Calculating ROI on Primary live in flip, CAPex, Quality of life..

[John Andrews]

Hello all, 

I'm looking for advice from people in similar situations... I keep kicking this back and forth... I guess the root of this question deals with measuring ROI on your primary residence (living there long term 15+ years) and how to deal with the consideration of holding costs...and how they apply to a primary residence.

So our first "deal" in 2014 was the purchase of our primary residence in Boca Raton, FL. A 2/2 about 1350 sq ft, no pool, 8500 sq ft lot. Nice floor plan...My wife and I looked at a bunch of houses previous to this one, and had made a few offers, only to get beat out by cash buyers....in hindsight, thankfully. 

We found the house through a family member, who knew the owner. After some negotiating, we got it under contract at $240k, and celebrated on the contract signing date, because I knew we just made money....

We negotiated another $2500 off the contract price to help replace the electric panel and closed at 237,500 with 3.5% down, FHA...

In the next year we put about $30k into the house including the following improvements

10mm laminate flooring throughout

complete remodel of master bath

partial remodel of guest bath

new panel

new AC

new paint inside and out

minor roof repair

couple new windows

some new appliances

new driveway

new front landscaping

I know it's important to have an exact figure...in that 30k I'm rolling some furnishings and fixtures into it..

I forgot to mention we also have a large yard, and no immediate neighbors behind us..great lot in this neighborhood. 

The next year 2015 we refinanced out of FHA loan into a conventional loan taking no cash out, at a better rate. Eliminated PMI and reduced our payment by almost $500.

The house today, conservatively I think we can get about $400k out of it..

We have a growing family...we both see another baby in our future in the next 2-3 years and we're going to need more space. And ideally, a pool. 

This lot provides space for an addition to the home. We could also fill in the patio...and turn the house into a 3/3 with split bedrooms, a master suite on one side, kids rooms on the other...and open up the floor plan. 

Between doing this, re roofing (roof has probably 8 years of life left) and adding a pool, I think we could get it all done between 100-120k. 

After this addition/rehab, depending on the sq footage, in the current market the house would be valued somewhere in the range of 500k conservatively...probably more honestly..

In other words we'd still have equity to weather a market downturn and make a nice tax free profit when it comes to selling the home.

If this is done, we can stay long term 15-20 years if we wish...and have our home exactly as we want it.  

If we don't do something, we'll run out of comfortable space in the next 3 years. 

If we do move, our interest rate will be much higher than our rate on this house..and we'll have to put the same 75k-100k down to qualify for something in the class of home we live in now, with the space we want. 

So....what advice would you all give? How do you calculate your ROI in a technical long term "live in flip" primary residence?

What "holding costs" do you consider in a situation like this? 

This renovation could come from cash, or a HELOC (amortized over 10 years). I'd likely choose the HELOC because $120k can go a long way investing and flipping other properties.

This is such a tough one for me... I believe it does make sense long term... the property will cash flow like a champ if we do the addition, and keep it forever..it would even cash flow now if we simply moved out and bought another place..but not as well as a 3 bedroom and I'd rather not be the one putting a new roof on it and adding a pool unless I'm living in it. 

Your opinions on how to consider ROI, IRR, how to spread out the CAPex, etc etc would be much appreciated.

Thanks for reading!