My First Minor Dwelling/Unit/ Basement Conversion

[Beginner1]

I have recently converted my 60m2 basement into a 2 bedroom flat. Basically split a house into Unit A and B legally. I am an amateur property investor in late 20s.
Here are the actual costs if anyone is interested since I couldn't find much when I was looking around.


Architect/Planner $7000
Building Consent $2975
Resource Consent $3345 (Although I still believe I don’t need it)
Fire Engineer $975
Development Contribution $4418
Waterproofing the Basement/Drainage $9000
Builder/Plaster $40,000
Sparky $5000
Plumber $6000
Bathroom Fittings $3000
Painting $3000
Rangehood/Oven $2000
Kitchen $6000
Landscaping $9000

Total Cost $110,000 Rent Received: $290

Pros : Made my rental a returning 8% (after expenses)

Cons : Took me 3 months to get the building consent and resource consent. I seem to know better than them. Lots of errors/ignorance by council on their part.
Cost is incredible comparing to you start with a basement with good walls and good concrete floor.
Lower rent from existing unit.

Any idea how can I do cheaper next time?

[AMR]

Wow, looking at the development contribution of $4418 I assume you're based outside Auckland?

[elguapo]

Cost is incredible comparing to you start with a basement with good walls and good concrete floor.
Lower rent from existing unit.

Any idea how can I do cheaper next time?

I think you've done it about as cheap as it can be done these days.

[Beginner1]

DC is normally $13254.00 in Hamilton. This is consideredas 1/3^rd of average house (180m2) hence $4418.00

[Damap]

I would never do what you've done only because having owned a few ups and downs they are always a headache. Separate MDU's or at least side by side with only 1 common wall are the only way to go. No tenant hassles, no rent reductions, no noise issues. Both tenants can have a yard blah blah.

[elguapo]

Given the cost of doing it now, I'd agree they are not really worth it. When I did mine 10-12 years ago, I got a 24% return on capital. Both of them paid for themselves in 4 years effectively. Worst case for them was that they were turned from 3/1 houses with unused space into 4/2 houses with 2 living areas. If the costs of them hadn't sky rocketed I'd kept that model going.

[Beginner1]

I would never do what you've done only because having owned a few ups and downs they are always a headache. Separate MDU's or at least side by side with only 1 common wall are the only way to go. No tenant hassles, no rent reductions, no noise issues. Both tenants can have a yard blah blah.

Fair enough. I have given bit of thought on this by sound proofing and fire proofing the whole unit. Also got completely separate entrances. Best I could do. Food for thought before I buy next.. Cheers..

[elguapo]

At 8% they are not really economic IMO, but with separate entrances and good sound proofing you'll not really have any extra hassle IME. The only thing I've seen really is the turnover in both the one beds I have has been relatively high, but that I always expected and I've almost always had new tenants moving in directly following the exit clean.

[Damap]

Oh not saying what you did was bad. I have just had enough hassles to not do it again. I currently have 3 and about to build a fourth. Side by side is worth it in the long run. Can't believe it cost you so much when you already had a cube built just had to fill it in :-(

[AMR]

Incremental return is close to 14%, it doesn't look bad at all.

Return on standalone MHU is around 10-11% in Auckland, depending on area but with minimal equity growth. For comparison I've just completed a MHU in Manurewa for $190k (bit on the high side but high spec) with rents of $370 pw. I probably wouldn't do another MHU due to the lack of equity.

[ivanp]

I probably wouldn't do another MHU due to the lack of equity.

How the lack of equity prevents you from doing another MHU?
Do you mean you can't get construction loan for MHU without deposit?

[Damap]

Minimal equity growth? Home and incomes increase in value roughly the same as SFR's. If you mean you aren't creating equity then you need to move to better areas maybe? Mine in Pakuranga we picked up 100K on completion. Slightly less in Papakura.

[AMR]

For a good subdivision, the equity margin / gain is at least 20% and can still get good incremental yields of 8-9%. Which allows you to refinance and do more projects.

For a minor dwelling, there is a tiny equity gain (5%?) but the yields are better, probably 10-11%. This maximises your cashflow but destroys your equity meaning you can't refinance and do more projects.

This was based on a conservative valuer though, I've just gotten arranged the on completion valuation. The project was in Manurewa

[AMR]

Damap - you're probably right re the better areas.

[Damap]

Move to higher value areas, 5% gain on completion is ridiculously low.