Author Topic: Sell rental to build ADU in Boise?  (Read 424 times)

Babs in Boise

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Sell rental to build ADU in Boise?
« on: February 15, 2021, 09:27:24 PM »
Hello All,

Longtime reader, first time poster.  Please be kind :)

Question:  Should I sell my rental condo in Boise to build an ADU on my primary residence?

1.  Rental:  Class B Condo in good condition in highly desirable area. Paid cash $85,000 in 2013, now worth $260,000. Rent $1,100.  Very low hassle.

2.  Primary residence, SFH, no mortgage, in the most desirable part of Boise right now. Love my house, but too big.    I am planning on turning my 550 sq. Ft garage into a permitted ADU.  Iím eager to live in a smaller space I designed for myself.  Plans done, builder on board, but no contract signed.  I donít need rental income from the house right now, but probably will in 2-4 years.

Hesitations:

1.   Worry about loss of privacy and sound from renters in main house - we would share a well-insulated wall, but...
     Separate but not sound-proof yard space.

2.  More importantly, I would be missing out on crazy appreciation on the rental - 30% last year. 

A 15% appreciation next year (likely as Boise is such a hot market), plus profit from rent, would be $45,000.

With a difference of only $750 a month, or $9,000 a year, between the condo rent and renting my PR and living in the ADU.

I donít have the income to refinance either property, so selling the rental is the only way to build the ADU.

Should I wait a year or more to sell the rental and build the ADU in order to reap the appreciation and, hopefully, the stabilization of the cost and supply of building materials post-Covid?

A win-win situation, but I want make the most financially-sound decision.

Thank you!



 

Papa bear

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Sell rental to build ADU in Boise?
« Reply #1 on: February 16, 2021, 06:53:41 AM »
Well, to figure out if it financially makes sense, youíre going to need to get a lot more numbers. 

Like:
Expected cost to build ADU
Expected rents on main property
Expected rents if you stay in main home but rent the ADU
Expected appreciation on current rental (a fools game tbh)
Current market value on primary home and market value of primary home after ADU is built
Market rent for your current rental (sounds like youíre under rented given the value increases)
Tax implications - additional taxes for the ADU on the property, capital gains from sale of rental, etc

We can help answer math questions and challenge assumptions.  We canít tell you how youíll feel about this. 


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waltworks

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Re: Sell rental to build ADU in Boise?
« Reply #2 on: February 16, 2021, 12:13:47 PM »
You have a freaking ton of equity in both places. Just cash out refi your primary at some lunatic low interest rate and build the ADU now.

-W

draco44

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Re: Sell rental to build ADU in Boise?
« Reply #3 on: February 16, 2021, 05:09:33 PM »
Worry about loss of privacy and sound from renters in main house - we would share a well-insulated wall, but...

On this point specifically: I'm sure you already know this, but what you identified here is a lifestyle factor separate from the rest of the purely financial considerations you raise. Only you can decide how much of an issue the potential loss of privacy and noise potential is for you, and how much rent you'd need to collect to make the bother worth your time. Tenant screening helps but for some landlords, ADUs are a non-starter on the basis of this issue alone. That you're pondering building anyway suggests this isn't a deal breaker for you, but on the other hand, be sure not to let the math sweep this under the rug if it's something that would bother you.
 

SndcxxJ

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Re: Sell rental to build ADU in Boise?
« Reply #4 on: February 16, 2021, 10:41:39 PM »
I am on board with waltworks.  I would not be looking to vacate your condo rental, fix it up for sale, and pay all fees of selling just to convert a garage of a house you already own?
I would explore any and all other financing avenues.  Why can't you refi?  How about a hard money loan?  Can you sell stock?  Can you borrow from a friend and pay market rate interest? Will the builder finance the project at an agreeable interest rate?  How about a HELOC?  Hell even credit cards? A garage conversion is typically cheap and easy, even if you make it top notch.
I wouldn't hesitate living next door to tenants.  In fact I live next door to 13 houses, all tenants, and just breaking ground on an ADU on my primary property.  It's actually better than living next door to other people because I get to choose my neighbors, I get to control the look of the area, I get to enforce the rules I deem important.
I say go for the ADU but don't sell anything.

SndcxxJ

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Re: Sell rental to build ADU in Boise?
« Reply #5 on: February 16, 2021, 10:47:07 PM »
By the way, I don't know your market, but I would be willing to bet you need to raise the rent on your condo!  $1,100 rent on a $260,000 asset?  Even my HCOL area is better than that.

trygeek

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Re: Sell rental to build ADU in Boise?
« Reply #6 on: February 20, 2021, 11:31:18 AM »
raise the rent on the condo take a Heloc or cash out refi for 30 years on your condo or home whichever is easier has the most equity and build your ADU. I would not sell your rental or your home but get on raising that rent.