Evaluating a triplex in Los Angeles to house-hack

[Kenneth Ryan]

I just got an offer accepted for a triplex in Los Angeles near Culver City. The house is listed at $880k and I am looking to put down 10%. The property currently has 2 long term tenants in 2 of the units paying a total of $2600. I plan on spending about $20k to the convert the 3rd studio into a 2 bedroom 1 bath. That is, "get rid" of the attached garage by knocking down the adjacent wall and using the square footage for the 2 bedrooms. I intend rent out the other room for $1600-1700/month.

After speaking to a lender, I've been pre-approved for an FHA loan my monthly PITI would be ~$4800. If I can manage to rent it out (and I've already gauged interest by creating FB/hotpads/zillow rental postings) I only have to cover the remaining ~$500 which I don't mind (effectively the monthly mortgage insurance premium).

I am trying to decide if this is a worthy investment. Specifically if the loan pay down that I "earn" from the tenants justifies me putting down about $120,000 (i.e. 80k down + 20k rehab). What is the best way to calculate this ROI since this property isn't cash flowing I am more interested in buy-and-hold, loan pay down, and long term appreciation.

Any thoughts are much appreciated