As Rents Soar, Garage Conversions Are a Hot Topic

This is the third article in the “Earn More Rent” series. This week we will discuss how you can increase your monthly cash flow by converting the garage into a rental unit.

As with all conversion projects, you will want to check your local zoning ordinance and building department to see if the conversion would be legal in your area.

When a Garage Conversion Works Well

A garage conversion can affect the market appeal as a single-family residence if you decide to sell in the future. Many homeowners want a garage or at least a carport. On the other hand, if the neighborhood is made up on many rentals, then this may play less of an issue. Or if it is in an area with in-law suites you could still have a single-family buyer along with investors.

The location of the garage can make a difference as well. A detached garage located behind the house has great potential for a rental apartment. An attached garage to a single-family house could be converted into a duplex utilizing a portion of the existing house, perhaps for the kitchen and bathroom where the plumbing already is located.

Count the Costs
Assuming that the conversion is in harmony with current zoning regulations and that building permits would be approved and that the resale value would exceed the current market value, now it is time to count the costs versus the benefits.

This would be the time to bring in a couple of skilled general contractors and get some estimates for the conversion costs. According to Garage Conversion, “apartment conversion costs vary widely between $18,000 and $38,000.”

Work with your property manager, real estate agent, or appraiser to determine the gross rent for all units. Subtract the rental income you are currently receiving. Take this monthly difference and add it up to total the extra income you will earn for a year. Now divide that into the estimated conversion costs. How long will it take to recoup the money you will spend on the conversion? Do you plan to own the home longer than the time it takes to recoup?

According to Garage Conversion, “considering the fact that the average one bedroom apartment can be rented out at $850 a month, spending $30,000 on converting your garage to an apartment gives you a 30% yearly return on your investment ratio.”

Let’s take it one step further. Work with your real estate agent or appraiser and determine the market value of the property after the conversion. How does it compare with the current market value? Do not expect to recoup all of the investment costs from the sales price. Plan to include the additional rental income as part of the recoupling formula.

Design Elements

There are a few considerations when converting the garage. First, make sure that if using the outside walls that they are sealed. Spiders, ants, mice, and other unwanted pests can be dealt with when it is a garage but it becomes a much larger issue if it is now living space.

Another consideration is insulation. Even if you live in an area where heat and cold extremes are not as drastic, make sure you insulate the room and the walls. Also, consider the floor. Is it level? Most are sloped to allow water to drain. Does a floor drain need to be addressed? Is the cement floor prone to suck up ground moisture? Should the floor be raised off of the cement?

Water supply and sewage connections are another issue. Ideally, you would want the new kitchen and bath to be as close to the existing water and sewer lines in order to reduce costs. The new unit will also need a private entry. The replacement of the garage doors should blend in with the rest of the siding and should look like an apartment rather than a garage turned rec room.