How to house-hack a SFH & convert to 4/5 unit property?

Question

Hello friends, an hoping for advice or to vet this opportunity/desire to purchase, rehab, and hold a SFH.  Location is 1 block from beach with water views-very desirable to rent out.  Currently is a SFH (unit #1) with a studio apartment attached (unit #2).  Current owner built a two-level deck / large balconies with plumbing and electrical.  Obviously started to build these as units 3 & 4 but never completed and converted to view decks instead.  I'd like to complete.  Plan is to live in main house, rent out unit #2 and rehab units 3 & 4.

I hope to use either a 203K loan or hard money lending.  Get financing, purchase, rehab for 6 months, use that time to locate and get renters (easy to do at this location), then refi into a 30y/fixed using ARV to help me fund.

My annual gross wages are $140K
Estimated purchase price: $820K
Estimate rehab: $60K
Cash avail: $128K (funded from equity in existing SFH investment/rental & 401K loan)
Estimated monthly income at full tenancy: $5,050 (not including my "rent" to occupy unit #1)
Estimated ARV: $980-1.1MIL

Questions:
Is this a realistic scenario?
Hard money lender or FHA 203K?
Can I expect a hard money lender to help me take on such a project with a large purchase price? i.e. Refi after 6-12 months?
If so, any recommendations?

I'm an experienced homeowner, landlord, and have done rehabs but not at this price range.
I believe my plans would allow me to occupy unit #1 as my long-term home for free. My anxiety comes from securing initial financing and if I can refi into a workable loan after rehab.

Any advice would be greatly appreciated and I'd love to post my progress on this going forward!

Kiana Kahale · Answer

Any updates?? I would love to know if you purchased this property and how the loan went! Thank you!

Anthony Ciulla · Answer

Thanks @Dan Heuschele.  I checked it out.  Understood.

Google Maps 3D is awesome by the way.  I was able to zoom right in and see what you meant.

Dan H. · Answer

@Anthony Ciulla I do not know how much effort you want to spend on looking at what can be done but our modest unit is 732 Jamaica Court in Mission Beach.  The unit directly across the court (the sidewalk is the court, the streets are the allies) - I do not know the address but maybe 731 or 733 Jamaica Court, was built less than 10 years ago.  They have an upper deck that is partitioned such that both units have some upper deck.  The upper deck has hot tubs (one for each unit).  It shows a fairly recent, fairly high end upgrade of a duplex that was fully to code when built and a great way to use the upper level while staying within height limits.  It is basically a high end entertainment deck.

Anthony Ciulla · Answer

Thanks for the insight @Dan Heuschele  This property would be a great income-generator.  Unfortunately, it's looking more like the additions exceed the 30 foot height limitations for the zoning.  I can't tell for sure because I didn't have a chance to physically measure the property.  It that's the case, then it's an illegal structure and I won't be able to get a cert. of occupancy for the covered decks - a deal breaker.

I'll post here for anyone who is interested in my progress so that whoever reads this can take from my "lessons learned".

Thanks!!

Dan H. · Answer

my family has a San Diego beach duplex.  I would be leery of grand fathered in.  I suspect the extra units were not completed because the permits could not be obtained due to some limitation (parking, height, number of units).   So do you homework in this area. Ideally purchase the plans with the property. The unit across from ours did this when owners got divorced after having plans approved for much larger duplex - replacing smaller duplex.  They completed the approved plans but the new plans had more on-site parking than the property originally had.

Also you do not indicate if you were planning long-term renters or vacation rental.  The family duplex is 1.5 blocks from the ocean in mission Beach.  We have tried both short- term vacation rental and a high breed of short-term vacation rental in summer and rent to students rest of year.  We typically do slightly better with the high breed.  To be real successful with short-term rental (have it at high occupancy rate) you need to be closer to the water than our units.

Good luck

Patrick Liska · Answer

I was picturing a roof deck with fiberglass floor with your first description. Sounds like you did your homework on the property and the area. It wouldn't hurt to check and make sure. Sounds like it's all framed up and roofed. You may have to update or pull permits on it to get it going again, If most of the mechanicals are already run, you are in good shape, you may be close with your estimate, I'm not sure about pricing of work in San diego, but still think it may run you closer to 80 or 90 - sounds like you may have found a good place.

Anthony Ciulla · Answer

Hi @Patrick Liska: thanks for the questions!I'm told the property is zoned and grandfathered in for that along with the height restrictions.  I'm having my real estate agent confirm this for me this week.  As for the rentals.  Yes.  This is a residential & luxury vacation rental area of San Diego.  I pretty confident of the rental market there.  Because my rental estimates are slightly below market, I believe I can have the extra/new units rented-out before the rehab is completed.

The $60K rehab is a very rough estimate.  You're right it's a bit low and I still need to get my contractor in to view and refine my estimates.  I should have made it clear: The additions to the property were started and mostly completed but were finished off as large party balconies. They already have plumbing & electrical.  The major work needed to make them habitatable is: enclose them by installing windows, frame up a bedroom in one unit, add flooring, kitchen and bath cabinetry, electrical & plumbing fixtures, basic appliances, and one unit would need private egress.

Your thoughts?

Patrick Liska · Answer

My questions to you, is the property zoned for that ? you need to check with the town to see if you will be able to add to the house. and if you are talking rentals for the beach, is that all year round or just a certain number of months that it will be rented ? and $ 60,000 to add a second floor 2 bath, 2 kitchens, did you get estimates for that already ? seems a little low to me.