House Hack/Live and Flip Advice Santa Clarita CA or SFV

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House Hack/Live and Flip Advice Santa Clarita CA or SFV

Jonathan Vona
Santa Clarita, CA · Member since 2017 · 33 posts · 12 votes

Hi Everyone,

Need some advice. My fiance and I own a condo in Santa Clarita 2/2, which we plan to rent out and move on to the next investment. (We would cash flow about $300)


We're thinking of buying a SFR with a detached garage and maybe extra lot space for a JR-ADU down the line. We plan to buy at around 550k with an FHA loan and 3.5% down, and an interest rate of 2.9% All said and done we would be paying about $3,200/mo on the high end. We would repair the small cosmetic things in the main house and rent it out for about $2,700 to $3,000 depending on the going rent rate. I prefer to low ball it, so lets just say $2,600/mo rent payment to us from tenant. That would leave us with an approximate housing expense of $600/mo, while we convert the detached garage to a 1 bedroom ADU for ourselves. After 2 years or so (to avoid capital gains) we would either sell it and reinvest the money or move out and collect the cash flow from main house and ADU.

We would probably invest a total of $75,000 with the down payment, closing costs, and ADU work.

Is this a good investment? Do the numbers make sense? Seems like a good long term use of $75k. Correct me if I am wrong. 

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y

@Jonathan Vona, Have you lived in the condo for two years?  If so I'd consider selling it and taking the tax free gain to fund your improvements to the new property.  You could get it done faster and with less finance expense.  $300 a month cash flow on a condo is just one hoa due raise from being negative.  

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  • Luke McMullen
    Realtor · Hendersonville, TN · Member since 2020 · 16 posts · 10 votes
    6y

    I also live in Santa Clarita, and to me those numbers do make sense. I am still new to all of this but it sounds like you guys know what you are doing and have done a lot of research on it. There is definitely a big demand for rentals in our area and right now is a hot market for us, with a lot less for sale than in past years. I say you go for it and if you have access to the BP calculators that is very helpful also!

    1Reply
  • Jon Schwartz
    Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
    6y
    Originally posted by @Jonathan Vona:

    Hi Everyone,

    Need some advice. My fiance and I own a condo in Santa Clarita 2/2, which we plan to rent out and move on to the next investment. (We would cash flow about $300)


    We're thinking of buying a SFR with a detached garage and maybe extra lot space for a JR-ADU down the line. We plan to buy at around 550k with an FHA loan and 3.5% down, and an interest rate of 2.9% All said and done we would be paying about $3,200/mo on the high end. We would repair the small cosmetic things in the main house and rent it out for about $2,700 to $3,000 depending on the going rent rate. I prefer to low ball it, so lets just say $2,600/mo rent payment to us from tenant. That would leave us with an approximate housing expense of $600/mo, while we convert the detached garage to a 1 bedroom ADU for ourselves. After 2 years or so (to avoid capital gains) we would either sell it and reinvest the money or move out and collect the cash flow from main house and ADU.

    We would probably invest a total of $75,000 with the down payment, closing costs, and ADU work.

    Is this a good investment? Do the numbers make sense? Seems like a good long term use of $75k. Correct me if I am wrong. 

    Jonathan, love your plan! I'm also a Jonathan, and I househacked a duplex last year (still living in it now). I see it as my financial foundation moving forward.

    In terms of the plan, you're thorough and right-on. The only other things to consider are down-the-road options. For example, when lenders catch up with how to appraise homes with ADUs, you may able to open a HELOC on the property in order to keep it for cashflow *and* buy another property. Also, assuming the 1031 exchange stays in place, it might be more advantageous down the line to exchange the property rather than sell it traditionally. But like I said, these are distant considerations -- champagne problems!

    One thing that does concern me is your estimation of up-front costs. I think $75K is too little for the whole operation. If I'm not mistaken, buying a $550K on an FHA loan will cost $37K, broken down as:

    • Down payment (3.5%):   $19,250
    • Closing costs (1.5%):   $8,250
    • Up-Front Mortgage Insurance Premium (1.75%:   $9,625

    That leaves you with $38K for the cosmetic improvements and garage conversion, which is only possible if you're a contractor and doing the work yourself. Are you? If not, I think you should budget $80K just for the ADU conversion. Or better yet, have 1 or 2 reputable ADU contractors bid the job for you during your inspection period (and I make a recommendation if you need one). Conversions prices vary widely based on foundation and systems needs.

    And if you're a contractor who *can* do this for $38K -- I want your number!!!!

    Best,

    Jon

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    • Dave FosterBusiness Member
      Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
      6y

      @Jonathan Vona, Have you lived in the condo for two years?  If so I'd consider selling it and taking the tax free gain to fund your improvements to the new property.  You could get it done faster and with less finance expense.  $300 a month cash flow on a condo is just one hoa due raise from being negative.  

      The 1031 Investor5140 Reviews
      WebsiteView Page
      2Reply
    • Jonathan Vona
      OP
      Santa Clarita, CA · Member since 2017 · 33 posts · 12 votes
      6y
      Hey Jon, always a pleasure to meet another Jonathan. Thanks for your reply. Smart man with the duplex house hack. I wish I was able to find a duplex or triplex but those as you know are very expensive which makes my numbers make less sense, at least here in SFV or SCV, but at the end of the day, id prefer MFR.

      Very good point you made about lenders appraising adu conversions and or additions properly. I think the way around that is getting the adu certified for occupancy and its still not valued right sometimes. We definitely have considered a HELOC, for anyone reading this, I agree thats a excellent option if the numbers make sense. I agree with the 1031 exchange for those tax benefits but we would be living there anyways for the next 2 years, so for us we probably won't need to do that, but great option. 

      Your calculations are exactly on the money, impressed! Yes, my family and good friends are in the business and they are quoting me around 25k to 35k for the adu conversion. Family price, very thankful for that. Otherwise it would most likely cost about 50k to 70k like you said depending on the finish. Some people even pay upwards to 100k from what I hear (ouch).

      Again, thank you for your sound advice, myself and others will benefit from reading this.

      Cheers!





      @Jon Schwartz:
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        • Jonathan Vona
          OP
          Santa Clarita, CA · Member since 2017 · 33 posts · 12 votes
          6y
          Wow, I didnt even think about that! Very good point regarding HOA. Luckily our HOA hasn't increased in the last 3 years but anything can happen.Yes, we been living in the condo for just about 3 years now. So we would avoid those capital gains, I brought this up to my spouse and we're actually considering it. Excellent advice! Thank you Sir.

          I'm happy that this will help others in the same boat.





          Originally posted by @Dave Foster:

          @Jonathan Vona, Have you lived in the condo for two years?  If so I'd consider selling it and taking the tax free gain to fund your improvements to the new property.  You could get it done faster and with less finance expense.  $300 a month cash flow on a condo is just one hoa due raise from being negative.  

          1Reply
        • Jonathan Vona
          OP
          Santa Clarita, CA · Member since 2017 · 33 posts · 12 votes
          6y
          Hi Neighbor,

          Thanks for the reply! 

          Yes, my spouse and I have been researching and planning for many years. We saved enough money to finally make some new moves. Its one of the only investing strategies that work out here for us without over leveraging our money. Ideally we'd like to fix n flip but experience wise Id rather wait to deal with an adu 1st, so I dont bite more than I can chew. 

          Our little town is definitely on the rise!

          Thanks for the advice Neighbor. If you have any questions feel free to contact me. I'll add you. 




          Originally posted by @Luke McMullen:

          I also live in Santa Clarita, and to me those numbers do make sense. I am still new to all of this but it sounds like you guys know what you are doing and have done a lot of research on it. There is definitely a big demand for rentals in our area and right now is a hot market for us, with a lot less for sale than in past years. I say you go for it and if you have access to the BP calculators that is very helpful also!

          0Reply
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