Is it worth adding a bedroom to a1BR SFH RENTAL?

Question

I have found a way to add a bedroom to a 1BR house(my firs purchase) I just purchased and plan to rent, and hold on to. The main issue is it's not a simple add, removing walls shifting water lines adding windows and doors. I know I could do it fairly cheap(since I do all the work myself) but it would take me a-lot more time to do this and require a-lot of shifting of appliances in the bathroom.

I don't have a ton of cash right now, and i'm worried if I dump it all on this rehab that will leave me pretty dry.

I'm in a average market outside of Buffalo, NY. Rents go anywhere from $750-1200 by me. My goal was to make it the nicest in the area and make it a 2br since it would add a-lot of value to the property and get me more rent(Aiming for  $900 as a 1BR or $1,200 as a 2BR).

It would only cost me about $2,500 to add the bedroom but possibly 3-4weeks extra in rehab because of shifting waterlines etc while working my day job.

Is it dumb to still do rehabs but ingore the bedroom add and later down the road when I have more cash I do a bedroom addition? I know adding the bedroom makes the most sense on paper but the length of the addition and adding costs is what concerns me.

Thanks for your help!

Craig Anderson · Answer

In my opinion, if you have the room and funds to do an add-on for a room, then go for it. It increases value for rent and most likely a better appraisal. So, the $2500 and time now, should pay off down the road.

Also, it's easier to do all the remodel now with no tenant, instead of trying to do it later when you have a tenant.

Ryan Howell · Answer

I agree with everyone's statements.  My one concern is if spending $2500 is going to leave you without reserves from how your speaking.  If you were talking about spending $10k and being low on reserves, I wouldn't be as worried about your reserves, but if $2500 is significantly lowering your reserves, I suspect you may be running pretty lean.  Be sure that you have a way to reasonable deal with an emergency issue if it were to arrive, if not in cash, at least with a line of credit or something at a reasonable interest rate.  I would hate to see you spend $2500, have a $5k-$10k issue come up and have to pay 20% on a credit card, completely undermining your ROI on the $2500...If you're comfortable with reserves, I think $2500 for a $300/mo return is a great investment.

Aaron Rizzo · Answer

@Ryan Howell you basically understand my situation perfectly.

I'm very aggressive right now to be buying this house, I pulled out my 401k to buy in cash and I have around $7,000 in savings for my family of 4.And I do not make a lot of money. We have always just scrapped by but I need to start making money and pursuing RE so I'm jumping all in.

I'm trying to get a HELOC  on my primary now, which will make the decision much easier to make.

Oz Radiano · Answer

If you’re looking at this renovation from ROI perspective, assuming your numbers are solid, its one of the best deals I have ever heard of..

$300/Month addition to rent = $3,600/Year

Cost = $900 vacant + $2500 renovation = $3,400

So, in less than 12 month, you return all your investment.. 100% ROI? I’d take it every day...

add to that appreciation, and new value of house, and it’s a no brainer to do it.. good luck!

Aaron Rizzo · Answer

@Marian Smith I bought my primary as a foreclosure for $32k pipes burst everything was broken. I rehabbed the entire house for $12k, lumber,plumbing,flooring,cabinets etc...

I'm literally adding 2 interior walls a doorway, a closet and a window. the only thing that will cost the most money is getting a tankless water heater to conserve space.The add might cost $3k but it's right around there. But it will take sometime with me working full time.

You bring up a good point and it could cost more, but it I know for sure it will be in the $2k-$3k range.

Marian Smith · Answer

@Aaron Rizzo  Sorry, but no way 1 month and $2500.  I have never built a thing in my life but I know how material costs add up.  windows, doors (need a closet to be a bedroom), framing (wall and roof), insulation, sheathing, siding and trim, weatherproofing tape, sono tubes, rebar?, concrete, floor joists, sheetrock, tape, mud, paint, romex, finish floor and interior trim...I use $7 tube sealant when I paint, and exterior paint @$38.  Permits.  You can build a shed for 2500 but I don't see how you can add on a room.  If there is decent demand for a 1 bedroom I recommend you wait until you have extra money to add on.  And time.  Thats a lot of work for evenings/weekends, weather permitting.  You also have to go get all that stuff and drive to the worksite.

Greg Koszkul · Answer

Would the landlord need to pull permits to convert the unit to a 2 br?

Zachary Ray · Answer

It should for sure help your resell value. Continuing to rent it out long term then selling in the future will regain the money spent on renovations.

Aaron Rizzo · Answer

*UPDATE* I ended up adding the bedroom, made the house so much more functional and cost very little at the end of the day. It did delay listing the apartment by two months but well worth it.

PP-$38k

Rehab-$12k

$50K All in

Appraisal $120k

Rent $1200/MO

Success

!

Rene Owczarski · Answer

@Aaron Rizzo With it sounding like money is tight. I'd rent it as-is, and add the bedroom when you have your first tenant turnover.

Is it worth adding a bedroom to a1BR SFH RENTAL?

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