Seeking Advice on House Hacking Strategy: Buying Single-Family Home to Build Duplex i

[Hamidou Keita]

I’m looking to house hack in Tucson, Arizona, and have made offers on a few duplexes with the goal of living in one unit and renting out the other. However, the duplexes within my budget (~$360K) often require substantial work, and I’m not looking to spend much on rehab. My plan is to put 5% down on a 30-year conventional loan and have the rental income help cover part of the mortgage. Unfortunately, my options for small multifamily properties here are limited.

I’m now considering buying a single-family home on a lot over 8,000 sq ft and building a duplex in the back to generate rental income. I’ve never done this before, so I’m seeking advice on how to analyze deals like this. Specifically, I’m thinking of putting in an offer on a $295K single-family home zoned R-2 for multifamily use, with plans to build the maximum allowable units at the back. The property is in the 85712 or 85745 zip code. Could you provide insights on how to evaluate whether this is a viable strategy?

[Jerome Morelos]

Quote from @Robert Ellis:

Quote from @Jerome Morelos:

Quote from @Robert Ellis:

Quote from @Jerome Morelos:

I recommend converting an existing space, like a detached garage for example, rather than building from the ground up. The cost to build will be significantly more than the amount of "value add" of an ADU putting you in a negative equity position. Better to spend $60-80k for a conversion than over 120k.

 new construction gets valued at a way higher premium. this is a false statement. new construction will always beat existing 

Very market dependent. There are not many ADU comps in my SoCal area YET. It's starting to catch up though. A new construction ADU will be appraised significantly less than the hands-off construction cost. A new ADU will cost over 120k to build and will not be appraised close to that from my experience and many other investors I've spoken with. You can also find many examples in the forums of people experiencing poor valuations due to lack of comps. Building a new ADU will put you in a more "negative equity position" than converting a garage for example, which only cost <200 per sq ft.

please send me a case example I'd love to read. that's one appraisal. the knowledge I have as a licensed general contractor working with investors from 5 cities at a time all over the country buidling 3 different floorplans I would say trumps one ADU you read about online

This is from my own personal ADU that I recently built and recently appraised earlier this year. They only appraised it for 75k. They are not appraising ADUs equivalent to the construction cost in my area, I can guarantee that. There's just not enough ADU supply (IN MY AREA) for appraisers to base off of. Though I expect that to increase in the future when more ADUs are constructed. Like most things, the value of your ADU is relative to the area you're investing in. More ADU supply = more comps, potentially higher valuation.