My strategy is buy and hold.
I'm owner occupying my first property, a duplex with my half of the basement unfinished. It's currently 2-bed, one bath with nothing sheet-rocked and barely framed downstairs. I want to add 2 bedrooms and a bathroom downstairs, and I'm estimating (but not confident) I could raise the rent from 950 to 1400. It's a 40 year old property, so the duct work, electrical, plumbing is outdated and weird, and I'll have to make the windows larger to be up to code for a bedroom -including cutting through the concrete and digging bigger window wells.
I'm planning to refinance after I get this project done, I've owned the property a 1.5 years, and I think with our crazy market, the gained equity should re-coup everything I'm investing in the rehab.
I've never rehabbed before, and I'm getting bids between 20-30K for general contractors.
My questions are:
-I get an extra $450 a month, X12 / 30K, that's an 18% cash on cash return, right? Is that worth it?
-For anyone in a similar market, (I'm in Utah Valley, Utah) are my estimated rent numbers even close for a 2 bed/1 bath vs 4 bed/2 bath ?
-And any tips for picking the right contractor?
It sounds like you're on the right track and you'll get a lot of bang for the buck.
The other thing you should be thinking about is how this improvement impacts your refi. Understand your market value with and without finishing the basement. Do you gain more equity than you are spending?
Finally, make sure you are talking with a lender before beginning the work. Understanding what you need to have in place for the final loan before you start spending money could save you $$$.
Welcome to BP!
I don't know the Saratoga market for rentals. It used to be that nobody wanted to live in Eagle Mountain or Saratoga Springs because it was just too far out. Now, with the new roads, new businesses and all the shopping that's gone in, it's just another part of the valley. If you really can create another $450 in monthly rents and likely increase your property value by at least the amount you invest, your improvements at $30K seem like a no-brainer.
To find the right contractor.... that can be tough. Always get referrals and references!
I find a lot of subcontractors and handymen through Thumbtack.com.
have fun out there!
@Monica Davies I think the remodel will be a great choice over the long view. Talking to the bank who will do the refi and making sure it fits in their guidelines is important as stated already.
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