All Forum Posts by: Shalaye Camillo

Hey! Thanks for reading my post. I'm building a laundry room for tenants in my 2 unit property. I personally prefer gas dryers because they are more efficient and less expensive to operate. The cost of electricity is so high right now. But having a gas line in a tenant area, I'm not so sure about. What are your experiences with gas vs. electric for tenants? Thanks in advance!

I agree. I'd love to meet up!

Shalaye 


Quote from @Kyle Spearin:

@Jonathan Stevens, it's great to e-meet you! This is a great place to expand your network and share ideas. It would be really cool if more Mass locals wanted to get together to share what we're seeing in our markets.

I'm planning on putting in the card operated machines in my 2 unit building. I don't want machines in the actual apartments. There are companies out there who will maintain the machines and you lease from them and get a portion of the profit. I think it's a great idea, but it's probably best to lease than own the machines because you don't have to deal with the maintenance.

Awesome thanks for sharing!

I would say, now is not the time to do a cash out refinance. Unless you found a special program with amazing rate to where is makes sense to refinance to primarily lower your payment and also get a little money out. There's just not enough equity in the home yet to justify the costs of refinancing. Unless, like Jeff said above, you already have a specific cash flowing use for the approximately 30k you may get out? Remember that your new mortgage payment will be higher as you are restarting on a higher amount. Also, this all depends on what the property appraises for as you have your estimate on the value, but the appraiser may have a different opinion, especially in the current market. HELOC would be the best option. But also be careful and know the costs because rates are high for HELOCS right not.

Good Afternoon,

This is lengthy...thank you in advance for your thoughts and insights!

I own a 2 family home in Boston Ma. I've owned the home for 8 years. It was built in 1930 and a total fixer upper. I've been doing remodels at intervals. I live in one unit and rent the other. In 2018, I started renting the unit on Airbnb. When covid hit, I pivoted to renting it mid term. The apartment is 3 bedrooms, 1 bath with living room, dining room and large eat-in kitchen totaling 1500 sq ft. Last year I rented it furnished with utilities included for 4350/mo. The property is located in a desirable neighborhood in the city of Boston. I believe it would be a B/C class neighborhood.

When I purchased the home, I did alot of work and spruced the unit up to section 8 standards...all my budget could afford at that time. The apartment cleans up nice and was in pretty good condition, but I have a rodent problem (old home, lots of holes), the floors need to be professionally redone, walls needed plastering and new paint, the kitchen needs to be updated, adding ceiling fans in all bedrooms, recessed lighting in living room and kitchen, replacing doors, and there's no laundry for this unit in the building.

I want to continue doing mid term renting, but also, want to attract the absolute best tenants and get the most money if I have to pivot and go with section 8. My mid term tenants moved out last June. I did a cash out refinance as I have tons of equity. The refinance (60% LTV for 3.75%) took 3 months! Closed in October, started exterior renovations in November. The cost for these renovations to date are 57k including all fixtures and materials. I got 200k. My goal was to spend 50k on my house and save $150k for new property investing.

Now onto my confusion...I got the idea to turn this 3/1apartment into a 4/2. My kitchens are big and I can convert it to a master suite! Then I would move the kitchen forward to the dining room and open the wall to the living room. Since my contractor is already doing alot of work here, he gave me a price of 8k to do the work, which is awesome! The plumbing is going to be 8500, electrical probably another 3k, kitchen cabinets and quarts countertops 5500. That's an extra 25k which does not include fixtures, tile etc which may be another 2k. So I'm estimating 27k on top of that 57k already spent = 84k.

Keeping it a 3/1 and sticking with the plan to just paint the current kitchen cabinets, renting to a long term tenant, market rent is 2900-3200. Section 8 pays up to 3200, depending on tenants income. If I'm blessed to rent it mid term, I can rent for 4350-4500. 

I can also use the living room as a 4th bedroom in this scenario. Just would not have the 2nd bath or best floorplan. I feel like 4 bedrooms is alot with only 1 bath. BUT, in Boston, the homes are older and usually have only 1 bath unless renovated.

Converting to a 4/2 and renting to a long term tenant, market rent is conservatively 3200-3500. Section 8 pays up to 3500, depending on tenant income. Mid term I can rent for 4500-4800.

Pros of 4/2 conversion: More cash flow long term, totally new kitchen renovation, new 2nd bathroom. If I ever decide to sell the property, it's more valuable with a 4/2 unit, can be converted to a condo without additional renovations, limited supply of 4/2 apartments in my market.

Cons of 4/2 conversion: 27k additional investment, will take an extra 3-4 weeks to complete, more tenants in the unit, more children in the unit, more wear and tear on property, higher water bill, extra bathroom fixtures to maintain, 4/2 tends to stay on the market longer than 3 bedroom apartments, harder to find tenant who can pay higher market rent without section 8. And I will have less money to invest in other real estate.

I'm literally going back and forth in my brain, need to make final decision asap. I'm trying not to be shortsighted just thinking about the upfront investment and additional vacancy time. But also don't want to drain more money I had planned for other investments. Is converting to the 4/2 worth it?

What do you think?

Kind Regards,

Shalaye

Quote from @Mario Teran:

I agree with Lien that buying the second unit is the better way. As an FYI, the City of Boston offers a no-interest loan (up to $50K) for ADUs. You can see more info here: https://www.boston.gov/departm... 

If you can share the loan program via a reply or DM, that would be great. 

Hi Mario, thank you for chiming in! Apologies for the delayed reply...I have a newborn at home and just coming out of the woods lol. I'm familiar with the ADU program in Boston and the 50k. I may not qualify for that because I used some funds for the Homeworks program to do some repairs on my home when I bought it. Supposedly if you have used city funds before, you don't qualify for the 50k. But I may be able to get around that. 

The cash out refinance loan that I used is through First Republic Bank. It's location dependant so the property itself has to qualify.i believe right now its available for Boston, Quincy, Chelsea. And its also depends on the specific address. I hear they will be expanding into other towns this year. They only do 60% LTV, but it made sense as I was sitting on lots of equity. If you'd like the contact info for the loan officer let me know!

Shalaye 

Quote from @Justin Hammerle:

Hi @Shalaye Camillo, If I was in your position I would go ahead and add the second bath assuming using the cash to do it did not jeopardize my liquidity position.  Given your long-term strategy of holding the property, the cost to make the renovations would pay you back in less than 5 years.  This does not include added value appreciation from the renovations and natural rental growth from stronger demand for 3bed/2bath units.  

 Absolutely agree Justin! Thank you for your input I appreciate it! Happy new year

Quote from @Henry T.:

2nd bath, only if you're looking to sell it.  I'd consider the added laundry.

Thank you for your feedback!

Happy new year Leo, thank you for chiming in! So the 17k estimate does not include cabinets, countertops, appliances, fixtures. It's for the Carpentry work and some of the plumbing. I'll also need to do some electrical work. My contractor is giving me a good deal because he's already doing a 45k contract at my house and we were going to do some work in the kitchen anyways so it's not that much more work for him to do this for me...they are already working there. I'm estimating all in it'll cost me closer to 30k. Which would still be a 10% cash on cash return if I only get an extra 300/month. 

I anticipate being able to get more rent per month, the extra 300 is worst case scenario for market rent for a long term tenant. I'm hoping to rent it fully furnished mid term for 4500-4700 per month. 

Yes, I agree with you about the property appreciation, potential to expand the tenat pool and also the long term rental income...these are the reasons I'm really doing it. I'm losing cash flow now, but am confident I'll make it up over the next year once it's rented!

Quote from @Leo R.:

@Shalaye Camillo my first reaction is that $17k to add a bathroom and re-do a kitchen sounds cheap. If you've worked with this contractor before and you trust their numbers (or if you personally know the numbers really well), great...but if you haven't worked with them before, I'd suggest getting additional quotes just to make sure the $17k number is right ( @Bruce Woodruff also mentioned it sounds low, and he has more contracting experience than me).

You said you're not excited about the increase of 300/mo...admittedly, 300 bucks a month isn't going to make you rich, but if it really can be done for $17k, and if it adds $300/mo to your cashflow, that's a 21% cash on cash return--so in that scenario, I'd say go for it!

Also, the cash on cash return isn't the only consideration--adding a bathroom often makes a unit much easier to rent, because most tenants prefer to have an extra bathroom...so, it could make it easier for you to find tenants whenever there's turnover--which, to me, is worth a lot in itself. 

Also, sometimes adding a bathroom can change who you can rent to, which can change the income. For instance, I had a 2 br 1 ba place that I could only rent to couples or fairly well-off single people. I added a bathroom (making it 2 br 2 ba), and now I'm able to rent it by the room to two housemates--which substantially increased my gross rent (while also making the property viable to a larger pool of potential tenants). And lastly, adding a bathroom can increase the value of the property.

One other consideration is holding costs--how much lost rent you'll miss as the work is being completed...so, just factor that into your numbers...

Good luck out there!