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An Option To Help You To Downsize In Place

An Option To Help You To Downsize In Place

By Art Barry

Thinking about downsizing after the children have left home?

There are lots of alternatives. We did quite a bit of research and considered what it would take to move out of our home after thirty plus years. After some discussion, may wife and I decided to put off a move for at least ten years.

Two things came up during our deliberations.

The first was the need to supplement our income in retirement. The second was that we would like to do something that would benefit others. The list for the second goal included hosting a foreign exchange student and leasing space to traveling nurses.

Where We Started

We have a four bedroom, two-and-a-half bath suburban home. Because we are empty nesters, we live in far too much space. After some research we concluded that our situation wasn’t unique so we set about developing plans for downsizing-in-place.

Our plan was to convert about 25 per cent of our living space to a guest quarters with a private entrance. We were certain that our location would be attractive to traveling nurses because our home is located with a 15 minute driving distance to four major hospitals as well as multiple clinics and day surgery centers that employ contract nurses and medical technicians.

Our home had no mortgage so, beyond maintenance, utilities, insurance and taxes, our expenses are reasonably low. If you have a mortgage, your goal for downsizing-in-place would likely be to increase your cash flow and save money, pay down debt, help pay off your mortgage early, or all of the aforementioned.

Construction Costs

In our case, the ability to pay for the construction costs out of pocket and finance larger items via a no-interest arrangement from big box stores provided an opportunity for early return cash flow on our investment. So, in a matter of a few months, we became micro-landlords and put our guest quarters on the market.

Three of the bedrooms in our home were in active use either as sleeping areas or as an office that my wife and I share. The fourth bedroom and adjoining bathroom had been completely unused for some time and became a storage magnet.

So, the question arose: how could we turn that area into a revenue generator?

The bedroom and bathroom had one thing going for it: a private entrance. With some changes to the exterior of the house and some refurbishing it could become a separate unit. That was the basis for starting a design concept. Keeping that area separate from the rest of the house would make it very attractive to someone who wanted to live in a nice area, needed to save money, didn’t want to sign a long-term lease, and didn’t want to hassle with utility deposits, etc.

Layout and Budget

It took some creative thinking but we figured out what it would take to allow a tenant to come and go as they pleased, provide complete privacy, and still have the comforts of their own home within a reasonable budget.

The layout of your home may not support the kind of the possibilities that we were able to achieve but, if you have a home and have too much unused space, you can probably come up with a way to turn it into real money. You may have to enlist the services of a contractor or an interior decorator. Sometimes, another set of eyes or opinion will start you on the path of earning real money. Yes, you may have to spend money in order to make money.

The key is to look at the return on investment based on your target market.

Research, Research, Research

The most important thing you can do is try to get your arms around the complete scope of the project. Is it going to involve you, a family member, contractors, etc.

Here are some questions that you must ask yourself before you start a project like this:

  • How much time can you devote to the project?
  • How much money can you reasonably spend to complete the project?
  • How long will it take to complete the project?

If you use contractors, are you capable of screening them so you end up with a completed job and not a “never finished” or “shoddy work” horror story?

Managing Contractors

Be careful if you are going to use contractors! Nothing is worse than the disappointment of a contractor not showing up on time, not completing work, or doing a less than satisfactory job. Remember: this is your home and you want your project to add to its value.

Use Some Leverage to Enhance Your ROI

There aren’t many places to use leverage any more unless you have carpentry, plumbing, or electrical skills. If your project requires furniture or appliances, there is a way to use no-interest financing to positively affect your bottom line and cash flow.

The items that we needed for our project included the kitchenette cabinetry, a sink, microwave, refrigerator, ice maker, dishwasher, and fence sections. The lumber and the miscellaneous items were covered out of pocket.

The kitchenette cabinetry, headboard, wardrobe, and dining table were purchased from IKEA. We were able to secure one-year, no-interest financing with $50 per month payments.

The refrigerator, microwave, ice maker, and dishwasher were purchased from Home Depot. We were able to secure 24 month, no interest financing by talking with their credit department. Our payments are $75 per month.

Some Helpful Hints:

We purchased a 3/4 size refrigerator/freezer for the kitchenette without an ice maker. Our experience over the years is that ice makers in refrigerators are a high-failure item and cost from $200 to $300 to replace. The ice maker we purchased cost around $100 and makes ice in 6 to 8 minutes. We also purchased a 24-month warranty for a nominal amount so if anything goes wrong, the unit will be replaced.

Good locks are an important feature of any rental property. Our guest quarters has a key-locked knob and a dead bolt for safety. The door that separates the unit from the main house uses a keyed dead bolt for tenant privacy.

The effect on cash flow at our rental rate was minimal. We started renting on January 1 and expect to see total payoff for the items that we purchased from the big box stores in a year or less.

Pricing Your Property

Pricing your property involves research and lots of it! You absolutely, positively must know what offerings are out there in the marketplace, how they are furnished, and how they are priced. Amenities are important as are proximity to restaurants, grocery stores, shopping centers, malls, movie theatres, gas stations, etc. All of these become strength when you place your property on the market.

There are other things that enter the mix, the most important of which is location.

In our particular case, we are literally in a sweet spot between four major hospitals and two major real estate development areas. One of the real estate developments involves high-rise new construction meant to attract businesses and high-end apartment dwellers. The other is a mixed-use (retail, professional, multi-family, etc.) redevelopment of a decades old shopping center. All of this means that there will be a lot of people who want to live and work near these developments but who may not be able to afford to live there. In any event, even the planned density for housing can’t possibly provide for everyone who works there.

Screening Tenants

Screening tenants is one of the most important things that you can do. It is important for your safety, the safety of your property, and your personal liability if an insurance company gets involved. People with law degrees refer to this as “due diligence.”

Running a background and credit check used to be difficult and expensive. The Internet has made all that a thing of the past. There are several on-line services that are both reasonably priced and fast.

Did It Work?

In a word: yes. And not just for us. We received a five star review from our very first tenant on the Furnished Finder website!

Art Barry is the author of The Downsize Side Hustle: How We Downsized In Place and Made Big Money. Art is a successful entrepreneur who lives in north Texas with his wife and two rescue dogs. Along with writing his book, Art has written numerous articles for technical magazines. After holding marketing and managerial positions for several major U.S. corporations, in 1992 Art founded his own company to provide clock batteries for computers, peripherals, and medical equipment. The company serves over 19,000 customers in 42 countries using direct marketing and the Internet.