The $100,000 addition.

Our house sits on a 15,000 square foot lot in such a way that adding on to the structure shouldn’t be too big of a deal. Here’s a quick picture from our backyard for reference…

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You see how much space there is on the left side of our house, that big grassy area that runs by the white picket fence. 

Call me crazy, but I feel like the gods above are practically begging us to spend $100,000 and add some square footage to our abode.

There is enough yard there we should be able add about 700-800sqft of living space.

“But Ninja, why do you need more living space?” -you guys

Short answer, WE DON’T.

Introducing the Additional Dwelling Unit (AKA a mother-in-law):

As many of you know, prior to buying our house, Girl Ninja and I rented a mother-in-law unit above a million dollar home. It was a tiny one bedroom, but had awesome finishes and a view of Puget Sound. Check out how dope the main house was (the staircase running up the right side of the house went to our front door)…

Screen shot 2014-02-18 at Feb 18, 2014, 8.38.54 PM

We paid $1,200/mo (utilities included) to live there. Since our landlord paid cash for his house, he literally had no housing costs. That’s right, our rent completely covered his property taxes and utility expenses. We stayed there for two years and loved every minute of it.

The plan:

If we could add a small, attached, two bedroom apartment (about 800 sqft) to our house for about $100,000 (works out to $125 per sqft), I can’t think of a reason why we shouldn’t. The math seems to work in our favor. 

The math:

Let’s assume Girl Ninja and I pay $30,000 from savings, and borrow $70,000 at 6% on a 30 year term. Our housing payment would increase by about $513 in this scenario, increasing our total PITI obligation to about $2,200/mo.

Since Girl Ninja and I looked at renting in our current neighborhood two years ago, we have an idea where rent prices are, although they’ve probably gone up a bit.

We should fetch between $1,200 to $1,500 a month in rental income from this place.

(leaving us with only a $800 house payment).

Do you get what that means!? 

We would be profiting $700/month minimum right off the bat. What’s more, rent prices over time would increase but our payment wouldn’t.

And don’t forget, the extra bedrooms and bathrooms would increase the overall value of our property. Booya for this idea not being a sunk cost. 

Passive income is very attractive and lord knows I need to start diversifying outside of my retirement funds. This seems like the most reasonable way to do both.

I can rent out 800sqft of our house (while we live in the other 1900sqft) and have over half of our house payment paid by someone else.

Is this not the financial stars aligning before my very eyes?

Someone with knowledge shed some light on the situation. Is this a pretty awesome idea? Or am I totally overlooking something?

side note: Our current roommate/friend is paying us $400/month to live in a small 10ft by 13ft room in our basement (she has full access to our house). 

22 thoughts on “The $100,000 addition.

  1. I think that is a pretty good idea. Supposing that you will stay in this home for a long time, you can initially bring in extra income and later when Baby Ninja No1 wants some privacy, she/he can use that. I would love that if I were Baby Ninja No1:)

    • Our thoughts exactly. We could rent the place out for ten years and have it pay for itself. Then as the kids grow up and need more space, we can claim this living space as our own (since it’s already attached to house).

      How sweet would it be to have someone else pay for two extra bedrooms, another living room, and one or two additional bathrooms for us?!

  2. Have you been close to anyone who has lived throuh a major renovation before? They can be quite the undertaking and end up rather stressful, so if this is in the short term plan while GN is prego, I would think twice.
    Don’t forget to find out about possible annual permits or fees, zoning restrictions in your area and income tax implications. Also, if your $125/sq ft is a realistic number for your specific situation or not.

  3. Make sure you consider various scenarios when working out the math. Vacancy, possible damage by tenants, repairs, eviction, lawyer fees, etc

  4. Is your driveway large enough to have separate parking for the tenants? They may have more than one vehicle.

    Will you use a small fence to give them their own outdoor space? That might be a good idea. A small patio and a fenced green space with strategic shrubbery placed to ensure privacy for all? If there are bylaws that prevent that then a wall of shrubs would suffice.

    Privacy, which includes protection from sights, sounds and smells, would be my main concern.

  5. While I personally don’t have a problem with the plan people in your town (zoning board) may. I know that my town issued a moritoium on building permits for new stuctures on existing lots with a primary residence. Also I when I was buying looked at the purchase of a building that was in the process of being converted into a triplex by the owner in a different town. When I called the town to see about getting certificates of occupancy for the two new units they said “To keep the character of the as a famly friendly suburb they will not being issuing new COs on converted structures until further notice.”

    I know that you rented an inlaw unit before you bought, but because of your not in my backyard neighbors you may no longer be able to construct or rent similar unit today (atleast legally).

  6. Agreed with the above. If you can’t find a decent renter for 6 months you could end up losing. Also keep in mind costs of repairs, vetting potential renters (credit reports and background checks), and time. Not to mention if you get a terrible renter who demolishes the place or you have to evict. None of these reasons should necessarily keep you from doing it but definitely have to keep in mind and plan for in terms of emergency fund, insurance, etc.

  7. If passive income is the goal, why not monetize some of your side projects online instead?

    Your math makes sense, but taking on additional debt with Baby Ninja on the way seems like a bad plan. Living through renovations, especially a large scale one like that (assuming there aren’t and restrictions in zoning that make this a moot point) also seems like a bad idea.

  8. As long as you are OK with sharing your property with a tenant, than it is probably a smart money move. For me personally, I would draw the line at having other people live in my house or property, and instead look for a small rental property in the area if the goal is passive income (but that is a whole other can of worms and probably harder work).

  9. I don’t know about local tax implications in your area, but some states will double your yearly property tax’s. Also don’t forget the sizable knock from income taxes. If you rent for $1,200 you are looking at closer to $700-1000 after taxes in reality. Unless you never sell your house.

    • Here’s an 818sqft place on redfin. It’s not a mansion, but it’s not a cardboard box either. It’s got two bedrooms AND two bathrooms, we would only put in one bathroom so we’d have a little more space for closet or something.

  10. Consider spending some dollars on preliminary investigation for the proposed area. My in-laws were heading down the same path but there was something underground that prevented them from adding on.

  11. Most of the concerns would be the same as a rental, as long as city code allows you to build what you want. Things to consider might be if you’re OK having someone living that close to your family. It would make going there for maintenance a lot easier than one across town. On the other hand, having a rental that is separate from your primary residence might provide a little more diversification.

    Would your home look like a duplex when you add it on? Would you be expanding or reducing the number of people that might buy in that area when you want to sell? If it takes you that long to break even, would the stock market be better in the long run?

    Good luck on the decision.

  12. What’s wrong with just enjoying this year and all the new stuff in your life – new house, new baby, new neighborhood? Why do you want to add stress to your life and family?

    Just playing devil’s advocate. Do you NEED the money or just like to keep busy with new projects?

    Looking back on the first few years of our young family it was such a whirlwind and I wish I would have enjoyed every moment a bit more instead of being so busy with “life”.

    It’s fun to dream about, but maybe this isn’t the best time for you to take on a big project. Just my two cents:)

  13. I wouldn’t do it. Going into debt for a rental property (technically what this is) Is a bad idea. The gentleman who you rented off of paid cash for the addition…There is a very good reason he did that. Not because he is wealthy. He could have probably very easily borrowed that money at a ridiculously low interest rate.
    I feel that the overall plan you have is solid. But I don’t borrow money. Paid off my Student Debt and house in the last few years. Liberating. Now I just save up to buy investment properties. Takes much longer…but that way I own the property…If it is ever vacant….I don’t freak out…Since I don’t have a mortgage.
    Just my 2 pennies….I hate any and all debt….We are not supposed to be in debt bondage…

  14. i like it. You could also rent it out nightly on Airbnb.com and get even more out of it, but you would lack the consistency of a month to month renter.

  15. I think it is a solid idea as long in the planning you leave openings to reconnect to the main house later but drywall over them while a rental then you are assured of privacy and I have no doubt you and pregogirlninja could handle the reno, she would probably love designing it.

  16. Love the idea. I’m in the middle of buying a condo as a rental property. I WISH I had your situation. Houses in my area are non-existent near my metro (which I leave 2 blocks from) and homes in the area go for way too much money.

    So in short, do it! Just remember that your property taxes will go up… along with other things people have listed in prior comments.

  17. I love this idea. When we build a house I really want to do this. When you were renting, did you have access to the yard?

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