Investor · Ogden, UT · Member since 2014 · 98 posts · 10 votes
Hi,
I'm interested in a 3 bed, 1 bath / unit duplex. The duplex has a large yard and driveway, but has no garage (plenty of room for it).
The duplex is an up / down that I think can go for 650 - 700 / month of rent.
I want to build a free standing two car garage. How much does a separate garage stall for each side increase rents / equity? I understand you can't give me hard numbers, but I'm just curious of examples or rough estimates.
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
12y
Absolutely do the work after you close and then refi. Your LTV will be close to 100% (based on purchase price) if you do it any other way and you won't have any way to claim your sweat equity/improvements against the LTV. For example, $100K purchase + $25K improvement loan = new value $125K (aquisition cost) at 100% LTV vs. $100K purchase + $25 improvements during ownership = new value $150K (market value) for refi of $125K or 83.3% LTV.
Look at your closing costs on the FHA + refi. If this is your plan, hard money might actually be cheaper and your offer will look stronger.
Investor · Santa Ynez, CA · Member since 2008 · 375 posts · 175 votes
12y
Hi Andrew,
I'm not in Utah, but the only thing I can suggest, which I would do here is to check comps, see if you can find comparable units, with and without garage and see if there's a variance. Talk to some property managers as well in the area, they could give you a sense.
Certain areas almost mandate a garage and if you don't have one, it's harder to rent and rents for less. Other areas it's not normal to have a garage and could bring a premium.
Prepare yourself that the numbers will be a long term thing. I doubt you'd recoup the investment in less than 5+ years. But again depends on construction costs and the potential rent.
In my experience garages bump rents only slightly and don't offer a great cash-on-cash return but do rent quickly.
However, tenants in these properties tend to fill the garages and stay there for years. On average, tenants with garages stay 2-3 times longer. Fewer headaches and wear-and-tear. All tenants we have had for more than 5 years have garages.
Thanks for the responses! I'm checking with my realtor to pull comps and I'm going to start calling PM's today.
Another related garage question:
Should I roll the garage cost up into the mortgage or take a different loan for it? My question has to do with appraisals. If I get the extra cash for the garage through the mortgage, then how is the house worth calculated? Will it hurt me if I want to get the house re-appraised after work on the house plus the addition of the garage?
I'm buying through an FHA and I want to get rid of the PMI as soon as possible. I was hoping to re-appraise and get close to my 20% down (changing to a conventional) after doing some work on the house and adding the garage.
Thoughts?
Thanks,
PS:
Previous house:
I didn't buy the previous duplex / triplex because it was too much of a mess. I called the electric company to see what the costs of an extra box were and he told me that the entire cluster would need to be brought up to code AND he wasn't sure he could add a third box due to zoning issues. That was the last straw.
I rescinded on the last day of my DD period. I'm glad I did. The next investor should just bulldoze the thing and start over. : )
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
12y
Absolutely do the work after you close and then refi. Your LTV will be close to 100% (based on purchase price) if you do it any other way and you won't have any way to claim your sweat equity/improvements against the LTV. For example, $100K purchase + $25K improvement loan = new value $125K (aquisition cost) at 100% LTV vs. $100K purchase + $25 improvements during ownership = new value $150K (market value) for refi of $125K or 83.3% LTV.
Look at your closing costs on the FHA + refi. If this is your plan, hard money might actually be cheaper and your offer will look stronger.
Minneapolis, MN · Member since 2014 · 332 posts · 288 votes
12y
I just got a $30k quote to build a new, two car garage. In my experience, depending on your market, MAYBE you get an extra $50/month for the garage. If you are in a high density, cold weather market the value increases.
But, an extra $600 per year that costs $30k = 2% cash on cash return. Not worth it based on that metric alone, but as always there are other factors.
Investor · Ogden, UT · Member since 2014 · 98 posts · 10 votes
12y
Thanks for the reply,
Good call on the weather. A one car garage is about 18k and a two car is about 25k (one big garage door). Completely unfinished, no electric.
And yeah, I wasn't going to worry too much about the extra income, I was mainly concerned with the additional appraisal value. I've been told you can expect about $5k of equity for every bay here.
And like others here have said, I hear the tenants stay longer and the houses stay empty for a shorter time with a garage. In other words, hard things to quantify, but there are benefits. $25k worth of benefits? Hard to say it seems.
Also, after having a discussion with an appraiser, I understand there is an obvious difference in how one would appraise a duplex vs a single family home. It makes sense that my appraisal will have a lot to do with income. So maybe a garage won't add as much benefit as it seems since the extra income would be small.