How to Analyze Garage Conversion to Studio

3 Replies

Would love to hear your feedback on this: whether it is worthwhile, how to measure it, and any other sage advice:

We a 450+ sq. ft. garage in the back yard that we almost never use. You had to drive 1/4 mile down the alley to access it. I think it would make a great studio, as we live in a desirable part of Phoenix, lower Arcadia. What do you think about converting it into a studio?

I have tried to analyze the deal on the BP calculators, but it does not fit the templates, and I am not sure how to find rental comps for an add-on studio. So I have two questions, maybe three:

1) I get stuck on the purchase price portion of the deal, as there is no purchase price. I am estimating it will take $20-25K to refurbish it. We have to add a kitchenette, bathroom, A/C, sewer, bedroom, insulation, and more. How do I figure out the ARV and the Cash return?

2) Which flows into my next question: where is the best place to find rental comps for an additional room?

I really appreciate your help with this!

Figure out your total cost to convert to a studio. ex $25k

Calculate possible rent by looking on craigslist for a one room apartment or similar situation. ex: $900

Figure 50% will go to operating expenses so you net $450 each month. So thats $5,400 yr/$25,000 = 21.6% return.

ARV isn't really valid because you can just sell the studio on it's own. Do comps on similar homes with studios & see if it increases value of the whole property.

Also, make sure to check with the city if converting the garage is allowed. 

Figure out your total cost to convert to a studio. ex $25k

Calculate possible rent by looking on craigslist for a one room apartment or similar situation. ex: $900

Figure 50% will go to operating expenses so you net $450 each month. So thats $5,400 yr/$25,000 = 21.6% return.

ARV isn't really valid because you can just sell the studio on it's own. Do comps on similar homes with studios & see if it increases value of the whole property.

Also, make sure to check with the city if converting the garage is allowed. Be aware of utility expenses if you can't have a separate meter ( If tenant doesn't pay utilities it will for sure be abused)

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