Here’s another inexpensive way to add value to your rental investment property
Attic conversions can be a relatively low-cost way of increasing habitable space that you can then rent out for higher rents. In the process you’ll also be increasing the overall valuation on your investment property.
There are many different types of situations where attic conversions make sense. The first would be where you have an existing house and you have an attic space that has a full flight of stairs leading up to it. However, it’s just being used for storage right now. The attic has enough ceiling height to make a conversion very simple and easy. Ceiling height is usually afforded you when you have either a flat roof to the building or a mansard roof, where your steep slopes of the attic are always at the very extreme sides of the house. Converting an attic like this is a very simple thing to do and doesn’t cost that much – probably under $10,000 if you’re not installing a new bathroom.
Your local building department
Of course with all attic conversions you will need your local building department’s approval. You’ll have to obtain a building permit, then a certificate of occupancy after all the work is completed. It’s a good idea to check with your local building department first to help you understand what the local building code requirements are regarding converting attic space into habitable space in your particular area..
Running the numbers
In the case of an attic where there’s a minimal amount of work to be done, adding a second or third bedroom to an existing apartment is really a smart way to go. If you compare the cost with the incremental revenue stream from the conversion you’ll find the added revenue will pay back the cost in a very short time span. As an example, let’s say you have a two bedroom upstairs apartment that you’re going to add a third bedroom to through an attic conversion. If the cost is about $10,000, then full payback of your rehab cost can be achieved through the incremental rent over a short period of time. For example, let’s say you normally charge $800 for a two-bedroom apartment, but if you create the attic conversion and add a third bedroom, you may be able to get $1,000 a month. So you may be able to increase your rent roll by $200 per month. And over the course of the year you’d be adding another $2,400 in rental income. In this example, payback would occur in a little over 4 years.
Adding a bathroom
But you can also try adding a bathroom as well, which also increases your rent roll for that particular apartment. Figure a basic, simple bathroom will cost you another approximately $10,000 added onto the existing $10,000 renovation. You’ll be able to charge even higher rents with more total baths in the unit, and in addition, the valuation of your property will go up. Overall, it may take longer to recoup your marginal costs when adding a bath. But when it comes time to sell your building, you’ll be able to offset the incremental costs at that time as well.
Steeply sloped roofs
Now let’s look at doing an attic conversion for a house that has steeply sloped roofs. A good example of this would be in a Cape Cod style home. Let’s say you want to take a Cape that is a legal, existing 2-family house, but is currently being used as a single family house. You may be able to utilize the entire second floor (which could be only storage space right now), converting it into adequate habitable space. For the second apartment though, you will need a separate access to the unit, as well as a separate emergency egress. In most cases you will need to create that emergency egress from the attic apartment through a window, usually by adding a staircase on the exterior of the house. Again, make sure you check with your local building department to see what is needed in terms of emergency exits.
In the Cape Cod example, where you have a very steeply sloped roof, you most probably will want to add some sort of dormer. The most inexpensive type of dormer is a shed dormer, which will take existing floor space, using the existing footprint of the house, then open up your roof line into a much less severely- sloped pitch. Whenever you are using the existing footprint of the house and adding space within the confines of the house, you’re going to be maximizing your renovation dollars. However, the renovation costs now will start to increase substantially whenever you add a dormer. Building departments are going to probably require you to have plans drawn up by a professional, most likely an architect. (As in previous examples you want to determine whether the added rent from a projected rent roll increase will warrant the cost of the renovation. )
Septic system considerations
Building departments will also help you determine whether you will be allowed to add another bedroom. If your property utilizes a septic system, most county Board of Health’s require a certain sized capacity septic system, pertaining to number of bedrooms. So when you start adding a second or third bedroom, your septic system needs to have the capacity for the extra bedroom. If not, you’ll need to install a larger system, which when designed by an engineer, could throw your entire budget off (especially when adding new septic overflow fields).
One way around this, is to not label added space as a bedroom. You can call it simply a den and let the new tenants do with it as they see fit. (Of course, you can’t advertise the unit as having this extra bedroom – only extra space.) Be careful however, that if you add a bathroom (in addition to the other converted attic space), the local building department may de facto call the extra space a bedroom by virtue of having a new bath there as well.
Keeping the conversion simple
Always remember the cardinal rule in this investment property information series: keep the conversion as simple as possible. To recap, attic conversions can be some of the easiest, most financially intelligent ways to add space and value to your existing investment property. Just make sure you check with your building department first, be diligent about crunching your numbers carefully (both costs as well as projected rent roll increases), and determine that your projected costs fit your budget.
Once you’ve decided that it makes financial sense, and that you’ll get an adequate return on your incremental investment to your property, then you should give yourself the go ahead. Find a local contractor (or act as your own contractor to hire the individual trades people yourself). Once completed, you’ll be able to realize a higher annual rent roll, and the overall value of your investment property will increase as well.
photos courtesy of absolutelofts.com, atticconversions.org, css2psd.com, restyleloft.com, derwoodhomes.co.uk, cbconstruction-sw.co.uk, corearchitect.co.uk, atticdesignideas.com