Adding Extra Bedroom into Home

[Danny Mak]

I made my own analysis model for rental properties and I am trying to purchase in Lowell, MA.

I am realizing how difficult it will be to cash flow with my small down payment on a home. So I want to get creative with the home. I want to purchase a 3 bedroom place with 6 or 7 rooms and turn one of the rooms into a bedroom, turning the home to a 4 bedroom.

Does anyone have any experience with building an extra room in the home like this?

Can you share your opinion about what to look out for and/or if this is a good/bad idea in general?

Thanks!

[Jonathan Bombaci]

Hi Danny,

This pretty common in Lowell it'll all depend on the layout of the property that will determine if it will be easy or hard to do. The trick is to locate the properties where it is going to be easy. 

Here are the section 8 grid by bedroom for the city of Lowell. As you can see there isn't really much of an increase in rent going from a 3 bedroom ($1900) to a 4 bedroom ($2025). That $125, based on the 1% rule may add about $12,500 to the property value. But if you can find a 2 bedroom ($1500) and turn it into a 3 bedroom ($1900) that impacts the property and the cashflow more substantially. In Lowell a common play is to find a 2 bedroom condo with a basement that can be finished into a 3 bedroom and do just that then rent it out for $1850-$1900. In this scenario we're typically looking for a basement that is far enough above ground for there to be a window that is large enough for someone to crawl through and one that has 2 menas of egress, both of which are required to pass building code for a bedroom. 

Also based on these section 8 rents if you can find a 3-4 bedroom and turn it into a 6 bedroom that would also impact your cashflow quite substantially. In addition there is a big demand within the Lowell Housing Authority (section 8) for 5-6 bedroom rentals so that is a play we see sometimes as well. 

Best of Luck and let me know if you have any questions. 

Jon