UrbanTurf Reader Asks: Are Million-Dollar Buyers Looking to Be Landlords?

by UrbanTurf Staff


In this installment of UrbanTurf Reader Asks, a reader who owns a Capitol Hill home with a basement-level rental unit wonders if he should keep the unit intact when he renovates the home or if integrating it into the main house will enhance resale value for those in the market for a million-dollar home.

We own an 1,800 square-foot, three-bedroom, 2.5-bath house a few blocks east of Eastern Market. We’re planning renovations, and one question is whether we should continue to rent out a separate two-bedroom, 900 square-foot unit on the lower level that rents for $1,600/month, or whether we should integrate that space into the house to use it as a family room, home gym or play room for the kids. Of course, lots of considerations play a role in this decision (how much we need the extra space vs. the income, etc.), but what we’re curious about is how it will affect the value.

Will the property be worth more if we keep the rental unit (and update it in our renovations), or will it be worth more if we integrate it into the main house? To the extent that it’s relevant, we bought the house for approximately $900,000, and so the question might also be rephrased as: Do people shopping for million dollar-homes want to be landlords, or do they just want more space?

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This article originally published at http://dc.urbanturf.com/articles/blog/urbanturf_reader_asks_are_million-dollar_buyers_looking_to_be_landlords/4022


  1. D said at 10:31 am on Monday August 22, 2011:

    Very interesting question. I think that in this environment, you are better off keeping the rental unit intact and updating it. $1,600 a month for a two-bedroom is low in Cap Hill, and if renovated, the apartment could probably get over 2G’s putting a serious dent in someone’s mortgage payments.

    Out of curiosity, what is your renovation budget?

  1. StringsAttached said at 10:38 am on Monday August 22, 2011:

    Personally I say the general answer to that question is no. But then again we have someone who pretty much owns a million dollar home asking do people shopping for million dollar homes want to be landlords. So regardless of what any of us say, I think the curious family here should ask why they purchased the home, whether they like being landlords, and what type of buyer they are trying to attract when they go to sell down the line. I don’t think there is a right answer to this…that’s why it’s called the real estate market…you can find a buyer for almost everything, the real question is how long are you willing to wait?

  1. anon said at 10:43 am on Monday August 22, 2011:

    we’re looking at a similar scenario, except our basement is somewhat smaller (~750 sqft).  It does have front and rear entry.  We’re thinking about converting it into an suite/rec room for our purposes (full bath laundry), but configuring the layout to keep some basement space for ourselves and leave enough space to convert to a studio unit if we choose at a later date (~550 sqft, hookups for kitchenette, space for stack washer/dryer, and closet). It would work better as a studio than a 1 BR, so we’d prefer to keep some storage space/mechanical room).

    The price adds up fast if you dig out and may impact ROI.  The ability to convert to basement rental is more valued than a well realized space for personal use.  If you make the space personal, do I’d recommend doing it in a way that allows it to be converted without heroics.  Unless you just plan on staying put and don’t want renters.

  1. anonalso said at 11:12 am on Monday August 22, 2011:

    Keep the rental unit in place. Can the lower level be accessed from the inside of the property? If so, and if an eventual buyer wants to incorporate it into the main living area, it would not be that difficult. So what if a kitchen is down there…can still be used as a rec room, second family room, au pair suite, etc.. The biggest advantage to keeping it in place is that when you go to sell you can market the lower level to buyers as providing the ability to off set the mortgage. I also agree that your rent is low by the way. Perhaps you should update it a bit and charge more! My family three rental units at Eastern Market and their one bedrooms rent for $1700/month (ish).

  1. UTReader said at 2:15 pm on Monday August 22, 2011:

    Hi folks—I sent in the question. Thanks for your thoughts.

    In response to your queries and comments, we haven’t yet sorted out a final budget for the basement renovations (we’re doing the whole house), but I’d expect something like $40K or less for the basement if we keep it as a rental, as we won’t change the layout at all. If we decide to take the space back, then we’ll likely have to install an internal staircase and probably want to monkey around with the walls a little bit, so it might cost more.

    As you can infer from the last paragraph, the lower unit can’t currently be accessed from inside the property, and the best place to put the stairs is where the lower unit kitchen currently sits, which means that it would take some creativity to preserve the kitchen and install an internal staircase. Not saying it’s impossible, but we probably wouldn’t do it, which is why we have to choose.

    Our current tenants came with the place when we bought it, and we haven’t raised the rent because they’re great tenants and we’ve been happy to keep them. Once we renovate, I expect that we’ll bump the rent and see what the market can get us.

    Finally, in response to the idea that we can always find a buyer, I guess that’s true. But the real question is: if we integrate the space into the house, would we make enough money in resale value that it would offset the loss of rent for a couple of years? If so, then it’s a no-brainer to integrate the space—we don’t lose any money, and we get extra space. And that would be true if a large number of high-end buyers would look askance at having to deal with a basement apartment. On the other hand, we’ve loved the income and the experience, but we’re only 30 years old, and the majority of buyers ready to pay what we would like to get when we sell are a bit older and perhaps in a different place in their lives, so we’re trying to get more insight into their thought process.

    Again, thanks so much for all your thoughts.

  1. Julian said at 4:30 pm on Monday August 22, 2011:

    I can only see having a rental help the value of the home. The rental market in DC will be tight for years, so you will always have tenants. 1600/month is also insanely low for a 2-bed rental in Capitol Hill.

  1. K said at 9:23 am on Tuesday August 23, 2011:

    Keep the rental unit. We bought one million dollar house solely because of the rentable english basement unit. The rental income is a huge help with the mortgage and without it we would not be able to justify paying a $1mil for a house. So, with the rental unit you are expanding your pool of potential buyers and adding value to the property that way.

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