Adding units to primary residence

[Gayle Melnick]

Hi everyone,

I wanted to see if I could get some input on an idea I've been thinking about. This is going to be a little long winded so I appreciate anyone willing to read it and give me some feedback. My primary residence is a Baltimore city row house in a desirable neighborhood. There's a large first level bump out and a back deck. What I'd like to do is turn the deck into additional interior living space, then vertically increase the bump out on the 2nd and 3rd levels. The 2nd and 3rd level bump outs would be two separate 1 bed/1 bath units. I'd have exterior stairs in the rear of the home for separate access to each of those units. I live in a neighborhood that allows both single and multi family. The reason I want to do this instead of just buy another rental is that I think the ROI would be higher for adding these two units than it would be to buy additional properties. Both units I think would bring in $1100-$1300 each.

I don't have enough equity in my house to get a HELOC to fund the remodel. I used a VA loan to buy the house two years ago and I put nothing down.

I also just purchased my first two buy and hold rentals at the end of this last year. I used a large part of my savings to buy these homes. They both have paying tenants and are cash flowing $400-$500 a month. I have equity in both houses as I put a 25% down payment on both and did improvements to both.

Does anyone think this is a good idea? Am I better off just buying additional rentals? If it's a good idea... what do you think the best way would be to finance this addition? Should I save up again and pay cash? Is there a way to do a cash out refi based on the projected ARV once the remodel is complete? Should I get a hard money loan or personal loan to finance the remodel, then refi to a 30 year note based on the new ARV and hopefully there will be enough cash in the refi to pay off the hard money loan? Any other ideas?

Thanks everyone!