Deal Analysis – Single Family Pop Top and Basement Apartment Build in Denver
This Deal Analysis features a home located in Denver’s West Highlands. It is on a quiet street close to other rentals and has a separate basement entrance for an Airbnb second unit. The investor was planning a career change and wanted to lock it in while bankable. There are lots of great lessons learned in this one, so check it out.

Two Learning Options!
  1. Listen to the podcast “#256: Deal Analysis – Single Family Pop Top and Basement Apartment Build in Denver” on the Denver Real Estate Investing Podcast
  2. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast.

Investor Profile

  • Kevin & Mycah
  • Long term Buy & Hold
  • House Hackers and a bit nomad

Deal Quadrant: MLS

Real Estate Deal Analysis Quadrant
The majority of Nomad™ and House Hacks are found on the MLS

Read about the deal quadrant and finding Denver Rental Properties.

Investment Property Details

  • Type:  single family home with separate basement entrance gutted/not habitable
  • Location: West Highlands
  • List: $599,000
  • Purchase: $575,000
  • *Home sold in July of 2018 via Wholesaler at $599,000. Investors gutted it, and it sat for 6 months before they listed it at $625,000, dropped to $599,000 and we went under contract at $575,000.

Why:

  • Location! Proximity to other property, work etc
  • Upside with Airbnb or in-law space
  • Fit our Nomad/house hack strategy

Property Contract Details

  • Finding the Property: We were in the area in the Sloan’s Lake neighborhood 1 mi away. Liked the proximity. Kept coming back to it late-night home dreaming, and it was bigger and more money but we were hopped up on real estate investing and were able to take it down with the help of Chris & Preston with a construction loan.
  • Under Contract: Below list even though they were upside down
  • Inspection items:
    • All of the things: Asbestos, sewer/waterline
  • Negotiation Outcome: They didn’t have much room and made that clear but we got $5,000!

Property Financing Details

  • Lender: Regional bank
  • Loan Type: Construction loan 6.15%! 20% down
  • Appraisal: below- construction appraisal
  • Seller Concessions: $5,000
  • PMI: No
  • Interest Rate Buy Down?: No

Construction

  • Pop top: 6 bed, 3.5 bath, 3373 Sqft, Detached 2 car garage
    • Upper unit: 4 bed, 2.5 ba
    • Lower unit: 2 bed 1 ba
  • 15 months 
    • Planning & Permits: 7 months
    • Construction: 8 months
  • Budget: $200,000 (ha!)- blew it by 40%. Lesson Learned: Realized that we should shoot higher for the after repair value (ARV) and added garage, patio, sod, finished attic space.
  • All in Construction $350,000 total  ($140,000 financed/$210,000 line of credit)
    • $20,000 architectural plans, designers, permits, structural, mechanical
    • $10,000 site prep, maintenance  disposal: Dumpster, Asbestos, porta-potty
    • $36,000 in holding cost (interest only)

Re-Fi Overview: Rate & Term Refinance in September

1st Mortgage: Conventional with National Lender

  • Loan amount $575,000 
  • Rate: 2.875%
  • Loan cost: $3877
  • Term: 30
  • PITI: $2804.65

2nd Mortgage: HELOC Local Bank

  • Line amount: $275,000 (drew down $100,000 to consolidate debt)
  • Variable Rate: prime or min of 4% 
  • Loan cost: $754
  • Term: 10 year interest only, balloon 
  • Payment: $333 interest only or $866 p&i

Combined payment for 1st and 2nd $3137 – $3670

Proforma 

  • Project AirBnB gross $3150/month, $140/ night at 75% occupancy
  • Rent
    • Option 1: $5200
      • Unit 1: $3700
      • Unit 2: $1500
    •  Option 2: Rent entire house $4800-5000

Why it works for us?

  • Family has a place
  • Potential to offset most of monthly housing expense with AirBnB and a future cash flowing property in desirable area
  • >$400,000+ in equity to reinvest in the future
  • $175,000 in line of credit that we can deploy to purchase other properties
  • Potential gain exemption

Lessons!

  • Construction Loans
    • Vetting the lender experience with construction. Understanding their program/scope changes
    • Checking the math on estimated payments ($800/month surprise)
  • General Contractor or no General Contractor – difference of probably 60,000 – 70,000, but we still are paying for it! (Lesson Learned: coordination between rough trades super valuable)
  • Denver market is forgiving and we are spoiled with our appreciation 
  • Lots of money is still tied up. Something to be said about tight scope and budget!

Renovation Photos

Denver home renovation
Denver home renovation basement build
Denver home renovation pop top and basement rebuild bedroom remodel
Denver home renovation pop top and basement rebuild kitchen remodel
Denver home renovation pop top and basement rebuild bedroom renovation
Denver home renovation pop top and basement rebuild living room remodel
Denver home renovation pop top and basement rebuild family room remodel
Denver home renovation pop top and basement rebuild basement unit remodel
Denver rental boiler

The Investors

Mycah and Kevin welcome questions and comments. They can be reached using the contact info below.

Mycah Healey

Kevin Healey

Check out the Denver Single Family Renovation and ADU Build Deal Analysis to see a second investment property that Mycah and Kevin renovated in the Sloans Lake neighborhood.

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Authors
Chris Lopez
Chris Lopez is a Denver area real estate entrepreneur and investor, as well as the host of Bigger Pockets’ House Hackerz and the Denver Real Estate Investing Podcast.
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