Refinance to Add Units or Buy Another Property?

Question

My parents are refinancing thier home to use the money to create cashflow and would like some input on what you would recommend on doing. The house is in North Seattle (Shoreline) and they can pull out $540,000 cash by refinancing.

The house has about is on 9,000 foot lot and we can easily add units to rent out but have no experience with construction or dealing with contractors.

So the question is would you recommend dealing with construction when you don't have experience or would it be better to just another property cash somewhere else?

Michael Haas · Answer

If the sum was smaller I would say try to build something, but that’s a hefty amount of money. If they’re really looking for long term sizable cash flow they’ll need more than one property, even if that one property has an additional unit. Buy with an eye to immediately convert ADUs or MILs or later on develop DADUs ( more expensive and less likely to have already been setup on a house you’re looking at ). Who knows, maybe the construction shortage here will wade a bit soon too. Tiny houses are also an option, but the city of Seattle recently banned them as STRs (which is really what they’re best for...)

Good luck! I focus on properties with more than one unit (ADU, MIL, Tiny House /prefab mostly) in WA so hit me up if you have more questions!

Good luck! I focus on  properties with more than one unit (ADU, MIL, Tiny House /prefab mostly) in WA so hit me up if you have more questions!

John Barrett · Answer

@Binyam Tedros My off the cuff response is that you would be better off purchasing an existing property. However, it will really depend on the specifics of your property and the project you are thinking about.

I would recommend that you start by looking at the cost to build (sqft) vs purchase cost (sqft).  While you don't have to pay for the cost of the land, there are still a large number of costs (and regulations) that will be required to prepare land for building.  Additionally, building in WA is particularly expensive at the moment due to both labor and materials.

Another thing not to over look is that you can purchase multiple properties and diversify your risk.

Best of luck,

John

Binyam Tedros · Answer

@Michael Haas @John Barrett Thanks for the responses. I will look into ADU and/or adding a tiny house. Buying another property would be great but my parents fear that we are at the peak of the market.

Refinance to Add Units or Buy Another Property?

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