Covina house with a pool and 1.5 car garage - strategies?

Question

I just bought a VERY dilapidated hoarders' house in Covina for the low 300s.

1114 sf 3/1 in basically tear-down condition. I spent over 10k on the clean-out itself. Due to extreme mold, fire, smoke, and water damage, we can`t save the roof and rafters, we needed to tear down all drywall/insulation/flooring. The city wants asbestos and LEAD tests too.

The pool equipment was stolen, it has some minor cracks.

I have the next scenarios:

1. Make a small addition to the main house (-> results in 1250 sf 3/2), do a full gut remodel and new roof framing/roof, and convert the existing 16x25 garage to a tiny 1-bedroom. My budget is 200k, ARV is 625k+, and the projected rent is 4000.

or

2. Restore the main house, convert the garage to ADU and build one more house (you can have 2 ADUs in Covina) 800 sf. My projected rent will be 6300, and it is hard to predict ARV due to the lack of comps (houses with 2 ADUs). And all neighborhood homes only 1 ADU maximum.

Also, should I keep the pool?

It will be dozens of thousands to restore it (by ballpark quotes of GCs) and only 10k to demolish it,  and it will be extra liability, but it can give (?) resale value to the house.

Thoughts? Thank you!

Mikhail Petrenko · Answer

Unfortunately, I can`t proceed with SB9, because it is not owner-occupied property. There are some loopholes in Covina, Corona, and a few other Greater LA cities where you could build 2 ADUs - 1 attached up to 50% of the square footage of the main house and 1 detached.

I spoke to 1 appraiser and his opinion is:

- to do not overbuild and overspend for 600-700 sf ADU. The rent increase won`t justify the overspending.

- ADU will bring 10 times of annual rent to appraisal.

And ADUs tend to bring 50k or less than their cost to build.

I spoke with my realtor and he suggests building as many units as possible, but he is even older than me and:

- too conservative

- believes that all immigrants live in compounds, multi-generations families ratio will increase

- construction still costs a dime and nickel if you hire unlicensed guys and do owner-builders permits

- he rocks in East Bay Area and is not very familiar with LA.

Regarding conservative rents: the lot is almost 7000 sf, tons of street and off-street paved parking, but the property is located in not the best area of Covina.

Thomas Corey · Answer

Depends on your strategy: for Buy n Hold, the 2nd option sounds like the logical choice; if you want to sell it then option 1 sounds like the better choice. But to get a fuller picture information-wise I’d consult an appraiser. As for the pool, i would consult an appraiser or a realtor about if it’ll add enough value to be worth saving.

best of luck!

David A. · Answer

I did a 800 SF detached ADU new build and appraisal 3 cities over in La Verne, and even with 1 ADU it was hard to find comps. The appraisal treated it as a SFR and the ADU was a 35k+ ammenity like an extra garage parking spot or swimming pool so in no way a viable way to get your build cost back at this time. ADUs are great to add rental cash flow but it will take time for comps to support values.

Paul Dashevsky · Answer

@Mikhail Petrenko I can recommend a few good general contractors in Covina if you need...

Neil Ginty · Answer

Hi Mikhail,

We actually did something very similar in Sacramento, they also allow two ADUs. For us, every time we ran the numbers the "triplex" just made more sense, plus the layout just screamed triplex. When you have to do so much work, whether its 1 or 2 ADUs, the better compounding returns was always 2 ADUs. The tricky part we had was the refinancing, I'm not sure where the F&F rules are at with 2 ADUs now but we did manage to get ours refinanced, almost a full BRRR, and appraiser treated it as a triplex. We called it a triplex to lenders and a house with 2 ADUs to the City when they were looking for impact fees and utility fees!

Couple of things to watch out for, 2 attached dwellings are considered Residential for Building Code purposes. Once you go to 3 attached dwellings or more, there's a good chance they will make you treat it as a "Commercial" project for Building Permit approval. That means a change of use and, for us, meant sprinklers and making one unit ADA adaptable. Returns were still very much worth it but 2 attached units + 1 detached is potentially more economical. And if it "looks" like a triplex, all the better for refinancing too!

Hope that helps!!

Brad S. · Answer

Appraiser, Broker, Landlord, Flipper here.....

I have tried to steer away from pools in my flips and rentals. I don't want the additional expense, responsibility, and liability. That said, I am finishing up a flip that had a pool and I was considering demo'g it in rather than rehabbing it. But, I looked at the sale comps, and the properties in the area, and realized I needed to keep it to maximize the value and appeal.

I would both pull data on properties in the neighborhood and see if they sell or rent with pools or without (and try and see if you notice a value difference), look at satellite maps (google satellite view, etc) of the yards around the neighborhood, to see if there are generally pools in the area and also speak with local agents, who know what buyers and/or renters are looking for in the area and ask their opinion. It's typically a lot less expensive to repair a pool then to put a new one in, and if you already have it there, it may be worth it. I had to get multiple quotes before deciding on someone to help redo our pool. Some of the quotes seemed outrageous.

Re: scenarios

1) 400sf is most likely a studio (but I suppose you might be able to put a bedroom or maybe a flex type of space with murphy bed and movable wall) and my quick mls search of rentals under 500sf in Covina, the past 12 months, shows 6 between $1,500-$1,950, there is even a 350sf studio that rented for $1,600 in June and a 400sf newly renovated studio renting for $1,750. Days on market are between 6-63 DOM

3 bedroom/1.5+ bath houses are renting between $2,550-$3,400, with the higher ones having been rehabbed.

2) I am assuming you are talking about using SB9 to have 2 separate dwellings on the lot plus an ADU?

You may be able to get around $2,750-$2,850 for a 800sf 2/2 house and then around $1,600-$1,750 for the studio ADUBut, I like using your conservative #'s and then you can have "bonuses" if you get higher rents.

I am assuming this is strictly a rental play and not a house hack or flip?

My vote would be to have the 2 dwellings (SB9) on the property and the studio ADU. It would be great if you can have them detached and keep the pool also (assuming a reasonable cost to repair, you can probably can get more rent, especially with our recent weather). Some of it depends on the house orientation and lot size.

Covina house with a pool and 1.5 car garage - strategies?

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