It’s time for a $200 Challenge Update. If you’re a subscriber, you’ll recall that my 2014 challenge is to find a way to increase my rental income by $200 per month without raising rents or reducing expenses. While trying to figure out this riddle, I stumbled into a series of things which I’ll reveal over the next couple of weeks. Let me start with the mind-blowing concept of “stealing attic space.”
Stealing Attic Space is Cool
My landlord friend, Tony Valentine, owns a mixed-use Victorian fourplex down the street from my eightplex. He offered to show me his units while he was signing a lease with an incoming tenant. I was dying to know how he was able to rent his places for 250 sf studio for more than my 450 sf 1 bedroom unit.
The Victorian unit was only 250 sf but had cool modern fixtures and a designer color scheme. It wasn’t a cookie cutter unit you’d find all over town.
He had created an airy spacious feel by:
a – Lofting the ceilings
b – Removing every other rafter beam to create an airy feel
c – Adding skylights
To make the room extra cool, he built an elevated platform-loft into each unit. It’s like a bird’s nest for humans; you’re drawn up to it. Looking at it made me want to take a nap.
Tony lives in a higher dimension that I do. He believes the value of an apartment is not solely based on its square footage and number of bedrooms. He believes that high quality products and clever design creates value and people will pay for it.
This discovery sent me into a two-week planning whirlwind. I ordered a set of as-built drawing of my apartment complex, studied venting and insulation options, and re-evaluated the potential of my complex.
It’s still early in my review process, but I think that if I do most of the work and all the engineering myself, lofting the ceiling in one room may be a $1,500 capital expenditure that could yield an additional $60/unit/month (or $7,200 in equity based on a 10% cap rate [($60/mo x 12 mo/yr)/10% cap rate]). Since $7,200 of equity is much more than the $1,500 estimated cost, this project would be a go.
And, by the way, I have four upstairs units with ceiling lofting potential. So the concept could be worth $240 per month (4 units x $60/month/unit) which would beat my $200 challenge!
Exploring the 1/2 Bedroom Concept
If I can get enough headroom above the rafter beams, then creating a sleeping nook or a “half bedroom” may be possible. You would need a bunk bed ladder to get up there. A ship ladder would be even more fun.
I’ve never even heard of a half bedroom before, but it’s a real concept. Some are floor level nooks, others are elevated lofts, but all provide a sense of privacy and coziness.
The goal is not to create another legal room that would require egress, but to add an extra layer of utility to an existing space.
My current ideal tenant is a single person, without roommates or children. However, I can see how a 1.5 bedroom concept would allow two people to quietly live together in one of my 450 sf units. And I think such a concept would rent for an additional $125/month/unit in my market.
I have four upstairs units with the potential to loft the ceiling in the main room (highlighted in yellow). The 1/2 bedroom, if feasible, would be built over the kitchen.
Therefore this concept could yield a total of $500 per month (4 x $125) and that’s more than enough to smash the $200 Challenge!!!
But What about the self-imposed “Can’t Raise Rents” condition on the Challenge?
I’m officially releasing myself from the rent control restriction on this challenge and here’s why:
1 – If I can figure out how to cost-effectively loft a ceiling, then I can help you do the same. And since so many of us have rentals with attic space, this concept is too powerful not to explore.
2 – All this Catalytic Landlord stuff that I talk about, it’s for real. The new influx of hipsters coming into the area can afford higher rents and they will pay for quality craftsmanship (as my landlord friend demonstrated). So I would be a dummy not to create a high-end offering and raise rents when there clearly is room in the marketplace to do so.
3 – I don’t have to keep the complex uniform. There is no reason I can’t have a high-end unit nestled in with my market rent units. The quality of my tenants has dramatically improved over the years and any upper middle class person would feel comfortable around my upper low-income residents. I can always modify one upstairs unit at a time and test the concept. Slowly stepping out into the water is a manageable risk, for sure.
Well, how about you? What are you doing with the attic space above your rentals? Could incorporating it into one of your rented spaces be a hit? Does the 1/2 bedroom concept work for you?
Leave a comment and let me know.