All Forum Posts by: Chester Knapp

@Jason Johnson - given the nature of the building on our lot, the long term appreciation will mostly be in the land. Since any renovations are unlikely to add value to the property, based on this discussion and thinking it through, I'm going to calculate ROI based on a 15 year holding period, looking at what reduces maintenance, risk, and helps keep rents at the level I want.

@Jason Johnson - for this property long term appreciation matters the most.  The goal was to house-hack ourselves into a property that could pay for it's own upkeep, while the area gentrified around us.  

@Account Closed @Theresa Harris - That was my approach since we bought 5 years ago and needed to built up reserves.  My main issue is I'm now facing necessary replacements for large items that can no longer be repaired (back deck, portions of our front porch, wiring we discovered was unsafe, joists separating from the headers).  Its at the point where costs are halfway to a full rehab, and I can save some by doing it now.  Otherwise I'll end up re-doing some of the work if I rehab later.

@Brian Hughes   - Above I posted a reply to your comment, but it looks like the @ Tag didn't take.

@Brian HughesThanks for the reply. We would like to hold onto the property for a while – it was a house hack so we have owner occupied rates, and the property is ~ ½ mile north of the Othello Light Rail Station between MLK and Rainier, in a stable area on a quiet side street surrounded by SFH. No homeless issues, and most properties are in OK condition or better. The lot is just inside the border of an area recently up-zoned to Residential Small Lot (no minimum lot size, 1 DU per 2k sqft). The lot is about 7ksqft, flat, with easy access to the back portion – we can add another unit, or 2 if we can purchase a portion of a nearby lot or the alley.

Redevelopment in our immediate area is a mix. Most are straight remodels or tear-down rebuilds as SFH, but several owners added back-yard cottages, and 2-3 properties have sub-divided and remodeled the original SFH and built townhomes on the other lot. I talked to my realtor, and he confirmed we're on the bubble for whether the current building is ‘economically obsolete'. The way the home is configured it doesn't make sense as a SFH, and all MF construction has been large complexes. There aren't many duplexes in the area to really know what the resale value is as a solid updated duplex.

Looking at it from a MF investor standpoint, with a conservative expense budget that includes full capex, maintenance, vacancy, WSG, and property management NOI would be about $2,000 once I bring the rents up to market (est rent at $2,500 ea, currently getting $2,100), or $2,700 NOI with an added unit in the basement (est rent at $1,200/mo). We appraised a year ago for slightly over 800k. With a solid rehab (structural repairs certified by structural engineer, rehabbed units, new deck, porch. roof, and basement apartment) I'd need the resale value to be about 950k to break even. Does that seem realistic in the Seattle market?

@Sherief Elbassuoni - Right now the property cash-flows slightly after budgeting for property management (my earlier numbers excluded capex and property management to get a sense of the monthly funds available for rehab). We manage the property ourselves, but I don't want to be forced to. Due to the neighborhood's appreciation we have about 50% LTV, so the equity is there. If we finance a rehab we'd be cash flow negative with property management. Adding a basement unit the rent would cover the rehab financing if we do a 30 year Home Equity Loan, but not much left at the end of the month. If we go with a shorter term we'd be slightly negative.

I’d have no issues if the rehab added to the resale value by the same amount or more.  I'd have more confidence in the future value, and in the meantime I'd save on maintenance and repairs.  But whether I'd actually increase the value enough is my biggest unknown.  If not, with conservative assumptions about rent increases I only make back the original investment over a 10-20 year period by adding a basement unit.  Just doing a rehab and not adding the unit I wouldn't make the money back without added appreciation.

I suppose you're right - fixing the issues removes an item to negotiate a reduction in price over.  

I own a 115 year old house that was converted into a duplex when a 2nd unit was added upstairs in the 90s. It was not done well, there is a hodgepodge of 'handyman/diy" work throughout, and I'm trying to decide if we fix it up right or just make do until we sell in 10-15 years.

The two units are ~3bd, 1ba and about 950 SQFT each, with less than ideal layout but otherwise are ok cosmetically, and the property is fairly large and has a nice yard for the area (South Seattle near Light Rail). Our neighborhood is historically low income, but is quickly gentrifying, with several new mid-rise apartment complexes, townhomes, and fancy new SFH construction.

I have been able to get good rents with great Section 8 tenants, and have about 1,250 k/mo left over after PTTI, Vacancy, yard maintenance, WSG and other expenses and reserves. I don't need cash flow in the medium term, and have money to tackle some of the fundamental issues. I just don't know if it is worth it.

Is it likely I will recoup any investment to address some of the fundamental issues (raise sagging floors in the lower unit plus addressing issues that will cause in the upper unit when the walls raise 1-2", replace galvanized piping, re-do the poorly done roof) when we look to sell in 10-15 years? Or does it make sense to just address the items that will cause ongoing maintenance headaches or lower the quality of living for the tenants, but leave the 'bones' of the house as-is?

My best guess is an investor wouldn't care that much - it's rentable as-is, and a owner-occupier wouldn't want to live in a 950 sqft 3bd 1ba and would just tear it down.

Thanks @Jody Roussel.  I'm in Seattle, Washington.

@Andrew S. - unfortunately the toilet seal has likely been leaking for years, hidden underneath tile.  It has rotted out a good 6' x 4' section of subfloor, and the toilet has sunk down an inch or more.  We will have to pull the toilet, all the tile and vanity, and cut out rotted sections of subfloor.  We then need to dry out the area for a few days before reinstalling subfloor, tile, toilet, and vanity.

We have a 2nd floor 3bd /1ba unit in a duplex with subfloor damage due to a leaking toilet.  The repair will likely take 7-10 days to allow time for dry out, during which time the bathroom will not be usable.  Since its a family of 6 and the only other available bathroom is in a common utility area in the basement (without a shower), the best option seems to be to relocate them to a hotel or Airbnb for a 1-2 week period.  Or, since my family and I were planning on an extended trip, we could also leave our lower unit and allow them access to our bathroom for that time period.  Are there other options that are worth considering that would be less disruptive to our tenants, and/or lower cost?    

Insurance will cover the damage, but it was unclear if our homeowners insurance or our tenant's renters insurance would cover the temporary relocation costs.  English is not their first language, is it appropriate for me to contact the tenant's renters insurance agency directly?  

Please add  me to you list.  I am looking for duplexes to fourplexes at around $100k per bedroom as screening criteria.