To add bottom level unit or buy another property
For the past 5 years I've pondered whether or not to raise one of my SFH to add another unit or take my money/equity and buy another property. I've now been seriously considering raising the property to add another unit and I'm now in a good financial situation to do so. A bit of context on the house: It's located in downtown Sacramento, built 1910, 1250 sq ft, 3/2, zoned to become a duplex, and in good condition. Now that I have other properties with built up equity along with some money set aside, I'm at a junction on whether I raise the house and add another unit underneath or take the equity/cash saved and buy something else to add to my portfolio. I'm not considering selling it because I'm optimistic that the area still has above average growth based on what I'm seeing. My goal is to hold on to it for the long term to increase my portfolio and cash flow.
I'm having a hard time figuring out what the best decision is to maximize my ROI and make the best decision with this economic climate, either raise the house or buy another BRRRR property. I know there's more of a risk for a project this size but feel like it'd be a good next step in my investing career based on my other smaller rehab experiences. The numbers I've been able to crunch for the project are as follows:
- About 200k~ for the project (170k~ if I GC it myself after it was raised and framed)
- Conservatively would not be done for 12 months (lose out on 24k annual rent on the current rent)
- Based the after project refinance I'd get at least my money back for the project and as high as 100k extra(this is using current market comparables in the area) at a 70% LTV
- After the project is done, refinanced (at about 4.5% [guesstimate]), rented, and monthly expenses are taken into account I’d be netting an extra $1000. (not counting what I am already getting today which would still be coming in too)
I want to mention that like other people I'm not totally confident with where the market is headed in its current state with Covid. I'm also hesitant with doing another BRRRR on a larger property right now because it something changes with the market I might not be able to get my money out after rehab, whereas my SFH has enough equity to pad any market correction.
Let me know what I am missing, how I can run the numbers to make a better decision, or what you’d do? Thanks