Property Manager · Orinda, CA · Member since 2016 · 11 posts · 0 votes
Hi everyone, I'm new around here and I would love to get some good advice on this.
I own a home in South Tabor (Portland) that I bought in 2010 for 240k, PITI is $1650.
I haven't put any money into the property to speak of, a few things like paint, new wood fencing, but not much.
It is a very unique property in close-in Portland in that it has an oversized 2-car detached garage at the back of the property. It is more like a small barn because it is tall and very spacious at about 600 sq ft.
It is located on a very desirable cul-de-sac street with almost zero traffic - super quiet, safe and private. You can walk to Mt. Tabor park and other stuff people like such as cool restaurants etc. in about 15 min or less.
The house itself is a 2-1 with about 1000 ft, built in 1949.
I inherited a house and have the opportunity to move and sell or rent this house but I am having trouble deciding.
Looking at Craigslist, rents look very strong in this area with similar homes at about $2,000 plus per month. The location and the potential work/studio or vehicle storage space I believe would add to that number.
Selling would bring a price of around 400k or higher. It's hard to find comps because a garage of that size is an extremely rare find around here.
If anyone has any tips on how to decide which way to go I would really appreciate it. I don't have much of an emotional attachment to the house even though I've lived in it for 5 years. I might be a little bit reluctant to let it go since it is not easy to find features like this house has. Although if the price was right...
Thank you for reading and I thank you in advance for any advice!
If it were me I would convert the huge garage into an ADU and rent the main house and ADU. You could probably get $700-$1000/month for the ADU plus the the $2k for the main house. South Tabor will no doubt appreciate much much more in the next 5-10 years and the tenants you will get will be top notch in that area. If you sold for $400k, minus the $230k you owe, minus closing costs you would have roughly $140k to invest in another property (If you didn't do a 1031 exchange then you would have to pay 25%- 40% taxes on that as well, but let's say you did). It's really difficult to find cash flowing properties here in the Portland Metro area. You can also leverage this property to make other investments. I don't think anyone could pay me enough to get rid of that property if I were you.
The only way I would sell would be if you were comfortable investing out of state. In other markets you can probably do quite well with $140k but it's also a lot riskier if you are unfamiliar with the market and generally you won't see nearly as much appreciation.
I am a big fan of refi, why sell when you can refi to take the "tax free" cash and use it to build your ADU, and still have a good chunk to invest in your next "cash flowing" asset. No worries about capital gains tax or 1031's, just tax free cash! The best part? You get to keep your current assets!
@Mike Nuss, @Amanda Coleman, and @Jay Hinrichs all have great advice. In fact, many people can offer great advice, but ultimately, what matters is the advice that works best for you.
What I wonder, @Account Closed, is what are your long-term and short-term goals? You're on BP, so presumably, you want to invest in RE. If your near-term goal is more financial freedom via passive income, and your expenses are already low, then holding the property for now would seem to make sense. If you want a wad of cash to invest in something else, then I suppose you could sell it. But consider what you would actually have were you to do that--would the amount you have left over in cash allow you to buy a property in the area in which you could both live and cashflow, and if so, could it appreciate and cashflow at the same rate as the property you currently own? Is cash flow even your goal?
I'm a buy and hold gal, so my advice is biased based on that. But I'm also a numbers person, so my advice would be to do what makes sense based on the numbers as it relates to your specific goals. You'll consider things like:
What part of town do I want to live in, or do I need to live in Portland at all?
How much cash flow do I want today, or is cash flow important to me right now at all?
What's my long-term goal, and how would keeping this house get me there? How would selling it get me there?
If I sell the house, how can I first increase its value to get the highest return possible? Do I think this is the top of the market or do I think there is room for continued [average to good] appreciation?
If I keep the house, how can I invest in it to get the highest ROI in terms of monthly cash flow?
These are just a few things to consider. I'm a big fan of putting all my options down on a spreadsheet and comparing the numbers, both current and projected. Without having more details about the layout of your house and garage and lot, were I in your shoes, I would see if it's possible to convert the garage to an ADU and what the lowest cost to do that would be. For example, if I can run water/sewer and electricity out there, insulate the walls, add some windows, drywall, finishes, and appliances for $30k-$50k, that's less than any unit you could buy anywhere in Portland. Then I'd live in the converted garage and rent out the small house. (It may make more sense to build new, BUT there are a lot of factors that go into it, like zoning and setbacks and what condition your existing garage is in and is there a loft space etc. For example, if your current garage is in the setback that would now be required by code, it's grandfathered in and you probably wouldn't want to completely demolish it. You might keep that one wall and build a new ADU around it.)
But before renting out the house, I'd see if there was a way to get a third bedroom in there. 1,000sf should be adequate for 3 bedrooms. Could I convert an attic? Is there a basement? (And if there is, that adds a whole new dimension to the story.) Is there a dining room that could be turned into a bedroom without disrupting the functionality of the house? I've noticed that 3 bedrooms rent for about $500-$800/month more than 2 bedrooms in Portland. (That's super general and depends on the area, but the point is, 3 bedroom houses are in demand.)
If I had more specifics about the location and layout of your house, I could give you better numbers. Rentometer.com and craigslist are good places to check rents.
Another option for that site would be to rent yard space to a person with a tiny house. I've heard that people are willing to pay between $400 and $500 just to have a place to park and live in their tiny houses. There are some code issues that you'd want to be aware of (e.g. the neighbors need to be OK with it) but otherwise it's another way to generate cashflow from an existing plot of land. If cashflow is your goal.
Anyway, if you lived in the converted garage, you could still sell your house whenever (as long as 2 of the last 5 years before you sell were owner-occupied) and avoid capital gains tax as Jay described, but you'd also be taking advantage of the appreciation that will most likely occur in that area. If your plan is to sell the house within the next 7-ish years, then keep that in mind when designing your ADU. You'll want something that buyers will think adds value (i.e. the ADU should be nice enough to make people not regret not having a garage, or keep a single car garage, or build new above a garage, etc.)
I have an architecture degree but I don't really trade my time doing drawings for money. That said, I do enjoy giving free design advice and suggestions to nice people who I meet in person. I'm also finishing up real estate school and have been an investor for 4 years in Portland, so I'm happy to provide you my opinions about ways to reach your RE goals and about where I think the value lies within the Portland RE market in general. Feel free to PM and we can chat. :)
@Account Closed Thank you so very much for the incredibly informative post. You've given me so much to think about! I do think I would like to hang on to the house for a while longer but the layout of the house makes me wonder about it's suitability as a rental. What I mean by that is there is a small loft area carved out of the attic which is beautiful and nicely finished. Its access is via a ladder-like stairway (if that makes sense, kind of halfway between the two) and I wonder if the loft will create liability issues although there are very good handrails there is still an edge that someone could conceivably fall off of if they were being extremely careless. I'm going to have to look into whether this is a problem.
This house doesn't have a basement, only a crawlspace. I could possibly finish more of the attic at some point. My garage is very large and tall and as I said earlier it looks more like a small barn than a typical garage. It has potential although it would need more windows. The ceiling is already insulated and drywalled. There is water out there or at least there was at one point but right now it isn't working and I'm not sure why.
