Bungalow with a Garage Apartment

Update to Post, 7/30/2018

NOW PRICED AT $339,000!!

Original Post, 7/19/2018

I can’t even count the number of times that I have gotten inquiries for homes with garage apartments. Whether it is an owner looking for some additional income, or an extra space for a family member. There are also countless emails within our company about people seeking these units to rent.

So I know that they are highly desirable!

3921 Collinwood fits the bill. It is a wonderfully updated home with 2 beds and 2 baths. A great master suite. Above the garage is a completely finished out, move-in ready garage apartment. It consists of one large loft style room and a full kitchen. Full photos can be seen in the link above. 

So let’s talk about the price. Our asking price is $359,900. The main house is 1,265 sf and a 2 bed, 2 baths. I can assure that even outside of the added value of the garage apartment, good smaller homes like this are getting great prices. I did a comparative market analysis of 9 similar homes in that area that have sold in the last 90 days. Here is the breakdown of the average:

So at first glance, 3921 Collinwood does not have a 3rd bedroom in the main home, and it is about 200 sf smaller. At one point Collinwood did have a third bedroom, but the owner decided to incorporate it into the master makes for a larger master suite – think nice bathroom and large closets. That is something you don’t necessarily get in these homes. 

But most importantly this does not factor in the garage apartment. We have a full efficiency apartment consisting of 418 sf, a bedroom, full bath, and kitchen – comparably finished to the main house.

So with the garage apartment included in the main house, we have 3 beds, 2 baths, 2 kitchens and 1683 sf. If you just used that based on the average sales stated above we are pushing into the high 300’s!

Appraisers and any home buyers will not consider the value of a garage apartment similar to the main house, and that is why we did not price the property as such.

So what is the garage apartment worth??

The great thing about this situation is that your gross income produced off of the garage apartment is pretty much your net income. All of your “operating expenses” are paid for in the operation of your homestead. So let’s look at the value based on potential rental income. My clients most recently had this garage apartment leased for $900 per month. That is a total of $10,800 per year.

If you take that total gross yearly income and put a mouth-watering capitalization rate of 12% on it, that means that based on the income approach to value, the garage apartment is worth $90,000. . . . 

So does that really pencil out? Not based on the income approach, how would an appraiser value the apartment? In my experience appraisers will look at the condition of a garage apartment, or guest house, and if it is similar to the main house, they will give it about 1/2 the value of the main house. So just using the average price per foot above, half the value per foot is around $120 per square foot. The unit is 418 sf which makes the potential value from an appraiser around $50,160. 

Depending on how you value it Here is the great news though. You get to buy this garage apartment as part of your main home. You get favorable owner-occupant interest rates and terms. So let’s look at a breakdown of an estimate of the monthly payment:

Please consult a lender and insurance agent for exact estimates, but these are a good ballpark. If you were to lease the garage apartment for $900 per month, that puts you at a net of $939 in your monthly payment. 

I truly believe this is a great opportunity. If you can stretch the budget to get to this price point, you will automatically reap the rewards of monthly rental income!!

We would love to discuss this more with you, please feel free to reach out!