Should I do a heloc to create a rental in my basement?

Question

My monthly payment for my house with utilities is around $3000 because of interest rates. I could get around 50k through a heloc and renovate my basement into a two bedroom one bath apartment, hopefully getting $1500 a peice in rent to cover my mortgage. Is this a good idea? Or should I be looking for better deals that will cash flow more.

Ty Coutts · Answer

Hi Brenden,Your plan to use a HELOC to convert your basement into a rental unit sounds like a solid house-hacking strategy, especially if you can get $3,000 in combined rent. This would effectively cover your mortgage and significantly reduce your living expenses. However, make sure to account for renovation costs, HELOC interest, vacancy rates, and local rental laws. If the numbers still work, this could be a great way to leverage your current property. That said, if you have the option to invest in a better cash-flowing deal elsewhere, it's worth running the numbers to compare returns.

Joey Banasihan · Answer

Hey @Brenden Sperl, I did the same thing and I have not looked back. Going through the experience and taking action will add more to your future wealth, then getting stuck in the numbers - CoC or ROI are not set in stone, and they also are just snap shots of what you see today. You got this and good luck!

Brenden Sperl · Answer

@Greg Kasmer- I would live in the upstairs of the house and create 2 units downstairs. Hoping that each of them produce $1500 in rent, I’d like to get $3,000 total which would be enough to cover my mortgage.

Adrian Lammersdorf-Scioll · Answer

It sounds like a great idea! I would just make sure to call the city and let them know your plans in full detail to make sure that you can do it. It would be a shame to convert it, and then down the road they tell you that you have to change it back.

I was just quoted 8% on my heloc, if that helps you at all with getting an idea on interest rates. With 8% you should easily cover the heloc cost, and more to pay it off down the road.

Greg Kasmer · Answer

@Brenden Sperl - Can you clarify you rental income? Once you convert your basement you'll have the ability to rent it out "both" for $1,500? Are you talking your current house and the basement separately? Your income would be $3,000 and your mortgage is $3,000 so you won't be covering costs. However, if you plan on living in your existing house and when you convert the basement you can rent out for an additional $1,500 then your cash on cash return of your $50,0000 would be 36% (18,000/50,000), which is a great ROI. The former I wouldn't do, but the latter I would. Please check the zoning laws where you are on your property and double check your numbers (i.e. Get a contractor estimate) before proceeding. Good Luck!

Should I do a heloc to create a rental in my basement?

Should I do a heloc to create a rental in my basement?

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