Nashville, TN · Member since 2015 · 4 posts · 2 votes
I’m considering 2 strategies. Would either of them build enough equity to be worth it? (I’m just interested in understanding the increased equity potential, not the rental/Airbnb return).
1. I understand that generally finishing a basement will only provide 70% ROI but what if it's converted to a full apartment? I'm in Nashville which has lots of hills and you can find many SFHs with walk-out basements, egress, and a good amount of natural light. I've seen other houses with this set up, and the basement apartments look nice and don't have a basement feel.
2. Find a home that already has a finished basement and then add a kitchen and bathroom to convert it into a studio.
Ideally, I’d like to do a cash-out refinance a year or two down the road but if either of these doesn’t create more value than what I’m putting into it, I may consider another strategy.
Baltimore, MD · Member since 2015 · 10 posts · 7 votes
3y
Have you pulled any records for the listing/sale of properties comparable to yours both with and without finished basement apartments? That's what will tell you how much equity you could potentially build with the project. Maybe someone familiar with the Nashville market will chime in with specific advice, but I'd just start by pulling some comps and seeing if there's any evidence that the project would add value beyond its own cost within your particular area.
Baltimore, MD · Member since 2015 · 10 posts · 7 votes
3y
Have you pulled any records for the listing/sale of properties comparable to yours both with and without finished basement apartments? That's what will tell you how much equity you could potentially build with the project. Maybe someone familiar with the Nashville market will chime in with specific advice, but I'd just start by pulling some comps and seeing if there's any evidence that the project would add value beyond its own cost within your particular area.
Nashville, TN · Member since 2015 · 4 posts · 2 votes
3y
I've looked at homes sold in the past 3-12 months but there are very few that have this set up. For the ones that I can find, the prices are over the price. I can't get a clear consensus.
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
3y
Think about: zoning, dual metering, dual electrical drops (maybe), parking, (if a well or septic can it handle the extra load).
Regarding the value add or the rental increases, it's best to talk to a couple of (very successful) Realtors who have worked the area for some time and get their input on this, so you can make an intelligent decision.
Just asking for some rule of thumb on the internet is probably not going to give an accurate number for your neighborhood and individual SFH.
And since such a conversion will result in a lot of lost storage area, will you need to offer tough sheds or the equivalent to make the units compete for market rent?
Real Estate Consultant · Nashville · Member since 2020 · 70 posts · 22 votes
3y
It's hard to say exactly what the return will be since it's all based on comps in the area. I have clients looking for in law style suites currently and they're certainly hard to come by so I do believe that there is a huge demand for it, therefore I think it is worth it. Happy to send you properties that have sold with this set up for you to see what those end products look like.
Different areas will also have different return. East Nashville would crush, Nolensville, maybe not so much.
Finding a finished basement and putting in the kitchen is going to be more cost effective on the rehab side, but you'll be purchasing the home for higher than you would have otherwise.
Both approaches are awesome, I think it just depends on what you're looking at for entry price and cash on hand for the actual rehab.
Rental Property Investor · NY · Member since 2018 · 126 posts · 42 votes
3y
You're going to need to find the sales comps and see what does adding an apartment looks like. Or what does adding a kitchen/bathroom look like? Answering that question without the comps is impossible