Saving for a rental property or adding an apartment to my current home.

4 Replies

I live in a beautiful home close to a community college and the downtown area (shops, bars, parks etc)that has roughly 1,000 sq ft partially finished basement. I am wondering if anyone has started their real estate business by putting a unit in their home or if saving for a seperate unit is best. There seem to be drawbacks to both but I wonder if it would be easier to just build my first unit in the house I already own. Any thoughts or advice is greatly appreciated, thank you!

Hi Kim! For starters your mind set is great! Have to have the mentality to work towards "freedom" & of course develop a plan. It's not an overnight thing obviously but you have to start somewhere.

Here's my take on it....Not sure on your market and what it takes to purchase but either A.) pay cash for a smaller single family home or simply finance a smaller rental property.

Right now your goal is to make your money work for you. Find an affordable house and go to a bank and see what the terms are (how much down, monthly mortgage, insurance, etc).. after doing so check your local rental markets and see what renters are paying in the area..what are the market rent $ trends going around.

Best case scenario would be if the rent is substantial enough to cover the mortgage and have some additional cash flow left after the payment.

This way you can earn some income while the tenant pays your mortgage (ultimately you are gaining equity in the property).

If you save up enough cash & purchase the home VIA all cash.. You will start gaining a return on your money the first month. Not only will you collect a cash flow on the property but you have a tangible good that still has its market value (assuming you get a good deal). So depending if you want to sell it after 5 or 6 years you can get your money back and all the income you collected is yours!  This is how you make your cash work for you!

Lastly, I think mixing your home life with tenants is the LAST thing you want to do. Keep it separate from your home is my opinion. Firstly, how much could you add to your house? If its just a small one bed room studio, depending on market rents, would the rent yield enough for you to cover your construction costs (amortized over certain number of years)... The "equity" gained in the rental unit attached to your home would simply go back towards your initial investment in construction. You will only be able to collect that "improvement" on your house when you sell your house...hoping that it adds the value to your house (never know, even regardless how much $ you put in your addition). It doesn't have much positive to your home...

Kim, right now you need to gain equity in your investments as well as a monthly cash flow... adding a unit to your home will gain cash flow but you will essentially be paying your self back. When you want to gain the extra money spent on the addition then you would have to sell your house in hopes that the additional adds extra value. Simply if you finance a house, put a certain amount down, let the tenant pay your mortgage and collect the balance (cash flow), you will work towards a solid investment. Remember, you can sell your rental any time you want (at least list it) in hopes to sell it for the same or more...If your Single Family Rental investment happens to appreciate over time, not only do you get to cash in on the equity that the tenant paid (mortgage), cash in on the monthly cash flow (balance left over from mortgage) BUT you collect the extra $ from the appreciation of the sale....

Buy it for $50,000.... 5 years later property is worth $65,000... that extra $15k goes right in to your pocket... along with what you collected monthly and the principle reduction the tenant gladly paid for you!

It was a rant, but I am passionate about my answer!

@Kim Roberts ,

A major factor to this decision is what the city will let you do. I know the city of Vancouver will let you build your apartment - they call it an ADU (auxiliary dwelling unit)- but there is a caveat. You must live in one or the other side for at least 6 months and you cannot charge rent for the other 6 months. Basically, they don't want it run like a duplex/multi family. Even if you decide to go forward with the ADU, there are several code requirements. If you skip the city requirements and/or rent both sides if there is an accident the insurance company will not help you.

Here is a link to the application page for an ADU in Clark County:

Here is link to Clark County code section on ADUs:

It sounds like a unit in my own home is going to be more hassle than it's worth. It just seemed like a nice baby step without carrying two mortgages. Nik, Joe and Thomas you guys are the best! Thanks for the guidance.

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