Rental Property Investor · Anaheim, CA · Member since 2016 · 34 posts · 11 votes
I am a buy & hold investor. My current goal is to maximize the cash flow from existing properties while enhancing property valuation from any renovation work I might need to make in achieving the higher cash flow goal.
I am experimenting on the co-living (PadSplit) business model at one of the properties (3Bd/3ba SFR). My plans call for adding 2 more bedrooms & bathrooms (790 sq ft). I have plenty of room in the backyard.
What I need input on is: Which is the most beneficial method in increasing property value? The additional 790 sq ft as a detached stand alone ADU or as an extension to the existing home (increased footprint)? TIA!
Investor · Collierville, TN 38017 · Member since 2017 · 678 posts · 491 votes
1d
I've done the attached version of this play many times — converting carports and garages into master bedrooms — so I'll give you the math I use.
Attached wins on cost almost every time. You're adding ~400-650 sq ft inside the existing envelope: no new foundation, no separate utility run, one roof, and the appraisal treats it as finished square footage that lifts ARV. A detached ADU means a new foundation, separate electrical and plumbing, permits, and in most markets it appraises for less than it costs to build.
The downsides of attached: you lose covered parking (tenants in my markets don't care much) and you need the conversion permitted and heated/cooled so it counts as living area. My rule: whichever option adds bedrooms for the least dollars per sq ft. Bedrooms drive rent. In my Memphis houses, a 2/1 to 3/1 conversion is the highest-ROI move I know.
For your PadSplit play, 2 more bedrooms at attached cost per sq ft is hard to beat — just confirm the permits and the bathroom count before you commit.
Rental Property Investor · Anaheim, CA · Member since 2016 · 34 posts · 11 votes
1d
Thanks for your input. Unfortunately I have neither amenity to work with. The garage had already been converted by the previous owner into a master bedroom so no available garage. Too bad there is also no covered patio to work with.
However, there is a lot of land in the back yard to convert vacant space into meaningful 2 master suites for cash flow. My mind is pretty much set on the addition of 2 master bedrooms to boost rental income.
In keeping with the end in mind, I just want to make sure that any investment $$$$ plowed into the project impacts the ARV or property value in the most significant way. I believe viewing this from the lens of an appraiser would be most advantageous.