All Forum Posts by: Brandon Ly

Thank you @Tim Delaney. Appreciate you sharing your thoughts and experience. I will add to the agreement that there be no further rent reduction. Great call out! Thanks again.

Hello BP Community!
I’m planning to begin the construction of two units on my single family rental property that currently houses a tenant that’s been there for the last 6 years. 

The two additional units will be detached from the existing structure so there will be no interruptions from that standpoint.

I have agreed to a temporary rent reduction at the tenant's request to compensate for the inconvenience and loss of the backyard during construction. The tenant isn't "happy" about the construction but understands that it's my property to do as I wish.

Has anyone had experience with performing construction on a property that a tenant resides in? Any advice or pitfalls that I should prepare for or protect myself from? I’ve included a draft of the updated lease agreement and if anyone has any feedback on it. Hopefully you can see the screenshots attached to this post. Thanks! 

Hello all,

I’m planning on building an SB9 unit on my existing single family home lot and wondering if anyone knows how that affects the title or deed of trust?

Will the sb9 primary unit will have its own title and deed of trust? Will it automatically just be included to the deed and title of the existing home?

The sb9 primary unit will have its address # and dedicated utilities. The lot will NOT be split.

Anyone who has experience with this and can chime in would be greatly appreciated. Thank you!

Greetings Bigger Pockets Community!

I currently own a single family residence in LA county that I am planning to build a detached unit (SB9) and then subdivide the property using SB9.

I have a mortgage on the house so I'll need a partial lien release from the bank to split the lot and wanted to be careful that I don't do anything to compromise my chances of success. I've come to learn that the bank will require that their collateral be at the same LTV% before and after the lot split, therefore requiring a paydown on the principal.

So it got me thinking, if I build an SB9 unit in my backyard, the property is going to be considered a duplex and will appraise for much higher than when I originally got my mortgage which will bring LTV% very low. After the lot split, it'll appraise for a lot less since the units will now each be on their own lot and therefore, the appraisal after the lot split will be much lower.

So if I build the SB9 unit before I do the lot split that’s going to put me in a position of a significant pay down to get the LTV% down to what it was when both units were on one lot.
 
Here’s the numbers below. Is my understanding here correct? Should I do the lot split first then? I really wanted to get a unit built before I begin my lot split but not if this is going to require a significant paydown.

Let me know what you think! Thank you!!

Great points and after doing more research you're absolutely right. ADU's are accessories to the primary home and due to the limited number of comps, since adu's are typically build and holds, there's not much to compare it to which would leave appraisers little to go off of in terms of determining value.

I think I’m going to pursue a new strategy with a focus on SB9 where I will split the lot and build two duplexes on each which would have much more value than a house + adu. There’s a lot more to consider but this conversation has sparked new ideas in my strategy and research. Thank you and happy investing 🍻 

@Dan H.

Thanks for your insight @Dan H.

Question on your $181K value add calculation. The primary home was recently (2021) appraised at $588 per sq/ft. In my research, I found that ADU's will add about 70% of the value that the primary home is worth so my math worked out as follows:

Appraised Primary Residence = $588/sqft
ADU Value Add = $588*70% = $411/sqft
1200 sqft (ADU Size) * $411/sq ft = $493,200 Market Valuation

The ADU will be detached, 3 bed 2 bath and utilities metered separately.

Your thoughts on my calculation and what does "hands off ADU" mean?

Appreciate your time!

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.

Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.

Greetings @Joe Homs - Thanks for the feedback!

At a really high level, the ADU will rent for $3K/month and my monthly cost to finance the project plus property taxes will be $2400/Month.

The payback is the $600/month from rent + YoY rent increases + the appreciation on the property which I will use to roll into the next project/investment. 

I'll have to cover the $2400/month financing while the property is being constructed so I estimated 8 months to complete which means $19,200 out of my pocket which I will make back from the $600/month rental profit in ~2.6 years (not accounting for the YoY increase). 

It's a long term hold to one day pass onto my kids. Let me know what you think! I appreciate the opportunity to bounce this off other real estate professionals and their experiences to validate my analysis. Thanks!

 No apologies at all! @Daniel H.. It’s because of your feedback that led me to do more research in this specific area that I can now ask LA county to clarify. In the end, we’ll all benefit from personal experiences and how LA county interprets SB9 regulations so we can all better prepare and plan for our projects in the foreseeable future. I appreciate the dialogue and feedback and should you ever want to know the outcome my meeting with the county, please feel free to reach out. Until then, cheers 🍻 and thank you 🙏.