is coming this Friday (12/13) so all messy projects MUST be wrapped up. Last night, Monday, I painted from 7 PM until 12:30 in the morning. When Middle Child got home from work, MC kept going into the night. I got up before work on Tuesday and did another hour of painting. The paint in the living space is now almost done. The bedroom will need at least one more coat. The bathroom is merely primed with no finish coat yet.
Tonight, I have to set new tile near the entry so I can grout it tomorrow. Also tonight, stain the bathroom floor and polyurethane the stairs. More painting.
I've got ads up on Craigslist and on AHRN.com (military off-post housing site). I've also got a robust word-of-mouth campaign going.
I'm asking $995/ mo., utilities included. That's based on market research and conversations with several SFH landlord friends of mine. They think I'm below market. I think I'm too high. We'll see who is right. Pictures and an accounting, coming soon.
Edit: If my SFH LL friends are right, then between this rent and MC's rent, I will have total rental income of $1195. My mortgage is $1173.00 Fingers crossed.
-
Awesome progress! Well done.
I'm asking $995/ mo., utilities included.
You may want to think about some sort of utility split instead (they pay 1/3 of the bill, or something, or else you look at your yearly average for the last 12 months and then they pay the amount over that, etc.) - flat rate can work out really well, or really poorly (i.e. your bills suddenly triple from their extensive use, since they don't care about conserving as it's included, and eat up all your cash flow). Depends on the tenant, I guess, but I know many people avoid having utilities included.
-
I'm excited for you. Sounds like a really good project.
-
Awesome progress! Well done.
I'm asking $995/ mo., utilities included.
You may want to think about some sort of utility split instead (they pay 1/3 of the bill, or something, or else you look at your yearly average for the last 12 months and then they pay the amount over that, etc.) - flat rate can work out really well, or really poorly (i.e. your bills suddenly triple from their extensive use, since they don't care about conserving as it's included, and eat up all your cash flow). Depends on the tenant, I guess, but I know many people avoid having utilities included.
Thanks! I agree that this is something I may have to tinker with. I've gotten feedback that tenants don't really factor in utility coverage when comparing rents, so it doesn't help me market the place. I was thinking of adding a clause to the lease expressly stating the average electric, gas, and water/ sewer use over the past two years and then giving them an allowance of X% of average (need to crunch numbers to set the factor). If use goes beyond the percent allowed then they pay the overage.
But that seems complicated, so I dropped back to the default of jacking the rent toward the top of the market and including utilities. Has anyone used a formula like this? Thoughts?
-
But that seems complicated, so I dropped back to the default of jacking the rent toward the top of the market and including utilities. Has anyone used a formula like this? Thoughts?
Short version:
I haven't used a formula. We just include it in the rent.
Longer version:
We have 3 single family homes and 2 apartments on the top floor of our house. The SFHs are entirely responsible for their own utilities. The two apartments in our house don't have separate utilities, and we market them to law students, so it's just simpler for us to include it in the rent. Besides, most of their other housing options include utilities, so it's expected.
Plus, that was the practice when we bought & moved into the house 2 years ago. We inherited one tenant and got our 2nd one right away. So we just kept doing it the way the previous owners had.
We are gradually raising the rents, as we have opportunity.
-
Last night and this morning before work: more painting; set 21 12 x 12 tile by entry; stain concrete floor in laundry/ bath (AMAZING results, so pleased); polyurethane stairs (lovely!); clear seal coat on stained concrete bath floor.
I got a response to one of my ads on CL. Fingers crossed that there will be more responses. I'll have pictures to post soon and hopefully that will drive more interest.
-
mind sharing the CL ad? I'll post it to my social media for you.
-
mind sharing the CL ad? I'll post it to my social media for you.
Thanks!
I have two ads -- one in the "shared" section and one in the regular housing section. I've gotten one response from the "shared" ad. I need to get some pictures up ASAP. If anyone has a minute to review my ads and give feedback, I'd be grateful.
-
You are showing and developing amazing skills!
-
Thanks! I'm excited by all this but I also have worn myself out. I've worked until almost 1 AM every night this week and gotten up at 5 AM to work more before going to the office.
My right arm is numb and tingly from the shoulder blade to the pinky tip. Uh oh. Overuse injury?
Tonight I have to clean, clean, clean before the carpet goes in tomorrow. And then I rest before tackling the punch list next week.
I've gained new skills but also gained a lot of respect for tradesmen. With a hat tip to MMM, I respectfully decline to wade deeply into their waters.
-
Same here, but the trades workers make it look so easy!
-
Re feedback on the ads, lead with the best features. Be glowing initially and only then share the downsides.
So for example, don't lead with "Shared, but not really." Instead lead with "Private walkout basement apartment"
-
Re feedback on the ads, lead with the best features. Be glowing initially and only then share the downsides.
So for example, don't lead with "Shared, but not really." Instead lead with "Private walkout basement apartment"
Thanks! I changed them and added pictures. (oops, need to post pics here too!)
I've only gotten one response. Veteran LL's how long do you wait before dropping the price of your advertised rent? I'm asking $995 now and am thinking to drop it to $950. or $895. Any tips on finding the sweet spot?
-
I've only gotten one response. Veteran LL's how long do you wait before dropping the price of your advertised rent? I'm asking $995 now and am thinking to drop it to $950. or $895. Any tips on finding the sweet spot?
Depends on the market. If you've been marketing it several weeks though and have only one response, you're probably above market, and should consider dropping it.
The more people interested, the more choices you have to choose a good tenant.
-
I think it's too soon to drop the price. Based on what you've reported, it's not priced too high. Just keep re-running the ad on CL and the military site - maybe offer a discount to military.
Two things:
-- I disagree that tenants don't factor in utilities. I'm sure some don't, but plenty do, and it's quite nice for a tenant not to have to worry about setting them up himself.
-- I have properties where the water bill and trash bill comes in one bill for multiple units. For ease, I charge a per-unit amount and their leases say this could be raised based on actual usage. For instance, there is a line in the lease which states rent = $525 and water/trash = $25, subject to actual usage. So far, we haven't had to go back and raise it, but we could if we need to.
Also, have you thought about renting it on Air BNB for short-term situations? That could be a backup plan, but I wouldn't worry about not having rented it yet - it's only been on the market a short time and December is a weird time for rentals, with the holidays and all.
-
I think it's too soon to drop the price. Based on what you've reported, it's not priced too high. Just keep re-running the ad on CL and the military site - maybe offer a discount to military.
Two things:
-- I disagree that tenants don't factor in utilities. I'm sure some don't, but plenty do, and it's quite nice for a tenant not to have to worry about setting them up himself.
-- I have properties where the water bill and trash bill comes in one bill for multiple units. For ease, I charge a per-unit amount and their leases say this could be raised based on actual usage. For instance, there is a line in the lease which states rent = $525 and water/trash = $25, subject to actual usage. So far, we haven't had to go back and raise it, but we could if we need to.
Also, have you thought about renting it on Air BNB for short-term situations? That could be a backup plan, but I wouldn't worry about not having rented it yet - it's only been on the market a short time and December is a weird time for rentals, with the holidays and all.
Thanks! Love the idea about putting the utilities in a line item (with total cost set at $995/ mo) and adding "subject to actual usage......" Perfect.
I think you're right that it's too soon to drop it. I'm getting anxious, is all. I need to manage the emotions of this next phase, rather than change my policies. Yet. I appreciate your point about December being a weird time for finding tenants. No one wants to move during the holidays and it has only be advertised for a week.
I need to re-set my expectations toward having a roommate as of late Jan. / February and focus on finishing the punch list and enjoying the beautiful space while I can. I also keep telling myself that 1) even if I don't find a roommate AT ALL, I'll still be ok (financially speaking), though will not get the ROI I hoped for; and 2) I'm bound to find someone at some point. It will be ok.
-
Vacancy (and subsequent turnover costs) is the #1 silent killer of cash flow.
If you drop it from 995 to 950, and get it rented now, you lose the extra $45/mo for the next year (based on the lower rent) = $540 less than you would have if you rented it today at 995.
If it's vacant for an extra month (January), you lose a month of rent ($950).
You'll end up with more money in your pocket renting it for $950 today than you will for $995 a month from now, and have more of a selection of tenants to pick a good one.
It's your call, and, like I said, it depends on your market. But don't be afraid to get aggressive with price drops.
-
Vacancy (and subsequent turnover costs) is the #1 silent killer of cash flow.
If you drop it from 995 to 950, and get it rented now, you lose the extra $45/mo for the next year (based on the lower rent) = $540 less than you would have if you rented it today at 995.
If it's vacant for an extra month (January), you lose a month of rent ($950).
You'll end up with more money in your pocket renting it for $950 today than you will for $995 a month from now, and have more of a selection of tenants to pick a good one.
It's your call, and, like I said, it depends on your market. But don't be afraid to get aggressive with price drops.
This is what I've been thinking too. Though I'd love to get $995, my gut sense is that $895 is the sweet spot. That's a bigger drop that I'd first contemplated, but anything over $900 just feels too high for my market, unless I can offer a pool or gym or some other apartment-community-type amenity.
All three ads are now at $895. I'm going to focus on the punch list now. Mom and Dad are coming for Christmas and they're going to help. ;)
-
Curious if you had to deal w/ zoning on this, or are doing it quietly and not worrying about that? I know in my area, the lot zoning would have to be appropriate to have 2 units instead of one.
FWIW, I we live in the upper of a 2/2 duplex, and I've considered finishing 1/2 of the basement down the road w/ proper egress to be able to rent the lower as a 3 BR, so it's been interesting to watch your project. (Basement access is through 2 separate stairways, one for each unit, so it would be straightforward to keep their half of the basement completely seperate)
-
Under my zoning, I can have a "roommate" with no special use permit or other exemption. To be a "two-family", however, I'd need a special use permit.
Technically, under scrutiny, the county may find that I've created a two-family (though if I merely remove the stove, then it wouldn't be a two-family -- it's that close). I don't think it will ever be scrutinized, however, given my short timeframe (18 mos.) left in the home and the unobtrusive nature of having one more person coming and going and parking in my driveway. I won't do anything that would disrupt my neighbors. In early to mid-2015, I'm moving to the city and will rent the whole house as a SF rental. If I intended to rent it as a duplex, I'd have pursued the SUP.
I think this is a judgment call for you, based largely on whether you'd like to market/ sell the property as a three-family or intend to stay there for a long time.
-
Under my zoning, I can have a "roommate" with no special use permit or other exemption. To be a "two-family", however, I'd need a special use permit.
Technically, under scrutiny, the county may find that I've created a two-family (though if I merely remove the stove, then it wouldn't be a two-family -- it's that close). I don't think it will ever be scrutinized, however, given my short timeframe (18 mos.) left in the home and the unobtrusive nature of having one more person coming and going and parking in my driveway. I won't do anything that would disrupt my neighbors. In early to mid-2015, I'm moving to the city and will rent the whole house as a SF rental. If I intended to rent it as a duplex, I'd have pursued the SUP.
I think this is a judgment call for you, based largely on whether you'd like to market/ sell the property as a three-family or intend to stay there for a long time.
Thanks, makes sense, esepecially if no stove makes it completely OK! :-) I like that!
I should've been more clear, my thought is to add a basement bedroom to the 1st floor unit to make it a 3 BR unit, not add a complete 3rd unit, so no zoning issues there. (I think my property is zoned for 1 or 2 units, not 3+ IIRC.) But of course I'd have to add egress, just as you had to.
-
A surprising number of locales (surprising to me, at least) allow accessory dwellings to be built without re-zoning.
-
I have a tenant/ roommate!!!
She's a 34 y.o. single HS teacher. Good credit. Great references. I called her landlord from three years ago (not current landlord) and the reaction I got was "Oh, she's great! Tell her we miss her."
Rent is $920/ mo. Security deposit is $920 + $200 for her cats. 12 month lease. She's moving in sometime after the 15th.
Hurray!!!
-
I have a tenant/ roommate!!!
She's a 34 y.o. single HS teacher. Good credit. Great references. I called her landlord from three years ago (not current landlord) and the reaction I got was "Oh, she's great! Tell her we miss her."
Rent is $920/ mo. Security deposit is $920 + $200 for her cats. 12 month lease. She's moving in sometime after the 15th.
Hurray!!!
Congrats! Good job dropping the price, but getting a better tenant. You won't regret that when the rent comes in reliably every month. :)
-
The numbers are almost final and thought I'm shocked at how much more it cost than even my second estimate projected, I think it was still a good decision. As the project unfolded, a number of hidden and latent issues with my house came to light. For instance, I ended up having to completely replace and re-wire the main electrical panel, which my amazing BF did with oversight by a Journeyman electrician-friend of ours. That was an ridiculous amount of work and it left me humbled and deeply grateful for BF's help. It also left me resolved to spend more $ on tradesmen.
You might call it complainypants, and with due respect to MMM, quite simply there are limits to our endurance. I was not willing to save money but lose a good man whom I love! Plus, having a roommate in by January would not have happened without hiring tradesmen to move the project along. Had we gone 100% DIY, it likely would be several more months before it would be ready and at $930.00/ month, the tradesmen pay for themselves very quickly.
Essentially, this project was the equivalent of a whole house renovation -- new mechanicals (stove, water heater); new electrical (new panel box, new 100 AMP subpanel); new plumbing (LOTS of plumbing - much of my home's old plumbing was undersized, e.g. 1/2" supply line from water heater; drywall; tile; framing/ carpentry; masonry; finish work; flooring; new countertop finish). It's as if I had bought a 1,500 sq foot SFH rental with 1963-era systems.
There's still a little left to do, but here's how it breaks down (not by construction sector but by method of payment):
Cash out of pocket -- $9327.34
Lowe's (6 mos. same as cash) -- $2033.40
Home Depot (12 mos. same as cash) -- $1592.07
Flooring store (6 mos. same as cash) - $3,080.00
Total -- $16032.81
What's amazing is that prior to my Mustachian-180 which started in May 2013, there is no way in hell that I could have come up with over $9k in cash over a three month period of time. Not a chance. I'm very proud of myself for being able to do that.
I'm not wild about having $6,705.47 in new debt, but objectively speaking this is good debt. It will all be paid off by July of this year (though I may let the Home Depot bill stretch out until the 12 mos is up and use cash flow to pay down other debts).
My total ROI will take 17 months, after which time I expect to have a profit of about $8k to 10k annually which is the equivalent of giving myself a 10% raise.
My tenant/ roommate moves in on Saturday. I've got her signed 12 month lease and her $1120 security and pet deposits. As I prepared for her move in, I renegotiated my bills with Comcast (internet) and the trash company. That resulted in an additional annual savings of about $220.00. Nice.
I'll get the pictures together ASAP and post a link.
-
Congratulations! I've been following along with your reno and am so glad to see it had a happy ending!
-
Your hard work has paid off! No more early before work and after work late hours for you.
-
Woo hoo!!!!
-
The other bonus to hiring tradespeople for work on an investment property (can't remember now if this is a permitted ADU or not) is that their labor is tax deductible, where yours is not.
-
You are going to be so glad you did this.
-
One clarification . . . my BF, a tech genius, figured out how to make a second user account in my wifi system. So, I offered Roommate the option of adding $10 to the rent to cover adding her to my wifi. She agreed so her rent is $930.
Then I called Comcast to ask about bumping my internet from Economy ($39.95) to Performance. The Economy connection is already balky. Adding another use will make it worse. Comcast initially quoted me $65.00 a month for Performance. I said "Holy smokes, that's expensive!" The rep responded by hooking me up with Performance level for $29.95/ mo. for 12 months.
So, my net gain on the wi fi is $20/ mo! Love that.
-
Well done! Now I want to get Comcast Internet for $30 a month as well....
-
Glad to see an end to this part of your story! Congratulations!
-
Congrats! Thanks for posting and letting us follow along!
Edited to add:
I forgot to ask--any pics you'd like to share of the finished product? I know the ad was up earlier in the thread, but I don't see it now. Just wondering how fancy you went on the finishing/staging.
-
Congrats! Thanks for posting and letting us follow along!
Edited to add:
I forgot to ask--any pics you'd like to share of the finished product? I know the ad was up earlier in the thread, but I don't see it now. Just wondering how fancy you went on the finishing/staging.
I'll post a link to before and after pics ASAP. I've been slammed busy at work and finishing up last minute stuff on this reno. No time to organize the photos, but I can't wait to do it.
Everyone who walks into the space is blown away at the transformation. I'm not sure if that means it was REALLY bad before or what, but... it's beautiful now. My family is teasing me that the basement is nicer than the main level! They're right.