Multi-family Home Room Addition

Multi-Family and Apartment Investing
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Multi-family Home Room Addition

Cheryl Daniels
Homeowner · Philadelphia, PA · Member since 2015 · 70 posts · 24 votes

Good Day!

This is a 3 unit multi-family apartment home. Also this is my first home and I am new to landlordship. Currently, I occupy the first floor, 1 bedroom unit.  I want to add a room to the first floor and later a deck on top of that. My reasoning is that when I move and offer it as a rental, a two bedroom will increase the pool of potential tenants. Additionally, the second floor unit would have the addition of the deck. That is  a decent plus for a rental. I would charge more for both units. Two possible draw backs: A few applicants for a current vacancy say they like the apartment but not the neighborhood. Secondly, the deck would have the view of the neighbor's yard with grass that has not been cut since I moved there in May of this year. Moreover, I rarely see them so any type of rapport has not been established.   

In terms of buliding the room and deck, friends say I could hire people they know to complete the work for a reasonable price. Does this seem like a worthwhile investment? Any advice is appreciated!

Regards

Cheryl

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    11y

    @Cheryl Daniels

    Have you determined you are permitted to add to the existing footprint of the building under current zoning bylaws?

    If so, You need to weigh the cost of an addition: footing & {insulated} slab vs crawlspace or basement addition; effectively insulated envelope, etc.  versus the additional rent you can earn both from the enlarged lower unit and the enhanced (with a deck) upper unit.  You can then calculate your payback period.  We usually like a payback of <=5-years.

    As an example, we will be taking a 1.5 car garage and adjacent former laundry room at the rear of one of our properties, adding a second story, with the result of an additional 2 - 3 bedroom unit (pending on the floor plan).   Our estimates for the renovation and addition are $25K - $35K (depending on floor plan and options chosen).  The resulting unit will rent for $900 (2-bdrm) to $1200 (3-bedroom) per month.   As a result, our payback will be ~4 years (based on the run rate of the existing building and the anticipated increase in property taxes).

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  • Carl Ghiselli
    Indianapolis, IN · Member since 2015 · 24 posts · 3 votes
    11y

    @Roy N. is spot on. Property improvements are all about how it impacts your return, or your house value.

    Adding an additional bedroom might increase your home's value - allowing you to take more money out (or have more equity), with a higher appraisal. It also should allow you to rent the unit out for more, when you do end up moving out.  If the return is better than your current return (or your hurdle rate), then you should make the addition.

    You do mention that some applicants do not like the neighborhood, despite the apartment, this would make my estimates of value more conservative, as they may not value a deck - regardless, a second bedroom will add some value - it's just a question of how much!

    Good luck with the decision!

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  • Cheryl Daniels
    OP
    Homeowner · Philadelphia, PA · Member since 2015 · 70 posts · 24 votes
    11y

    Thank you Roy N. There is much to reseach and consider. I wasn't aware that I had to consider zoning bylaws. I appreciate your information! 

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