Currently doing BRRR- does it make sense to add full bath for $25k?

Question

I am fairly new to the BRRR method but currently rehabbing a 3bd/1ba (1189sq ft) I am going to share all my numbers and would love opinions from experienced investors on what you would do.

- Purchase Price $38,450

-Full Rehab $75k (roof, interior/exterior paint, new kitchen, new bath, new floor, new appliance)

- Add full bath $25k (88 sq ft) is the option/decision

As far as cash flow, here is are the two options....

- 3/1 would be... Total Investment for this option is $113,450

- $1350/monthly or $16,200/annual with all annual expenses totaling $15,614 with positive cash flow of $586 (7% CoC Return). My cash Refi at 60% LTV would be $105k which would leave 8450 investment in house.... keeping house as is not adding bath is Cash on Cash Return of 7%.

3/2 would be...Total investment for this option is $138,450

- $2150/monthly or $25,800/annual with all annual expenses totaling $17,344 with positive cash flow of $6652 (70% CoC Return) .My Cash Refi at 60% LTV would be $129k which would leave a $9,450k investment in house.. adding a new bath would be a Cash on Cash Return of 70%.

Because of the increased rent from having 3/2 vs 3/1 of $800 per month with added rehab cost of $25k, my break even is 2.6 years. This seems like a no brainer but would love some additional input from more experienced investors. What am i missing? Thanks so much and look forward to the feedback.

Michael Lapsley · Answer

Our stats for Baton Rouge, LA for 3BR SFR are as follows:

Median Rent - 3BR/1ba is $1,100

Median Rent - 3BR/1+ba is $1,899

Also note, the overwhelming majority of 3BR SFR's (5 to 1) have 1+ba.

Kevin Sobilo · Answer

@Nathan Furlow, are you sure of your numbers?

In my market a nice 3/1 might rent for $1350 as well but with an extra bathroom the difference is pretty negligible. If I was to guesstimate maybe $25-50/month extra. I could understand in some markets it might be $100-200 but you're talking about an $800/month difference for a 2nd bathroom.

Nathan Furlow · Answer

Thanks Patrick for response and feedback. To be clear, the ARV is $215k and even if the rent was 1800-1900 the math seems to be favorable to add. Is that fair?

Patrick Roberts · Answer

I 2nd this - doublecheck your numbers. Very few places in BR that I'm aware of will bring over $2k/month for a 1200sqft 3/2 and those are A/B neighborhoods with $250k+ ARVs. We're currently doing something similar in BR - taking a house from 3/1 to 4/3. In my workup, I estimated that a 3/2 1150sqft buildout (as an alternative) would bring around $1800-1900/month, and this property is in midcity. I'm very skeptical that a BR rental of that size with an ARV of less than $150k will bring $2k+ month in rent, but Ive been wrong before.

Sarita Scherpereel · Answer

In my market, adding a bath can increase the ARV of the property in most markets. This definitely comes in handy when it's time to refinance. If you're ARV is $215k it seems like the numbers work in your favor. Also, if you needed to sell this as a flip, buyers would more likely purchase something that has a 2 bath verses 1 bath. That's an added level of this deals potential.

Evan Polaski · Answer

@Nathan Furlow, I cannot emphasize Theresa's comment enough.  Where are you putting the second bath and what are you losing for get it?

I have certainly added half baths to a renovation, but never a full bath without a MAJOR renovation (read: moving walls and reworking the whole flow of the house).  And even the half baths that I added only went in when there was clearly a space for it that made sense.

While you will probably get some credit for it in both rent and ARV, if you put it in a "weird" place, like right off the living room, dining room, or kitchen, you will not get the full credit others may get when they put it on a hallway.  Remember: no one wants to poop in the bathroom off the kitchen when everyone is eating in there.

Alecia Loveless · Answer

@Nathan Furlow If it’s only $25,000 and you have the space without reducing the size of a bedroom significantly or something I’d do it.

I don’t trust website estimates for rent. I prefer to contact other investors or look at comparable properties for rent on Facebook Marketplace or similar sites.

I doubt an extra bathroom will add $800/month. In my market might be $150-200 as others said also.

Another bedroom might be a different story in my market it could be $400 more for a 4/1 or 4/2. But not a bathroom.

Nathan Furlow · Answer

Great. Thank you for that info. It feels like that the decision to add would be well worth the investment for monthly income but also my ability to sell later.

Theresa Harris · Answer

As others said, double check your numbers.  Also the layout is important-what space are you losing to get the second bathroom?

Patrick Roberts · Answer

I personally think taking a 1 bath house to 2+ baths is one of easiest value-adds there is. At $215k ARV, a DSCR loan at 70% LTV would be a $150k cashout and would have a PITI of approx $1450/month assuming a 7.25% note rate. Obviously there's a lot I don't know about your deal, but using napkin math and your figures, Id go for it - I think $1600-1800/month is realistic depending on the area at that valuation (just guesstimating the neighborhood quality based on ARV). I'm using 120.00 for the millage (will vary by location) and $2,400/year for HOI. Every HOI quote in Louisiana I've seen in the past six months has been crazy, but your new roof will help a ton.

For reference, we have one LTR in Zachary that's a comparable property to what you've described and are getting $1800/month for it. The comps I worked out for our current project for a 3/2 with rental grade finishes (prob $270k ARV) in a great location in midcity were around $1800-1900/month. Your experience will vary significantly with the neighborhood/area.

Sounds like you found a good deal.

Currently doing BRRR- does it make sense to add full bath for $25k?

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