Adding a bathroom and renting by the Room

[Chris R.]

Hi BP, Two questions here: 1. Spend the money to add a bathroom now. 2. Renting by the room or as a 5bd. 

I'm currently in a house hacked duplex in Somerville, MA. Bottom unit is rented as a 2bd 1ba. I am renovating the my unit, (4bd, 1ba, but has two offices that can become bedrooms. 1 would need a closet or armoire, other needs hallway access, which would come with the new bathroom)  paint, floors kitchen, looking into adding a bathroom but i'm getting quotes in the $50-60K range which seems extremely high? If I added the bath this does open up a hallway to the additional bedroom making it a 6bd 2ba. My goal is to get minimum $5K /mo. for the top unit, which I think I can do without adding the bathroom but could get in the $6K+ range with additional bath. Longer term plan is to condo out the duplex. 

Do I invest in the bathroom now or use capital for another investment? And do folks have experience with renting by the room? If so, what are the pro's and cons? 

Thanks!

[Ryan Thomson]

@Chris R. run the numbers and think through your goals! If the best return on your cash is your goal than run the numbers:

1. ROI situation #1 - What does it cost to add these things and how much does that increase your rent annualy? There is your simple cash on cash ROI for that investment

2. ROI situation #2 - What does it cost to buy the next property? -What is your COC ROI on that property.

3. Take them both one level deeper. How much value does adding a bathroom add to your current house? How much will your net worth grow by buying another property when you factor in (cashflow, appreciation, loan paydown, etc)?

If you can and want to do both, do both. If you can only do one, then you need to run these numbers. Then think through other important factors like how much time, risk, and effort each requires. You are the best person to run these calculations and answer these questions.