Investment Property

I’ve been thinking a lot about home buying. Not that I’m ready to do so, but I definitely think that in 2 years I’ll be in the right place to do it. One thing I really want is a home that allows me to rent out part of the property so that I can make money on it.

Mr Hive keeps talking about how if I get a roommate that will accomplish what I want. Which, while technically true, is not what I want. I don’t want to share my house with someone. I want my own space. I want to rent out a separate part of my house such that the individual does not have access to my part of the house and (except for repairs or pest management) I don’t have access to their part of the house.

In the old city I lived in, it was popular to have detached garages with carriage houses on top. Something like this:

I think these are great. And it seemed that every other house in my old city had something like this going on. It is perfect for a mother in law, a sibling (wouldn’t things have been different if my sister was living there?), to rent out to a tenant, or even for a college kid to live in so they get to stay “at home” but still have their own privacy.

However, in Kansas City I haven’t seen ANYTHING like this. Most garages are attached, and the main house is built over the garage. So I’m not sure that something like this will be an option for me.

What does Kansas City have though? Basements.

One of my coworkers has two college students living in his basement apartment. So I know that in at least some parts of the city this is a legal option.

Of course since I know that this is something that I want to do in a future home I’ll have to factor in the price of converting a basement to a rental property. It will likely add an additional $50-60,000 in repairs depending on the state of the basement when I move in.

I would want the basement to have an outside entrance for private entry, large windows for the living space/sunlight, and at least 500 sq ft that I can convert into a 1 bedroom apartment.

From my calculations, the basic mortgage on a $200,000 house with 20% down (30 years, 7% fixed) would be around $1,064/month. To add the renovations would add $50,000 to the loan, with the same down and the same mortgage terms I’d be looking at $1397/month. So I’d need to rent the apartment for at least $400/month to break even on the investment.

Considering a 1 bedroom in the area I’m looking at goes for around $700/month – this seems completely reasonable.

Have you ever considered having an investment property on your property like the examples above? Or are you like Mr. Hive and prefer just to get a roommate to make a little extra income?


10 Responses to Investment Property

  1. Don’t forget about property taxes, insurance and closing costs! You may need to add another $200 to your monthly payment. I’m from California and we are looking to buy a condo and we have to factor in so much money to the monthly payment. If I had a property I would definitely invest in separating some parts like a basement to get some money!

  2. my husband and i currently live in a guesthouse in someone’s backyard, similar to the pic above. However, we’re only doing it to save money, and when we buy our own house, I would never want to rent out any part of the property to someone else. I really like our privacy, and with babies in the future, I think it would just be too much extra work. I don’t know.

    I think in your situation though it would work out well. and they really are cute, but I’m waiting for the day to have our own place!

  3. If I owned my own place, i would probably only have a roommate on a short term basis, to try to recoup some costs or get ahead. I would much rather have a tenant (or nobody = even better!)

  4. TeacHer says:

    There are two things in life that really should appeal to me (for logical reasons) but don’t:
    1. Working for myself/owning my own business
    2. Being a landlord

    I just think it’s a lot more trouble than it’s worth, but, again, for obvious reasons, it makes financial sense. BTW, you’re really rocking the Dave Ramsey plan! I will definitely NOT be ready to buy a house in the next two years….

  5. psychsarah says:

    Just out of curiosity, would your reno costs include appliances? Otherwise, you’ll need to spend more money to include at least the fridge and stove, I would think. Plus, costs of running the business-advertising for tenants, paying for the apartment when it’s not rented, emergency costs you’d be responsible for etc. DH really wanted to buy a property like you’re describing when I was in school, but the more I thought about what could go wrong, the less I wanted to go for it. However, you’re probably much more sensible and patient than I!

  6. I currently rent out my basement to a nice couple from India. For the most part, renting out my basement has been a pretty positive experience. A few points:

    1. Privacy- Tenants want their privacy too. The only time they’ll knock on your door is when they pay rent or want something fixed. If you rent out your basement, you will hear them sometimes, talking or whatever. It isn’t a big deal.

    2. Renovation costs- Don’t renovate. Once you start looking for a house, let the Realtor know what you’re looking for. You might have to be patient and wait a few weeks (or months), but you’ll find a house that’s already set up for this. Renos always seem to cost more than budgeted, plus you’ll know exactly what you’re getting if you buy something ready to rent. Plus, you’re not losing any revenue by waiting for renos to get done.

    3. Roommates suck. Just don’t do it. I hated coming home after a long day and having to make small talk with my roommate. Plus, he was creepy.

    I wrote a post about renting out my basement. Hopefully you like it:

  7. Make sure you check the fire code for your city/area — a second exit for the tenant’s apartment is usually required.

  8. Serendipity says:

    I’ve never had a roommate per say, but I do live with Rambo and it was a severe adjustment moving in with him. He really likes his space and I’m all over the place. He’s quiet and mellow, I’m loud and rambly. As you can see, we’ve had our growing pains. 😉
    I would say if you had the option to have something available for extra income, do it. I mean, why not? It’s not forever and it might not be for you, but you never know until you try. Also, I think being a landlord would be badass. I mean, sure it’s not all fun and games, but it’s probably something that you can easily do and I bet you would get nice students to rent out too, which would be pretty legit.

  9. scn says:

    I wouldn’t want to get a roommate…I like my privacy! We have a 2 bedroom condo and I wouldn’t want to rent out the other bedroom. A basement apt. seems interesting though. I see that all the time on the show Income Property on HGTV 🙂

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