Sounds like you are approaching this the correct way (says she who has been remodeling nearly 40 years). Just a coupla cautions: (1) check to be sure the footings on your lanai are ample enough for your project, & (2) tie down those projected expenses well in advance & in great detail.
For the sake of your own comfort + resale it sounds like you really need to do this project. For most folks the single biggest investment return is on their own residence. It is a very practical way to rehab, as there are no carrying co$ts as long as the home is comparable to what you would have anyway. Normally I like to do smaller, less expensive projects, but have also done room additions. In the early '70’s I enclosed a breezeway & carport as an inexpensive way to add a huge living room (turning the already large living room into a family room). Think my final cost, even hiring out the basic construction, was under $25 sq. foot. Although I’ve also built from scratch, the challenge of starting w/an existing house & increasing space & value can be great fun. If starting w/a home that has good bones, overcoming the constraints of space, time & $$$ can lead to wonderfully creative solutions. Keep us posted on your progress, & don’t forget the pics–
Okay let me start off by saying I understand this will be a very hard question to answer, but I will try to give the details as best as possible and just want to hear some feedback.
I am trying to decide whether or not adding a 3rd bedroom to my 2/2 would add enough value to make it worth my time. For some background, this house is in a good neighborhood and overall is in good shape. It?s current market value is around $240-$250k and has 1296 sqft. I own it at $210k. My dilemma with trying to figure out the value of adding a bedroom is that my house is literally the ONLY house within miles that is a 2 bedroom. This community was built about the same time, by probably the same 1-2 developers back in the mid 80?s?how my house missed the 3rd bedroom I will never know. I am fairly well versed at looking at comps and doing some analysis on $/sq ft etc, and spotting trends between 2/2 and 3/2 but in this case I have no comparables. The 3/2?s in the neighborhood have sold for an average of $180/sq ft. What I will say about the remodel is that it is pretty straightforward to add a 3rd bedroom and some other minor adjustments to add about 300 sq ft (not all bedroom). If I use the averages I have for 3/2?s that would put my market value at around $288,000, which is in line with the neighborhood. I can do a lot of the grunt work myself and have a friend who is experienced in this kind of work (plus he works for the price of a 6-pack). On an average remodel, what would my cost/sq foot be? I have heard estimates of around $100/sqft hiring out the entire job. I am thinking if I can get everything done for $20,000 it would be a value-adding proposition (Net gain of around $35,000–$66/sq ft cost vs $175 sqft mrkt value). I?m in Florida where everything is concrete block stucco, if there are any investors familiar with that type of construction.
Any ideas?flaws in my thinking?experience from others? Like I said I know this will be hard to give an ?answer? but I just want to open up some dialogue and see if someone points something out I haven?t thought of or has another way to approach this.
There are two things I see here. The first is that you are spending a good chunk of money to improve the home, but you are not gaining a significant return. Even if it comes in on budget the return on the investment isn’t really worth the risk in my opinion. You had also better be aware of a market correction that could happen, wiping out any gain you hoped to make.
The second thing to consider is something you had mentioned in your post. You stated that it is “literally the only house in miles” that is a 2 bedroom. Believe it or not, that’s something I like! Obviously I’d rather be the only 4 or 5 bedroom home surrounded by 3 bedroom homes, but you have something unique that could help you differentiate your home from all others. It could help hit a specific market segment if you are selling or as a rental.
Posted by Joe Kaiser on March 28, 2006 at 23:33:49:
You can capture $35k (in equity!) with nothing more than the stroke of
a pen with just one decent deal.
Can you see how silly it is to do this kind of work for a very minor
equity bump that may or may not happen (costs or later value
uncertain)?
A very uninvestor kind of thing to be doing. Tons of work, risk, and
effort with little or no real gain - not my idea of fun.
You’ve got it backwards. As investors, we seek to risk little and gain
much, and we jump into those situations knowing we’re going to come
out smokin. That’s where investors focus all their efforts.
Ideally, you’re in with nothing out of pocket, nothing at risk, and 100%
upside potential.
We need to know: (1) if you are adding to your footprint or changing interior only; (2) comp sq. footage; (3) real construction estimates. If 3 bdrm houses in your tract are the same size as your 2, then I’d look @ alternatives to adding on (e.g., moving walls, going up). If the other houses are larger, you probably need to add space, not just reconfigure. Do you have a garage that can be converted? Sometimes it is easier to do that, then add new garage space. If you & buddy are able to do pro-looking constuction on 6-pack power, then fine; however, if the results w/reflect the inspiration, you need to @ least sub-contract pros. Whatever you decide, do NOT even consider working w/out appropriate permits. There is NO advantage to not doing it legal, & the biggest disadvantage is that you won’t be able to sell w/out ripping out everything & re-doing it the right way. I know more than one do-it-yourselfer who learned this lesson the expen$ive way. Good luck, & feel free to post pics & plans for input–
Both good points, and the return on investment is my main concern. I am aware that projects like these, no matter how well intentioned, tend to cost twice as much and take twice as long?and if that were the case there would be no ROI. I am less concerned with a correction, only because I know the area well and these houses are at a price point that will be less affected by a correction. I am not saying it can?t happen, but I feel there will always be a pool of buyer?s looking for affordable homes, especially in this part of Florida.
Your second point has me thinking, and is an angle I haven?t considered. By keeping it at 2 bedrooms possibly I hit a portion of the market that isn?t being served. I know one poster mentioned that having 3 bedrooms may increase the sellability, or that time on market could be reduced, but I wouldn?t list it for less than $300,000 (making it less affordable). But if I left it at 2 bedrooms, I could afford to list for $260?ish, catch a segment of the market looking for affordability and possibly sell in the same amount of time. I guess what I am saying is that time on market could be a wash under those scenarios. And to your last point, it would make a great rental. Knowing the market it would command a rent towards the higher range of market rents and be very easy to get someone into it. Could work well as a lease to own as I think about it now.
We will be adding to the foot print…kind of. Currently this house has a screened lanai about 3 times bigger than an average family would need. The lanai is on a pad that we can use for the expansion. Everything here is built on slab, and adding CBS to the lanai slab would not be that difficult nor violate any code. It would leave us with a bedroom about 10X17 with its own patio (not covered lanai)and its own exit to the backyard area. Kind of like a master suite without the bathroom. I thought I talked to the comps issue in my original question, but let me clarify. Currently 3/2’s are going for around $175-$180/sqft and I have no 2/2 comps to compare to. 3 bedroom’s in the neighborhood are around 1600-2200 square feet. So no they are not the same size as mine, that is why adding space is the goal of this project. This 2/2 is 1296 and will be right at 1600 after the construction. As for real construction estimates, that is part of the reason I am here…I think I can do it for around $15000-$20,000 doing most of the grunt work and hiring subs for the more advanced jobs. I do not know what it would cost to hire out for everything, around $100/finished sqft from what I have been told. As for professional looking work on 6-pack power it is certainly my intention to hire out anything we could not do professionally ourselves, but there would be some demo, roofing, framing, etc that we could certainly acomplish, then let a “pro” do the finish, HVAC, electric, etc. I would never work without proper permits, especially in the county I am in in Florida. My idea is to add value, and as you say doing work without the proper permit is not the way to do that.
I appreciate your comments, and look forward to hearing any follow up you may have. The last comment I would make is that this isnt some half assed job just to turn a buck…I am trying to look at this from every angle and decide if I can add enough value to make it worth my time.
While 3/2sare much easier to sell than 2/2s, it would be a good idea to get professional contractor estimates of what the expansion would cost and then bash that against the comps. Usually the cost of an additional bedroom does not translate dollar for dollar into sales price, but if it translates into fewer days on the market it might be worthwhile.
If you are using an enclosed patio slab for a foundation, you will need to checkand make sure its the proper thickness.