First Time Home Buyer Looking at Basement Rental Potential

[Justin L.]

Hello BP,

My Fiancé and I are looking to purchase our first home and are trying to analyze the potential for converting the basement into a studio apartment rental. We do not have any Real Estate experience so we could use some guidance on basic items to look for and maybe a process to run the numbers and determine if the property we have in mind is a good deal.  

We have a fixed budget of $500K and have found a property in the Arlington, VA area for just under $400K.

It is in a decent neighborhood of the Arlington area, and we are expecting to spend at least $100K on the renovation (including an addition plus accounting for major repairs). I don't want to overspend on the property/renovation and not be able to get a good return if we sell the property in 2 to 5 years or more. 

Can anyone suggest a few resources that I could use to help analyze this house we have in mind? We have walked the property with a Real Estate agent and a contractor whom have a very good reputation with their respective companies, but I trust numbers overall. Any suggestions are welcome. Thank you in advance!

Best,

Justin

[Carson Sweezy]

@Justin L. The basement apartment rental is a great idea, my broker did that on her first 3 homes and still owns all of them as rentals today. 

There are several selling expenses that you want to account for when analyzing the deal if you plan on selling in 2 to 5 years. You want to run a Buyer and Seller Net sheet to account for all of your closing expenses. If you plan on using it as a rental property, it would be a good idea to run the numbers through an Investment Calculator as well. I run Seller Net Sheets and Buyer Net Sheets for all of my clients as they analyze their situation (accounts for closing costs, taxes, etc), and run Investment calculators for investors looking for rentals. It would also be a good idea to have a CMA done for you so that you can see what the market looks like as a whole.

Feel free to reach out if you have any questions.