Your assistance is appreciated! :D

[Ricio Montes]

Hi everyone,

I'm relatively new to BP and hoping I can get some advice from experienced investors.

For context, I am 34 years old and have a full-time career looking for ways to create passive income. My goal is to create monthly cash flows of 10-20k. I understand RE investing is by no means a get rich quick thing, and that is why I would like to accomplish my goal over the next ~10 years.

Some additional facts: my annual salary is 97k (gross), this allows me to save ~50k+ per year. Additionally, I purchased a home in Southern California in 2011 during the market crash, so I have about ~480k in equity in that investment. Other assets I have are ~200k in an account earning 5% interest, and another 100k in index funds. 

Personally, I came up with the idea that I should build a detached ADU on my current rental property (the property has enough square footage to accommodate this project). The ADU project I have in mind is to build a ~1000k 2 bd/2ba or 3bd/2ba. I am approximately costs could range from ~200k - 260k; and when finished, the ADU could rent for ~2700 - 3000 per month (SoCal/LA County). This investment would take ~1+ yr but it would pass the 1% investment rule. It would certainly provide cash flow, and I believe it would appreciate the property value as well as it is not a garage conversion but an additional detached ADU.

For financing, I could go with a HELOC for this project. After this project is completed, I can use my annual savings from my salary and savings from my rental cash flows to expand on more real estate deals and provide more cash flows. California is really expensive, so I can consider out of state (not sure what market yet).

I understand the project timing is long, but as mentioned above I want to give myself 10-year window to accomplish my goal and if it takes less time than great. 

I'm not sure if my idea is the best way to go, I certainly have limited RE investing experience as i only have one rental where I live so no experience with out of state investing etc.

Would like to invite you all to please comment on any ideas on how I can realize my goal. When I am learning something, I like to consult the experienced so that I can learn as much as I can. I believe in learning from experience and lessons, but I also believe in learning from others and their experiences. I would like to take my time and do my homework and get other thoughts and perspectives.

Apologies for the long post. I really appreciate your time and consideration. 

Cheers!

Ricio 

[Alecia Loveless]

@Ricio Montes I live in New Hampshire and have an existing garage space that I was thinking of converting to be a 3rd unit on an investment property I own. In my area, and likely all over the country I suspect, the cost of building supplies is at an all time high.

My contractor gave me the price to do the conversion of the garage and it had doubled from the previous year, making my gross return on my investment be 1% based on the amount of rent I could get for it. After deducting the expense of the water and sewer that I would be responsible for it would drop to about an 0.8% return on investment each month.

Obviously there would be some write-offs for the building supplies and expenses but it would take me approximately 8 years to pay back my outlay of capital before I made $0.10 of profit. And the building would be valued at as much as I put into it.

On the other hand if I took the same amount of money and bought a new building I could begin likely getting an 8-10%CoC return immediately, cash flow of $800-1000/month and a mortgage which was being paid down by tenants in a building that was growing equity.