The latest real estate renovation for investment purposes we completed was a basement suite. More specifically, it was the basement suite for a half-duplex (built in the 1960s) in the inner city. The premise behind the reno was to turn a single unit investment property into a dual unit. The upstairs suite had already been beautifully renovated, so it was time to maximize the value of this property.
To make it a legal, separate living quarters from the upstairs suite, permits had to be applied for at city hall. Several significant changes to our original design plan were required, and a handful of inspections occurred along the way.
Thankfully, the city was easy to deal with, as they have a stated goal of creating more affordable housing. Whenever city hall has such an agenda, real estate investors should look for opportunities as multi-unit buildings are a key to cash flow. And although affordable housing may not be sexy, it can be quite profitable and gratifying (by providing affordable housing, real estate investors can help others move from renter to homeowner).
The renovations were not cheap, which had a lot to do with the neglect of the space over the years. Some of the basics, such as electrical, proper fire exits, and plumbing were non-existent or needed significant upgrading.
There were a few rather costly city hall mandates, such as a separate furnace and HVAC between rental units (upstairs and downstairs), a very expensive support beam between floors, and the moving of two windows. Those items alone were responsible for about 1/3 of the budget.
However, in the long run, the investment will pay off in spades as monthly revenue should nearly double on the property. Payback on this renovation will be about 4 years.
We were working with somewhat of a blank canvas in this basement, which was nice from a design standpoint. Much of it was an open space…
Prior to starting the reno, there was no kitchen, a rather peculiar closet that ran the length of about 25-30 ft., two bedrooms, which were about 80 sq. ft, and a bathroom that looked awful. The basement also had a drop ceiling with more water stains on it than I could count. We were required to drywall the ceiling (building code requirement).
Here are some highlights of what we did to transform this fifty-year-old basement into a slick, modern apartment:
There were many other aspects to the renovation, but pictures say a thousand words. Take a look at the space before, and after:
More often than not, transforming a basement into a rental suite requires permits and approvals from your city (first and foremost, check to see if your property is appropriately zoned to allow for a basement rental), an eye for design, and patience. However, if you’re willing to commit to this type of project, it will likely result in an exponentially higher cap rate on your investment property. All the while, you’ll be providing quality, affordable housing for those who need it.
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