Single family + ADU addition

[Dan Sundberg]

Investment Info:

Single-family residence buy & hold investment in Sacramento.

Purchase price: $605,000
Cash invested: $140,000

The property was a single family home that we significantly rehabbed, including adding a bedroom. That was then rented out while construction started to convert a 275 sq ft detached garage to an Accessory Dwelling Unit (ADU). That was completed mid- 2022 and is now consistently rented out to traveling nurses at the 200 acre Med center located 1 block away.

What made you interested in investing in this type of deal?

The location was perfect in an up and coming part of town adjacent to the nicest part of town. It is also a 5 minute walk to a 200 acre medical campus.
The main house had some easy value add opportunities, as well as the ability to add a 4th bedroom. Long term, the house is also laid out to be split into a duplex.
There was a detached garage perfectly situated on the lot to convert into an Accessory Dwelling Unit (ADU).

How did you find this deal and how did you negotiate it?

MLS. I was able to negotiate a $5k seller credit. There were 6 offers total on this house so we had to be aggressive to win it, but because there was so much potential I was fine paying $30k over asking price.

How did you finance this deal?

Conventional financing, 5% down. We originally planned to owner occupy the main house, but due to changes in personal circumstances rented the main house out 5 months after the purchase.

How did you add value to the deal?

Main house - Added 4th bedroom, new plumbing/electrical, new flooring, cosmetic refresh.
Converted existing garage to ADU.

What was the outcome?

The main house has been consistently rented out for 3 years now.
The ADU is also consistently rented out to traveling nurses.
The main house generates $3325/mo and the ADU $1850/mo. After all expenses, including CapEx it generates around $950/mo in cash flow, not including debt paydown.

Lessons learned? Challenges?

The house is almost 100 years old and CapEx is much higher than expected
I skimped on drainage when converting the ADU, and the next year the unit flooded during severe rain in CA. A $7k investment up front would have saved me $20k a year later.
Location was key. The house and ADU are super easy to rent to high quality tenants.
Was decisive and moved with urgency. This wasn't "the perfect deal". But it got us in the game, and we locked a rate under 3% and it's been a solid deal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Me! I self represented as I'm a professional Realtor.