ADU Times 2! How I’m turning an SFR into a Tri-Plex. Legally.

[Robert Ring]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $540,000
Cash invested: $250,000

This is a unique property that has a street on both the front and back of the lot. There is a single family home one one side, and a fence dividing the property down the middle. There is also a dug out basement. I just got plans approved to turn the basement into a Jr. ADU - I have plans submitted now to add a detached ADU in the back yard (facing the back street). Once completed, this project will cash flow $4,000 per month, and will have a total cost of $800,000 with gross rents of $7,500-8,000 per month.

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

CA laws allowing the addition of 2 ADU's on an SFR home, one detached, and one attached. It is an amazing opportunity for massive cash flow if done right.

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

It was sitting on the market for several months, overpriced. Nobody saw the value that I did. But it was still overpriced. The seller wanted 580-600K and it just wasn’t worth that. I offered 480K - no response. Through a series of back and forth, I almost lost the deal. The listing was expiring. I googled the seller and found out he was a local contractor. I called him and said I wanted to meet. I went over to the home and met with him in person. We had a lot in common. See more in next section.

How did you finance this deal?

I walked away with a handshake deal to sell for 540K. I found out he was a cigar lover. When I close the deal, I bought a humidor, filled it with Cuban cigars, and gave it to him as a present. He met me at the property, and as we walked it together, he confided in me that he was dying of cancer. He said what mattered most to him, other than not feeling like he was getting screwed, is that the person who bought the home, had a vision like he did on what to do with it, and saw it’s potential.

How did you add value to the deal?

I added value by adding a detached in-law unit, and an attached in-law unit. It really will function like a triplex. I will use the basement ADU as an air-bnb and the detached will rent out for $2,750. It's a cash cow.

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

I’m a lender and structure the deal myself. My dad is a broker and he represented me on the real estate side.