ADU Value add and live-in flip

[Dan Sundberg]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $560,000
Cash invested: $55,000

The strategy going in was part live-in-flip, and part ADU value add. The property had a main house that was in livable condition, but mostly original from 1986. The previous owners had built a studio apartment that wasn't legal living space. We re-landscaped so it had a private entrance and yard, and finished the kitchen and had it permitted as an ADU.

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

We wanted a new primary residence, and wanted to find something we could have a rental on the same property to supplement our mortgage payment.

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

On the MLS. We beat out 5 other offers and paid over asking price. During inspections we were able to negotiate a $17,000 seller credit.

How did you finance this deal?

Conventional for the purchase. Private money for the renovation of ADU

How did you add value to the deal?

Converted existing studio to legal ADU. Added private entrance and yard to the unit is completely stand alone.

Main house performing mostly cosmetic renovations

What was the outcome?

ADU rents for $1,600/mo with an all-in cost of $25,000 to complete renovations.

Main house will rent for $3k/mo once upgrades are complete, and if we ever decide to move out. It's also turned out to be a really great primary residence. The property is also in a great up and coming neighborhood, and its appreciated about $40k in equity in the last year, not including the ADU value add.

Lessons learned? Challenges?

Picking the rental strategy for the ADU. The size of the unit was perfect for Airbnb or travel nurse mid-term rental. However the location was not. I spent a lot of time thinking about this and who the ideal tenant would be and ultimately decided long-term would be best.

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

Myself for a Realtor (I'm a Realtor professionally). JVM lending for our financing - they were great!