Househacking vs buying rental properties?

[Raj Goel]

I am trying to decide whether househacking makes sense here if my goal is to generate $6K/month passive income asap.

I live in bay area California. I have the opportunity to build two ADUs on my primary residence. The ADUs will cost me total $700K to build. Assuming no loan, these will generate total $6K a month income after taxes.

Does househacking make sense here, or should I just focus on buying cash flowing rental properties in the country, or do both?

Househacking primary home = pays the mortgage on my home, instant $6K income, peace of mind, but some loss of privacy, too many eggs in one basket, appreciation on 1 property only.

Buying rental properties instead = multiple properties appreciating over time, more diversified, but cash flow very hard to find, how to get to $6K cashflow instantly?

I will appreciate any advice please.

Thank you so much!

[Travis Biziorek]

Quote from @Raj Goel:

@Travis Biziorek - would like to hear your advice, since you are in the process of building an ADU in California.

 I'll try and provide some thoughts here quickly.

First, you are not going to get $6k/mo in cash flow "instantly" with either method. 

The ADU route will take you a long time. For perspective, it took us over 10 months to get through the PLANNING phase of our ADU build. It will be another 3 months now before the structure is up. Then we have to do the finishes ourselves.

You're talking about 2 ADU's and, honestly, I think your budget might be light (although I don't know the specifics on square footage, etc.

In terms of going OOS... I have 12-doors in Detroit and the numbers still work there if you know what you're doing (happy to help anyone interested in that market, always).

But again, this isn't an "instant" route to $6k/mo cash flow. If you're smart and know what you're doing in Detroit you can do 10-12% CoC returns. And I'd argue the city offers insane upside right now.

I built my Detroit rental portfolio before building my ADU but everyone is different and I try to stay away from giving advice. Everyone's situation is just so nuanced and we're always biased to what worked/works for us when giving advice.

I'd much prefer to tell my story and if it makes sense to do the same for you... great. 

One consideration is if you were to go OOS you still have the option to build the ADUs (or just one) at your primary.