Investor · Los Angeles, CA · Member since 2019 · 10 posts · 15 votes
Hey BP,
I live in Los Angeles and am looking to house-hack. My goal is to live mortgage-free or as close to it as possible so that I can save money and buy properties out of state. I'm torn between the following two options and would love any input on which one would be better from a long-term investment standpoint:
1) Buy a dup/tri/quadplex, hopefully with at least one unit delivered vacant to live-in and rent out. Obviously RSO/rent control is difficult to avoid in L.A. and the numbers would have to make sense.
2) Find a 3bd 2bth with a detached garage (or ideally permitted guest house) that I can convert to an ADU and live in, while renting out the house. I've done the research and am aware of the rules and costs to make this work. Ideally, I would find a property with a guest house that already has the utilities connected, and just needs a kitchenette added.
My instinct is that option two might be a better investment over the long-term assuming that SFHs appreciate more than multi-family and sell easier? Does that seem right, or no?
Any thoughts or advice would be much appreciated, thanks.
Los Angeles is a different animal. Small multis are going to be rent controlled and they are not for beginners. If you build an ADU and renovate the house, then rent the house out you can get a really solid position. The house is vacant so you can renovate easily and set the rent. In a nicer part of south LA it is possible to get a house for around $550,000 and rent it for $3,500/mo. More, if you do a high quality renovation. Build the ADU in the back for yourself and the house will cover PITI. You have no management costs, the utilities can be split so they pay that, and all you are left with is maintenance and capital expenses, which are mitigated by doing a quality renovation.
I like the idea of a small multi on paper. But in practice, I've seen better opportunities for househacks in expensive markets by buying a SFR that needs some work and renting out the rooms if you can stand it. Now I'm not familiar with the LA market, but from what I've seen, small multis often aren't in the best neighborhoods and there is often so much competition for them that the numbers don't make sense whereas there is usually more inventory for SFRs on homepath or hudhomestore that give owner occupants first dibs.
Los Angeles is a different animal. Small multis are going to be rent controlled and they are not for beginners. If you build an ADU and renovate the house, then rent the house out you can get a really solid position. The house is vacant so you can renovate easily and set the rent. In a nicer part of south LA it is possible to get a house for around $550,000 and rent it for $3,500/mo. More, if you do a high quality renovation. Build the ADU in the back for yourself and the house will cover PITI. You have no management costs, the utilities can be split so they pay that, and all you are left with is maintenance and capital expenses, which are mitigated by doing a quality renovation.
Great advice @Seth Borman and co., thanks! Yeah, I think the ADU approach is the way to go. Won't have to deal with the drama of rent control and current occupancy and I'll have the ability to knock out a high quality renovation beforehand.
My wife and I (with two kids) are trying to do the same thing. Though we'd probably need to rent out the ADU if we go that route. Our 2/1 rental we're in now is crammed as is.
Duplex to Quad if we can get find a vacant unit or an area that isn't rent controlled. (We're in Eagle Rock right now)
Some days it feels impossible, but where there's a will there's a way.
I'm actually looking to house-hack using option number 2 (find a property with an ADU or convert a detached garage into a guest house for AirBnb) out in North Orange County. Similar to what some of the other contributors said previously, most of the 2/3/4-plexes that I've found in North Orange county are located in not-so-desirable areas.
I went the first route and bought a duplex. This was 2 separate houses on the property. So we rented the back house and live in the front house. We started Airbnbing the back house as a trial starting this year and it hasn't been too bad so far. It covers most of the PITI. I have to take care of the taxes and expenses which isn't too bad.
I would look at North Hollywood, Burbank, Glendale areas. I have seen some duplex and triplex where the numbers are not too bad.
Definitely look at the ADU option and also look at house hacking a SFR. Avoid RSO areas if at all possible. We helped a young military member last year house hack a 4 bed/2.5 bath property - he paid $740k for the home and is paying less than $900 per month in mortgage payments after his 2 renters pay the rest. In addition, his principal paydown is about $1200/month, so his net impact to his net worth is $300/month before factoring in tax deductions or appreciation. This one decision has paved a path to wealth for him in his young age.
Hey @Peter Mai, I was in escrow on a property in Reseda, but I had to cancel it unfortunately.
It was a 4 bedroom main house with a pretty awesome detached 2 bedroom ADU in the back. The seller was also the flipper and obviously had a vested interest in the sale (already a red flag, but I went with it). After doing a general inspection and a plumbing inspection, I found that the main house needed a new roof, new water heater, and needed major plumbing repairs. The total cost of repairs was between 16k-20k. I requested that the seller credit me for the repairs and he asked to wait for the appraisal.
Then we got the appraisal and it came in super LOW! About $35k below asking price. I then countered to the appraised amount and the seller said that I needed to agree to go through his "preferred appraiser" if we wanted to get the deal done. I'm pretty sure that's illegal anyway, and at that point I had had enough.
Pretty bummed about it, but I suspect I dodged a bullet. I know better what to look for on the next one, and I'm sure I'll find it sooner than later.
@Peter Mai some big news for you since you are looking at purchasing a single family home. As of Jan. 1 2020 you are now allowed at least two (2) ADU's per single family home per AB 881.
You can have 1 detached ADU up to at least 800 square feet and up to 2 stories (16 feet).
You can have an additional attached ADU (known as a Junior ADU) inside the building envelope which usually means converting the garage.
If you convert the garage to an ADU you do not have to replace the parking if you are within 1/2 mile of a bus/transit stop.
Here is a good summary of the changes. Probably the biggest change to California housing law in recent memory: