Hello everyone B.P. newbie good idea bad idea ?on forced apprecia

Contractor · Davison, MI · Member since 2020 · 3 posts · 0 votes

Is it a good idea or a bad idea to build an addition on your current personal home in order to force appreciation to raise Capital for a real estate investing business?

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Jonathan Taylor SmithBusiness Member

Rental Property Investor · Durham / Raleigh (Triangle), NC · Member since 2015 · 841 posts · 802 votes

@Matthew Jones - So you believe the cost of this addition will be less than the resulting appreciation? And then you have a means of tapping into that value (like with a HELOC or by selling) that will create more cash for investing than you already have to put towards the addition in the first place? And this is all better than just using that existing cash to invest directly?

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Jonathan Taylor SmithBusiness Member
Rental Property Investor · Durham / Raleigh (Triangle), NC · Member since 2015 · 841 posts · 802 votes
6y
@Matthew Jones - So you believe the cost of this addition will be less than the resulting appreciation? And then you have a means of tapping into that value (like with a HELOC or by selling) that will create more cash for investing than you already have to put towards the addition in the first place? And this is all better than just using that existing cash to invest directly?
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Matthew Jones
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Contractor · Davison, MI · Member since 2020 · 3 posts · 0 votes
6y
Thats exactly what I was thinking. Lets back up and put a little detail to this. I bought a three-bedroom one bathroom Ranch that comes in about 1,000 square feet on 5 Acres a year ago. My plan would be to take out a construction loan to expand the kitchen, put in a half bath, second living room area and a master suite with master bath. This would essentially double the square footage and hopefully force the appreciation to nearly double what I paid for the home. After construction is complete refinancing and house hacking two of the now four bedrooms on Airbnb to offset the cost of the raise in the mortgage. Then taking a HELOC out on the forced equity as a way of paying for new investment properties. All that having been said is this a good idea or just some kind of crazy dream
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Meir Greenblatt
Rental Property Investor · Houston TX / Tacoma WA. · Member since 2019 · 166 posts · 89 votes
6y
@Matthew Jones
It's an interesting idea, maybe other investors that have done an addition can testify if it's a good idea or not.
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Chris Coleman
Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes
6y
@Matthew Jones a few things I would consider before doing this...
First, if you don’t already know, I would make sure I know exactly how much equity I have in my home right now...before any additions.
Next, I would get with a realtor, maybe a few, and get a very good idea of how much additional value these additions would actually add to my home.
Then, I would to contractors to get as close of an estimate as possible as to both the cost AND time of these additions.
Now given all that information, is it worth it to invest the cost and the time involved in the additions? Will it increase your equity a substantial enough amount and soon enough to make it worth it, versus using the existing equity you have now?
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Matthew Jones
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Contractor · Davison, MI · Member since 2020 · 3 posts · 0 votes
6y
Thank you Chris for the advice these are all very good points a few of which I had already been considering as I feel that it is always best to arm yourself with as much information as possible before making a decision
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