Adding square footage on rehabs - friend or foe?

Question

Here in     So Cal we're seeing quite a few potentials deals that will work IF we can add     an additional room(s) and/or bathroom(s). With the decreased inventory we're trying to stay busy     but don't have experience with additions. Obviously we will have to     account for additional hard costs, time, and holding costs but are there any     other pitfalls you have seen personally with additions? Are any of you exploring this     strategy in your business currently? Lastly if     we wanted to wholesale as an exit strategy would potential rehabbers     stray away from projects like these? Thanks in advance for the feedback.

Account Closed · Answer

I've done a few additions.  I think it's a math problem.  If you can add an addition at 120/ft, and homes sell for 300/ft, I think it starts to make sense.

J Scott · Answer

Exactly what Bryan said.  If the numbers work, go for it.  If not, don't.  Really that simple.

Of course, the pitfalls are:

- Extra time/effort/risk in permitting

- Extra holding costs

- More risk to the budget

- More risk to the project if you're experienced/comfortable doing additions

I think this is something that any serious rehabber should have in their arsenal, as when inventory gets tight, these types of deals are often the ones that are available/profitable.  In fact, in higher priced markets, I would imagine there are plenty of rehabbers who specialize in this strategy.

Mike Jones · Answer

It's a friend especially if you find a smaller property in a neighborhood with larger properties. Also excellent when flipping older homes where bedrooms were usually built the same and not very big. In my area you can add a nice master suite if done with good taste and it can add tremendous equity. Make it big with lots of windows, large beautiful bathroom large closet and bang.

I've also been talking to quite a few of the female species about this and they all agree also and we all know they will mostly make the final decision when buying :-)

Jesse Rolla · Answer

@J  Scott Good advice - partnering up seems to be a great idea for the first few times.  Hedge my risk from inexperience.  BTW love your books

Jacob A. · Answer

When you're doing something like this for the first few times I think it's monumentally important to get a very experienced contractor that knows exactly what he's doing every step of the way.  Unless, you are someone like J Scott with ton of experience adding square footage can be a mountain of a task by yourself.  It's almost like it's own tiny little new construction project.  The devil is in the details and you can very quickly get bogged down in them when adding square footage.  Good luck to you.

Mike S. · Answer

@Jesse Rolla Over the last year or so I have seen many rehabbers add a master suite with about 600-1000 new sq ft in LA it takes about twice as long to accomplish this but I think its a good idea in higher end areas because it distinguishes you from the competition and you can be more competitive when making an offer on a say a 2+1 with 900 sq ft

Mike Jones · Answer

When you get the permit and before the first inspection, make sure you have everything else in the house up to code as much as possible otherwise an inspector can call you on it and you have another can of worms. I always clean the place up before an inspection also since inspectors will consider a messy or cluttered job site in their decisions to pass you or look for other issues at that time as well.

Bill S. · Answer

This is what I have found when considering additions, bathrooms are costly on a per square foot basis. Very hard to ad one of these and make it pay unless it's within the existing foot print (basement or closet or small room).

Zoning is a big issue here. Set backs, amount of lot utilized, bulk planes, and the list goes on. Here the land is worth more so small houses get scraped rather than additions.

Permits are also sticky. Many times if you are just cleaning a place up the inspectors let existing noncompliant items slide. When you start redoing they start doing things like hardwired smoke detectors in all bedrooms or egress sized windows in all bedrooms (may not be the best examples but gives you an idea). You want extra contingency on your rehab part.

Bottom line is to do thurough homework ahead of time.

J Scott · Answer

Absolutely, and I apologize if my post gave the impression that the math was all that mattered.  Certainly, doing additions are a big undertaking, and if you don't have the experience/team/confidence to do it, it doesn't really matter what the math says.

That said, if a great deal comes along, perhaps it's a good opportunity to find an experienced rehabber to team up with to take the lead.

Jesse Rolla · Answer

Great feedback so far guys, thank you!!

@Bryan A. & @J  Scott Definitely agree that it's a math game. I'm factoring an extra 6-8 weeks on top of the standard 6-8 week schedule for the rehab.  My biggest fears are getting stuck in permit hell and opening pandora's box by doing a major renovation.

@Jacob Allen I figure that the contractor is a huge piece of the equation. The two contractors I use do great work but I'm not 100% confident they can do the additions in a timely manner. My main concern is that won't foresee potential issues and be proactive about resolving them.  On the hunt for an experienced contractor in my area now.

Adding square footage on rehabs - friend or foe?

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