Florida Investment Property/Boston Basement ADU/Boston Vacant Lot
I am trying to determine the best decision for my next real estate move. I am considering purchasing another investment property in Jacksonville, FL (2 families) ($120k), converting my basement in Boston, MA, into an ADU ($80K), and building on a vacant lot that I own next to my primary home.
Basement ADU Renovation: My Boston home is a two-family that I want to convert into a three-family. I live in one unit and rent the 2nd for $2200. The basement ADU quote I received was for $80k, and once completed, this unit will rent for $2200, and the home value should increase from $1.01 to $1.4 million as that is what three families are going for in my area.
Florida Investment Property: I currently have a 4-unit in Jacksonville, FL, in Historic Springfield. I want to purchase a 2-unit property in this same area that is around $120k. I should be able to rent for around $800 each.
Building on a vacant lot in Boston: When I purchased my primary home in Boston, it came with the vacant lot next door. The lot next door is zoned for a three-family home.
Of all the opportunities, I wonder which would be the best move to make right now. I have a feeling the basement would be the best move but I want to confirm before I spend $80k+
Depends on financing you can get on the ADU. If you have to cash out 80k out of pocket why not buy 2 properties in Florida with the same cash but if you could finance the ADU (I am not familiar with ADU financing check out ADUGUY), build the ADU and buy a rental property. Think both:)
ADU: cash out of pocket -$80k, home equity +$400k, +$2200 cashflow
Florida : -$80k out of pocket, 2 properties,+$3200 cashflow (not including expenses)
Building new construction: This is a bigger under taking and a lot more work but could be worth it
Hopefully this helps, good luck!
@Calvaire Paschall, the ADU seems like a no-brainer to me. Instant equity and good cash flow even in you finance.
Then you can move on to the next ones.
Florida is hot to trot especially Jacksonville. Look at the stats!
Jacksonville
Jacksonville is a rapidly growing city with a bustling business scene; several Fortune 500 companies are located here. Forbes ranks it as the 22nd best place for business and careers and one of America’s best places for job growth.
Jacksonville offers some of the best real estate deals in Florida. The cost of living is low, housing is more affordable (8% less than the national average), and home values are predicted to increase by 8.4% in the next year. With a median sale price of $281,000 (a 19.6% increase in the past year) and an average rental rate of $1,411, Jacksonville is one of the best places to invest in real estate in Florida.
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Seems like a no brainer to be able to be able to finish the basement and get a 375% return on your money ($80k for a $300k in equity) plus additional income in perpetuity. I would do that, perform the HELOC out of the property and use those funds to permit the lot next door to sell to other buyers. In E Boston, permitted projects are selling for ~$200k/unit.
Quote from @Lien Vuong:Lien, can you expand more on "use HELOC funds to permit the lot next door to sell to other buyers. In E Boston, permitted projects are selling for ~$200k/unit." I am new to Boston and there are many things they do differently here. Can you tell me more about this process?
Seems like a no brainer to be able to be able to finish the basement and get a 375% return on your money ($80k for a $300k in equity) plus additional income in perpetuity. I would do that, perform the HELOC out of the property and use those funds to permit the lot next door to sell to other buyers. In E Boston, permitted projects are selling for ~$200k/unit.
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Quote from @Calvaire Paschall:
I am trying to determine the best decision for my next real estate move. I am considering purchasing another investment property in Jacksonville, FL (2 families) ($120k), converting my basement in Boston, MA, into an ADU ($80K), and building on a vacant lot that I own next to my primary home.
Basement ADU Renovation: My Boston home is a two-family that I want to convert into a three-family. I live in one unit and rent the 2nd for $2200. The basement ADU quote I received was for $80k, and once completed, this unit will rent for $2200, and the home value should increase from $1.01 to $1.4 million as that is what three families are going for in my area.
Florida Investment Property: I currently have a 4-unit in Jacksonville, FL, in Historic Springfield. I want to purchase a 2-unit property in this same area that is around $120k. I should be able to rent for around $800 each.
Building on a vacant lot in Boston: When I purchased my primary home in Boston, it came with the vacant lot next door. The lot next door is zoned for a three-family home.
Of all the opportunities, I wonder which would be the best move to make right now. I have a feeling the basement would be the best move but I want to confirm before I spend $80k+
I would purchase the florida property. Right now contractors are very busy, costs are very high and schedules are taking 2-3x longer than anticipated. Any building right now is completely out of everyones control due to supply chain issues etc. This is why I would buy the florida property.
This is a great question! I think it is important to look at it from both a return-on-cost and risk perspective.
ADU: While you may be able to get it done for $80k, I would recommend adding a buffer for cost overruns so let's use $100k. If the new ADU costs $100k and brings in $2,200 in rent, the annual incremental net operating income (NOI) will likely be ~$20,000 ($26,400 x 12 months = $26,400 x 75% (25% expense ratio) = $19,800). Your *unlevered* yield to cost / return on investment will be ~20% (20k / 100k), which is virtually unheard of in real estate. Finally, your true ROI will be infinite if you refi the entire property and pull out $200k+ (perhaps suboptimal because of increased interest rates) or if you due a HELOC / home equity loan.
Jacksonville investment: Hard to quantify this one without more details. I took a look at Redfin and it seems unlikely that you'll be able to find a turnkey 2-unit for $120k, but if you can that seems like a pretty good investment as well. However, you could also do this after the ADU project, and realistically I would be exploring financing sources that would allow me to tackle both of these projects at the same time.
Building on vacant lot: I cannot stress this enough --> this type of ground-up development project is significantly more complicated, time consuming, and risky. It will likely be stressful and challenging throughout, and if you haven't done ground-up development before I would start with the ADU project as a training-wheels version of what this project would be. Some other options with the vacant lot include selling it off to a developer (what I would probably do) or finding a partner and rolling the lot into the project as your contribution to a joint venture. If you are going to do the latter make sure the lot is fairly valued, spend significant time vetting potential partners and retain a great attorney for the paperwork.
Good luck and please keep us posted on what you decide!