"Accidental BRRR" opportunity?

Question

Hi all,

I recently purchased a 3 unit in upstate NY. While it is cash flowing nicely, I'm already thinking about how I can generate capital for my next investment. The property had recently been flipped, so there is little opportunity to create new equity.

When we originally found the deal, the seller planned to rehab the attic & create an additional bedroom. However, we were skeptical that an attic bedroom would pass a C of O inspection. We offered that they don't touch the attic & sell for a 15% discount to listing price, and they accepted.

Now I'm wondering if there's an opportunity to do the attic work ourselves, get the building reappraised, refinance at a higher value & pull out any equity created.  My questions for you all are:

• Has anyone worked with their city inspectors to convert an attic into a living space? How did the process go & what pointers do you have?
• How would I go about estimating the incremental value that a rehabbed attic would create? How much incremental value would warrant a refinance?

Thanks!

Jaysen Medhurst · Answer

@Joe Cicero, the conversion could be super easy...or near impossible. It's most likely not worth the expense.

So many dependent factors. Remember, you'll have to bring everything you touch up to code: electrical, insulation, maybe plumbing. For example, if the stairs to the attic are too steep or narrow, they'll need to be ripped out...that's major structural work...thousands and thousands of dollars.

And for what? Another $100/month, maybe. You can't force appreciation in a 3-family like you can in 5+. Your place is going to be worth what other 3-families are worth. An extra bedroom won't add a lot of extra value. It's hard for me to see how this pays off.