Question about refinancing in small multi family

[Gil Enav]

Hey all, 

My wife and I are house hacking a duplex which we closed on back in February. The house is four levels with one common stairwell, each level having it's own separate entrance. I've looked into having the house rezoned as either a triplex or quadplex.  However, I've learned that the house is already a non conforming duplex as the zoning codes have changed significantly since 1944 when it was built. 

My wife and I are occupying the first floor and renting out the second floor. The attic and basement are both roughly 600 sqft of unfinished space and I'm converting the basement to a 1 bed 1 bath studio. My realtor originally advised me that the value of the house would increase by the value of the square footage added. I've since learned that it is not so straightforward with small multifamily, especially when there are not a lot of comps in my immediate area. Aside from the basement, we've also put in new LVP flooring and appliances in the two occupied units.

I guess my question lies in my concern that the improvements will not be realized on appraisal, causing me to have a hard time pulling equity back out of the house. I'm trying to get a better grasp on how the improvements may or may not effect the appraisal upon refinancing and if there are any actions I can take to positively effect the appraisal?

[Andrew Postell]

@Gil Enav I am very glad you are on this train of thought.  So many investors just make improvements WITHOUT even checking on how to get that equity out or if those improvements are even worth it.  The #1 resource for all things investor related (in the residential space) are comps.  What do your comps say?  If no comp in your neighborhood has a pool...then you are taking a big risk when putting one in.  You may never see that investment give you value.  Same with ANY improvement.  And the same can go the other way too - if ALL comps have granite countertops - and you don't - then that's a risk as well. We have to follow our comps because we get our properties appraised for value.  Even if you sell it, the future owner will ALSO need an appraisal and their value will be based on comps.  Follow what your comparable properties show and that will tell you what to do.

Having said all of that there is one other thing to consider - your personal needs.  This is your personal residence, right?  So if putting a fence in your backyard makes your marriage better - what's that worth?  That's priceless!  Same with any improvement on your personal home.  Some things may not make "financial" sense but if they improve your life or make your children happy or some other personal feeling then that trumps the financial investment.  Within reason of course ;)