Value creation questions East Providence

[Miguel Carmo]

Hi everyone,

My name is Miguel and have been consuming Bigger Pockets content for the better part of 2 years. Finally making the step to reach out into the community. I apologize in advance for this long post.

My wife and I live in East Providence and have built a good amount of equity. We are  to move on and buy our "forever home" in a few years. We love the area and believe it has a lot of potential. When we do find that next house our plan is rent the current home in East Providence. It is a cape house and the second floor is an unfinished attic. Our plan is add a full back dormer upstairs, creating 2 bedrooms and a full bath. So here are my questions:

1. Would it make sense to from a value standpoint to do this? This house is conservatively worth 200K.

2. From a rental standpoint, how much more in monthly rental income would would create rather than just paint the walls, put some flooring down, and added some electrical outlets? Basically moving from 3 bed 1 bath, 3 (nice) beds 2 bath.

3. Does anyone have any reccommendations for some reputable fair contractors in the area? Our budget is 30K (is this feasible?)

Thank you in advance!

Miguel

[Anthony Thompson]

@Miguel Carmo 

1) Assuming it's currently a 1 bath house, adding a second bath does generally increase the value a lot. But to get down to the nitty gritty of whether you'd get back everything the project cost you, you'd have to get into specifics of the house, the neighborhood, the cost of the project, and "before and after" comps in that area. It also depends on what else is the competition in the area, whether adding the second bath just catches you up with them, or puts you ahead of most of the pack.

The two most important people who can help you with this are the actual contractor(s) who give you firm quotes on the work, and the real estate agent you plan to use when you eventually sell the property, who can give you a sense of how much value it will actually add if you were to list/sell the property.

My gut says that if you were able to do some of the work yourself (not encouraging you to, just saying hypothetically) or had a very good contractor connection (like a family member) you might be able to come out ahead on it. But if you're hiring strangers to do the work including managing the project, with the rising cost of materials, involving the city, and contractors generally being in high demand right now, I'd be surprised if you were able to make a lot of (or any really) money on the project right now. It's honestly a tough time to do construction right now.

Often in cases like this the best time to take on a project like this is when you first buy the property, so you at least get X years of enjoying the improvements, and if it ends up making money when you sell that's great too. But at least you can say you got some personal use/enjoyment out of it too.

2) From a rental standpoint, I think you'd get a bit of a bump from the second bathroom but since the # of bedrooms isn't going to change (just get nicer) but I don't know that it would be a huge bump and probably would take a lonnng time to pay back the price of the project. I think the win with the project, if there is one, would come from selling the improved home to an owner occupant at a higher price, rather than getting a little more rent on it over years.

But I haven't seen the house or area so it's hard to say really. Again you have to take neighborhood and especially the competition (other houses for rent in the area) into account. Put yourself in the shoes of potential tenants "seeing what's out there" and your house (before or after) being one of several options.

3) I do know some contractors in the area but most are trade-specific and a lot of them are backed up on jobs at the moment. I know even fewer general contractors who would oversee the whole project; the few I know may not even be available. But if no one else responds on this point let me know and I'll see what I can do for you.