Help with House Hack Plan!

[Jessica Ciemniecki]

Hello, BP community! I am a long-time lurker, newbie real estate investor and a first time home buyer...so I'd love to get some advice and feedback to help me make sure I'm on the right track.

My fiance and I bought our first property for 149k in Ewing, NJ (Mercer County, near several large universities). It's a total fixer upper, no updates have been made on the house since the 70's...and the bathroom and kitchen haven't been touched since the 50's. It's 1100 sq/ft, 2 bedroom 1 bathroom, and an unfinished basement. The house will be used as a house hack and eventually a full rental. 

We estimated about 45k for renos during the closing process, which was quickly blown out of the water. We've spent 45k so far on just capital improvements (new roof, windows, HVAC system, electrical updates, basement waterproofing/french drain)...and we're looking at another 70k for the kitchen and basement (adding 3 bedrooms and a bathroom, finishing 2nd enterence). The kitchen will be about 30k, basement about 40k. 

The idea is to add the 3 bedrooms/1 bathroom to the basement to rent out while we live upstairs, and eventually rent the upstairs rooms when we move on to our next property. I estimate the basement alone will bring in at least $1800/month ($600+ a room) while we're living upstairs. I currently have a high interest personal loan for the 45k (10%), and would take an additional 70k loan for the kitchen/basement.

My concern is that spending another 70k will put us at 262k (147k purchase price + 115k in renos) for the house, and I'm not sure it's worth that much if we were to resell immediately. Do I need to be concerned about resale, since it's a buy and hold and will generate an estimated $3000+/month when we move out? I would also aim to cash out refinance and pay back the high interest loans, but if we don't appraise at what we've spent....will I be able to do that? The idea of taking out 115k in high interest debt is pretty scary, so I'm second guessing myself here. 

My plan SEEMS sound....invest 40k in the basement for $1800/month rent while we live there. Have the basement tenants pay the costs of renovating the basement and kitchen, and rent all the rooms for an estimated $3000+ when we move out. The basement income would cover all of our housing expenses if we refinanced, and would only leave $1000 in housing expenses if we keep the high interest loans. Am I missing something obvious here or is there anything else I should be considering?

Thanks so much everyone, I've learned so much from you all so far!!   

[Chris Davidson]

@Jessica Ciemniecki way to get started in investing and reach out for help before going too deep. If it was me I would be looking at two different ways, with the renos will you be able to cashflow with personal loans, or will you be able to refi out and pay them off. Basement reno's don't bring as much value as main level to appraisals, however in your situation it is bringing the value in that it brings in cashflow that wouldn't be there. Ask your agent to pull some comps of what the house would be like after complete reno that will give you an idea of the ARV then how much you will be able to pull out. From there you have to decide can you pull enough out to cover the loans or cover an amount you are comfortable with. If not can you scale back you kitchen and get the basement cash flowing. If it is a buy and hold I wouldn't worry as much about overbuilding it unless it is way overbuilt.

Hope the rambling helped out!