What to do with the garage to maximize ARV?

Question

Hi BP community,

I would like to get your opinion on my situation. I am currently under contract to buy SFH (3/1, 1058sf), with a half done garage conversion (450sf). Previous owner already put in a full bath and weatherproofed it, but hasn't done anything else. Because I will be doing the rehab and garage is a clean slate, here are a few options I am considering:

• Convert it to a master suite, which will make the house a 4/2 with 1500sf
• Convert it to a studio
• Convert it to a 1/1

My goal at the moment is to maximize ARV for refi, but I am not sure how the appraiser will look at it. Once the refi is done, garage will most definitely become a 1/1 for additional income. My dilemma is whether I should just go for it right off the bat, which will save me some money, or make it a master suite first, and then convert it after the appraisal.

Thanks for your time.

Mike Malyy · Answer

@Dan Sundberg thanks Dan. Garage that was converted is attached. Second garage built in the back is detached.

Dan Sundberg · Answer

Oh wow - could you also convert the detached into another living space? Turn the whole thing into 3 units? That would make for some awesome cash flow...

Andrew Postell · Answer

@Mike Malyy you should really be consulting your comps for this answer.  Meaning, if the neighborhood has ZERO garage conversions...then all of your comps will have garages.  And you might need that garage for value.  But if your neighborhood has lots of garage conversions, then that would lead me to believe you don't need that garage and that it's normal practice to convert the garage.  All of this to say - you don't want to be the only property around that does "X". If you are needing value then you need those comparable properties to compare with.  So do what the neighborhood is saying.  I hope that makes sense how I am describing this.

Mike Malyy · Answer

@Dan Sundberg yes, that’s the plan later on. The detached garage also has a 1/1 ADU on the side so it will turn into a duplex eventually.

Bruce Woodruff · Answer

Hahaha, they probably won't but ya never know.....depends on the inspector and if he had a fight with his wife that morning.... :-)

Also, if you get a negative inspection that you don't agree with, you can always attempt to override it by going over the inspector's head to whoever's in charge of the building dept. You can only do this once though as you will never pass another inspection with that guy.......

Mike Malyy · Answer

@Bruce Woodruff thanks Bruce. Coring has been done. As long as they won’t make me tear out entire bathroom, I should be good on the rest.

Bruce Woodruff · Answer

Also, you should know that if this new living area was built on an old garage slab that it will not be allowed. Old slabs are not built to the same specs as new ones, and any garage slab , even a newer one, is not built to be a 'living area'. They will make you X-Ray and core sample the existing slab. Ask me how I know........

Bruce Woodruff · Answer

So there have been no permits for the work performed so far? Just be aware that the inspector can technically order you to take everything back to as it was and start over, They don't always, but they can.....

Mike Malyy · Answer

@Bruce Woodruff once everything is said and done it will be permitted with all inspections. I will be redoing some things so will need new permits.

Speaking of STR, this is why I was thinking master suite. In our jurisdiction, a full time STR is only allowed if it’s a) a primary residence, b) there’s a long term tenant in place with a lease of at least 6 months. Due to housing shortage no full time STRs are allowed. My plan was to house hack the main house and maybe do an STR in the garage, then I have to make it into a master suite for it to be a part of my primary residence and be legal. Once I decided to move on, I would put a long term tenant in and still be legal (or vice versa).

If I do separate the garage into a studio/1 bed, then I will target traveling nurses because I have a few hospitals in the vicinity.

Bruce Woodruff · Answer

I assume the conversion was done under permits? With the required inspections?

Permits expire without an inspection within 180 days, so you may have to renew the permit which can be very pricey depending upon the jurisdiction.....

Anything you can rent out is a better choice than say, a master suite, IMHO.....any chance this would work as a STR? :-)

What to do with the garage to maximize ARV?

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