Basement apartment investment (Income Property)

[Chad Lundquist]

Investment Info:

Single-family residence buy & hold investment in Kansas City.

Purchase price: $368,000
Cash invested: $45,000

This is an interesting investment as it's an apartment added to our current home in our basement. We decided to move forward with adding the apartment last summer rather than selling our house which is what we were planning to do. We came up with a floor plan, budget and schedule and decided to move forward around the beginning of May, 2022. Currently we have two (2) traveling nurses living in the apartment and paying $1,600 / month which is covering 70% of our total house payment (P.I.T.I.).

What made you interested in investing in this type of deal?

I've been a big fan of the HGTV program Income Property starring Scott McGillivray for a long time and wanted to add an apartment to our previous house as well. We love the house, neighbors and neighborhood and all of our family lives out of town including our children so it made a lot of sense to add the income property / apartment to the basement.

How did you find this deal and how did you negotiate it?

This was an area of our basement that we no longer used and already had a 3/4 bath and most of the kitchen as well as the new tile flooring in the kitchen, bathroom and living area so there wasn't alot of work to do. We just had to add a Stove and Dishwasher to the kitchen; a wall separating the living spaces; finish off the unfinished area to add the bedroom, office, walk-in-closet and laundry area; and add fireproofing / sound-proofing insulation in the ceiling and walls.

How did you finance this deal?

We used cash and credit cards to fund the work for this project and once we were finished we added a HELOC to the property to pay ourselves back and pay off the credit card.

How did you add value to the deal?

By adding this apartment to our basement we added approximately $100k to the value of our property besides the fact that we changed our effective house payment from $2,282 per month to $682 per month. Of course we need to pay off the HELOC, but after that's paid off we'll be in very good shape.

What was the outcome?

As stated above we currently have it rented out to two (2) traveling nurses for $1,600 / mth, but we are transitioning to a long-term renter when the lease is up.

Lessons learned? Challenges?

We were doing great on budget / schedule in the beginning, but as the project continued we got a little behind on the budget and a few months behind on the schedule. The schedule was more of a factor of not knowing whether or not we would have it as a short-term or long-term rental. We decided on short-term so we ended up furnishing the apartment. I think that we would have a better idea of how to proceed on another one of these in the future.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We found a great drywaller (Phillip Brumlow) and we worked with Country Club Bank for the HELOC. We've worked with them in the past to purchase our 6 unit apartment back in 2015 and they were great to work with again.