Analyze this with me

[riverwed070707]

You have a 20x22 2 car garage. If the structure of the garage allowed you to do so, would you consider it a good investment to bulid a studio apartment above the parking area to rent out as additional income?

Assuming no structural concersn, initial estimates tell me it would cost $30-45k to build. If it could be rented for $500/mo (I would say this is reasonable for our area, maybe a little more/less depending on how nice it is) the return would be 5-8 years after which point the income would be large enough to cover our entire mortgage payment.

Some thoughts I had:

• Since it's not attached to our house, I don't feel like we really have concerns about privacy/security/etc
• If we got tired of having renters (and the reason I'd rather go studio than a 1 br) we could always turn it into a rec room since we already have a small home and lack entertaining space
• While I don't love the idea of being a landlord, it makes me slightly more at ease being so close so we can keep an eye on the place
• What kind of potential permitting/building issues could we run into with this?

[bjl584]

Definitely get the garage on seperate utilities. Don't chain them off your existing house, or you will have no way of tracking utility usage (or charging the renter for it.) Being that there is a garage below the living quarters there could be zoning/safety issues with carbon monoxide and fire, so you will probably need to use some sort of fire retardant materials and fire proof doors to seperate the apartment from the garage.

How are you going to pay for this? HELOC? You can probably generate positive cash flow right off the bat that way, and you will get the advantage of a tax right off. Just keep an eye on interest rates moving into the future.

[riverwed070707]

Definitely will do a separate meter. That was something I had thought about already and I'm such a temperature dictator that I would feel really uneasy about not being able to control our utility bill.

As far as payment, I'm not 100%. We don't have enough equity in our current home for a HELOC but we have a house we sold on contract and the contract is scheduled to be finalized by the end of next year; however they expect to be able to obtain financing in the spring. We will walk away from the deal with about $15k. We could reasonably save up another $5-10k and then we'd only be looking at financing $5-15k. That's a bridge I haven't crossed yet.

[bjl584]

Originally Posted by riverwed070707

Definitely will do a separate meter. That was something I had thought about already and I'm such a temperature dictator that I would feel really uneasy about not being able to control our utility bill.

As far as payment, I'm not 100%. We don't have enough equity in our current home for a HELOC but we have a house we sold on contract and the contract is scheduled to be finalized by the end of next year; however they expect to be able to obtain financing in the spring. We will walk away from the deal with about $15k. We could reasonably save up another $5-10k and then we'd only be looking at financing $5-15k. That's a bridge I haven't crossed yet.

One other thing to consider is the marketability of your current home should you go to sell it in the future. Adding in a seperate rentable living unit will obviously raise the value of the property, but not everyone wants to be a landlord or has use/need for a seperate living space. This may limit your ability to sell your property in a timely manner should you need/want to in the future. Just something to consider.

[riverwed070707]

I see what you're saying, and I may be wrong, but I see this as being a serious value booster, not buster simply because as mentioned, our house is so tiny that I think any future potential buyers would love to have the added space for a rec room/entertaining/etc. We're also in a relatively low income area so it might really be a selling point for people to have an option for additional income.

[photo]

Originally Posted by riverwed070707

We're also in a relatively low income area so it might really be a selling point for people to have an option for additional income.

Something else to consider is that you don't want the price of your home to be substantially more than most other homes in the area because you may not see a return when you sell.

[toys]

Originally Posted by photo

Something else to consider is that you don't want the price of your home to be substantially more than most other homes in the area because you may not see a return when you sell.

Further consideration for the potential thought of selling your home one day. FHA loans account for 80-90% (depending on which survey you trust) of all home-buyer loans. FHA will not approve a house with a converted garage (period). You will have to re-convert it back into compliance with proper (city & FHA) codes to be able to sell.

I am not suggesting that you do not do the conversion, just that you bear in mind the potential tear-down. Make the remodel simple and straightforward so that it will not be a huge expense or hassle to return it to its original condition (should the need arise).

Otherwise the only buyer that will be able to even consider purchasing your house is someone that can afford to buy it without a mortgage. And let's face it, these days, those type of buyers are just about as common as a purple one-eyed unicorn with a limp.

If you plan to do this remodel legitimately, then be prepared for permits to be a significant portion of your expenses. The best way to handle permits is to let your Better Business Bureau accredited fully licensed contractor handle it. If you want to do some research, check online: your city will either list all of its permit issues and fees online or will have a link where you can request it be mailed to you.

Your estimate already sounds a little high. I suggest you get more estimates. If you don't have time for a bunch of estimates... then schedule them all at once. Personally, I prefer 3 at a time. I also schedule them back to back, so that as the first crew of estimators are leaving, the next crew is arriving. I have done as many as a dozen in one day, and it only took 4 hours of my time. It may seem rude, but it lets the contractors know that they will have to compete to win this job. You will see better bids because of it.

[riverwed070707]

Originally Posted by toys

Further consideration for the potential thought of selling your home one day. FHA loans account for 80-90% (depending on which survey you trust) of all home-buyer loans. FHA will not approve a house with a converted garage (period). You will have to re-convert it back into compliance with proper (city & FHA) codes to be able to sell.

I am not suggesting that you do not do the conversion, just that you bear in mind the potential tear-down. Make the remodel simple and straightforward so that it will not be a huge expense or hassle to return it to its original condition (should the need arise).

Otherwise the only buyer that will be able to even consider purchasing your house is someone that can afford to buy it without a mortgage. And let's face it, these days, those type of buyers are just about as common as a purple one-eyed unicorn with a limp.

If you plan to do this remodel legitimately, then be prepared for permits to be a significant portion of your expenses. The best way to handle permits is to let your Better Business Bureau accredited fully licensed contractor handle it. If you want to do some research, check online: your city will either list all of its permit issues and fees online or will have a link where you can request it be mailed to you.

Your estimate already sounds a little high. I suggest you get more estimates. If you don't have time for a bunch of estimates... then schedule them all at once. Personally, I prefer 3 at a time. I also schedule them back to back, so that as the first crew of estimators are leaving, the next crew is arriving. I have done as many as a dozen in one day, and it only took 4 hours of my time. It may seem rude, but it lets the contractors know that they will have to compete to win this job. You will see better bids because of it.

Not true. As long as the conversion received the appropriate permits FHA will finance it. The issue buyers run into is conversions that have been done without proper city permitting. As mentioned, the garage is detached. People buy homes all the time that have guest houses, detached home offices, etc. FHA also finances multi-family purchases up to 4 units so even if it was a rental, as long as one unit was owner occupied they would still consider it.

[gagan]

i am agree with you

[gagan]

i am agree with you

httpfdhhhhhhhhhhhhhhhhhhhh

[toys]

Originally Posted by riverwed070707

The issue buyers run into is conversions that have been done without proper city permitting.

True, true. However, in discussing this issue with a multitude of realtors on the last few houses I helped remodel to sell. The unanimous view on garage conversions was 'revert to normal'. Whether its true or not, the (possible) misconception of the FHA preference is the information that (otherwise uniformed) people will rely upon.

As mentioned, the garage is detached. People buy homes all the time that have guest houses, detached home offices, etc.

Having the proper permits and the detached feature do make a huge difference. But then you still have to consider this valid point:

Originally Posted by photo

Something else to consider is that you don't want the price of your home to be substantially more than most other homes in the area because you may not see a return when you sell.

Just because a home has been improved, does not mean it will appraise well. FHA loans have more strenuous requirements for appraisals than your average mortgage. The 1 mile radius that most banks allow may not be as easily attainable if those comparables come from outside of the immediate neighborhood.

[greenskeeper]

interesting thread and I have the same setup (detached 2 story garage) that I have thought about doing this exact thing.