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How to add a bedroom and bath profitably, as opposed to REDDIT nonsense

Posted by John Reed on

A Reddit reader is trying to do what is called BRRRR (Buy, Rehab, Rent, Refinance, Repeat). That “strategy” is idiotic, but that is another topic. The would-be BRRRRer complains:
“The problem is, we have talked to many different lenders and have not found what we wanted. Listening to all of these influencer/investors on social media they all say
“You can do this with $0 of your own money” referring to hard money loans.
“Every hard money lender we’ve talked to is either asking for a huge down payment or seems very sketchy with little to no reviews.”
The basic problem is REDDIT is wall-to-wall liars. Want proof? Ask those telling you that the impossible or extremely difficult is easy for the address where they did this and the name of the lender. Actually, the address alone may be enough. The lender name will appear in a title search.
Also, almost everyone on REDDIT hides behind a handle. You should not easily trust online people who DO disclose their real name. Trusting people who HIDE behind some profane, juvenile handle is obviously nuts.
In this case, the would-be BRRRRer claims, “4 bed 2.5 bath single residence that we would turn into a 5 bed 3.5 bath duplex. Purchase Price: 65-70k Renovation total: 55k ARV: 220k-250k"
Sounds like he is saying it is going to cost him $55,000 to add a bedroom and a bathroom. And that such addition will raise the building value to $220,000 to $250,000!!!???
1. It is possible to increase the value of a ONE-bedroom house profitably by adding one bedroom. One-bedroom houses are hard to sell. Easy to rent for a lot, but hard to sell. So if you can change it from 1-BR to 2-BR you move it from hard to sell to easier to sell.
2. The same cannot be said about raising a house from 4-BR to 5-BR. Given family sizes today, five bedrooms is arguably TOO MANY.
3. I own and designed our current home which has 5 BRs. One is my 360-sq. ft. home office with tons of built-in book shelves and tons of electrical outlets and fiberoptic outlets.
4. One of our other bedrooms is a guest room Then we have a master bedroom suite plus the three actual bedrooms in which our three sons lived.
5. Five BR houses are unusual, Nowadays, few families need or want one. My oldest son has owned two of them sequentially. He has an MBR and two BRs for his two children. What are the other two BRs used for? Storage, I guess.
6. Same applies to bathrooms. My house has 2 3/4: a master bath, what we call the “kid’s bath,” and a stall shower/toilet/vanity sink powder room next to the guest room. How much does it raise the value of the home to raise the number of baths from 2.5 to 3.5? Little or nothing. How often does a normal family have four people using a bathroom at the same time? We had a big wedding reception for our oldest son at our house and we only let attendees use the powder room and the kids bathroom, not the master. No problem.
7. Then there is the $65,000 to $70,000 purchase price of the house. This REDDIT moron is going to pay $65,000 for a house then spend almost as much—$55,000—just to get one more bedroom and one more bath!? And the father of the REDDIT moron is the contractor who wants $55,000 to add the bedroom and bath.
8. What is my rough guess about how much value would be added to this house by the BR and bath? About $5,000. So this REDDIT moron is going to spend $55,000 to increase the house value $5,000. Typical BRRRR insanity.
9. Here is the actual truth. As a general rule, the way to increase a home value PROFITABLY by adding a BR or bath is to: A. only do it where it is MUCH NEEDED like making a 1-BR house a 2-BR house or making a 1-bath house a 2-bath house. B. You need to be able to do it WITHOUT ADDING FOUNDATION, EXTERIOR WALLS, AND ROOF. I know an investor who did it once. The one-bedroom house had an eat-in kitchen AND a formal dining room. He altered the floorplan so the second bedroom came from the eliminating the excess dining room—no need for adding foundation, exterior walls or roof.
That, real estate fans, is how you might make a profit from adding a bedroom.
Fixers book
Can you get a “hard money lender” to finance this? It sounds too small to get a loan for it. If you told the tenant when they moved in that you were doing it, you could probably do it yourself while the tenant was paying rent. How much work is needed to change a dining room into a bedroom? Add a wall with a door to the previously open border of the DR?
In this case, the lender did not believe that the $55,000 rooms addition was going to almost quadruple the home value—because it was an idiotic claim.

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