Investment Info:
Single-family residence buy & hold investment.
Purchase price: $327,000
Cash invested: $33,000
Bought as our home, then immediately built a separate entrance to the basement and have been running as an Airbnb ever since. The Airbnb brings in around $3,500 if half the mortgage is included as an expense, $13,500 if that's taken out. Either way, it helps pay most of the mortgage.
Have made a number of improvements to the housing, in the ballpark of at least $20K of sweat equity. I completely refinished the kitchen, including painting or refinishing every surface in it, as seen in the pictures below. Concrete countertops, new sink and faucet, new durable floors, tile backsplash, refinished and painted cabinets, added dishwasher, etc. In addition, I put up stained tongue and groove ceiling on the front and back porch, replaced the skinny 4x4 posts with 6x6 stained posts.
But the real reason I bought this house is that it sits on a 12,000+ square foot lot. I've just received my permit to the city to build two townhouses in the backyard, and am planning on breaking ground in the next month. One side will be two bedroom, the other side one bedroom. I plan on running them as either Airbnbs or rentals, depending on the market. We are currently renting the upstairs of the house for $2050 per month, and running the downstairs as a Airbnb.
What made you interested in investing in this type of deal?
The size of the lot was an immediate draw, as I knew I could split it into three lots and build in the backyard. There was also a lot of value that I knew I could add to the interior.
How did you find this deal and how did you negotiate it?
MLS, negotiated down from the listed price by about 12K.
How did you finance this deal?
10% down conventional.
How did you add value to the deal?
Lots of sweat equity, as detailed above. But the townhouses in the backyard should be the primary way that significant value is added to the property.
What was the outcome?
The main house, even on the new much smaller 5,000 sq ft lot, has recently appraised for $400K. It's bringing in significant cashflow, as the rental upstairs now pays the whole mortgage, and the Airbnb downstairs is doing very well. That cashflow is seasonal, so is more variable.
Lessons learned? Challenges?
Splitting a lot that has a mortgage on it is really hard. It took 9 months to get the permit and split the lot, with both of those processes often holding up the other one. In addition, I'm just starting the challenge of the build, but the projections are looking good!
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Gina McDonald was my agent, I'd highly recommend her.
