All Forum Posts by: Brian Joseph OConnor

Thanks Kevin I really appreciate your thoughts and feedback. For such a low cost ADU conversion it would be in my best interest to bootstrap it myself and do some of the work and cash flow the rest. I have a good W2 income and my main house is already generating $1100/month in real cash flow. I'm probably not willing to do all the work you outlined just to borrow $50-60K when I can really scrounge it up myself just a little more slowly.

You are right about the ADU being much more profitable than buying another property. My main house generates $3700/month in rents. The ADU will rent for $1200/month. So this one property will make $4900/month and the PITI is $2600/month. All utilities are paid by tenants. The property is all new construction so while I'm putting back reserves for capex and repairs I don't expect to have much of that anytime soon. Also, with my rent by the room strategy I have mitigated/diversified my vacancy risk.

Once my ADU is done and rented I still want to grow my portfolio so that is why I would refi and take some equity to use for my next down payment.

Can you bill the tenants for the cost of utilities?  I have 4 single occupancy units on one meter for electric and water/sewer.  I pay the wifi but I make the tenants split the electric/water/trash equally.  The bills are in my name and I have on autopay but I invoice the tenants separately for their 1/4 of the bill.  It's worked out fine.

Funny Jesse! I'm learning that the super creative ways to use OPM only exists on REI podcasts lol. I'll eventually find a way to fund this project with terms acceptable to me and the lender.

@Jesse Rivera yes good idea but with only 3.5% down when I entered the deal 3 months ago there's just not enough equiity to interest any lender even DSCR. When I eventually get this conversion done that is my plan to get the ARV appraisal, refinance out of FHA and into a DSCR loan with my LLC/Trust owning the property and hopefully walking away with some funds for my next downpayment.

None of that makes sense. I had 3 contractors give me their quotes and ranged $40-60K. Yes ADU's are allowed. The house is a 4/4 SFR and the ADU is a converted garage so it will all be on 1 meter so it's not considered a commercial property.

I have a 4/4 rented out coliving style that I've only had for a few months and it's cash flowing well with me self managing. I have a detached garage that I want to convert to a 1/1 ADU for additional income. I don't have enough equity for HELOC, or cash out refi. No luck finding the 50-60K funding so far. Does a have an idea or know of a lender willing to do a stand alone 2nd mortgage?

once the ADU is done and rented it'll be time for me to cash out refi out of the FHA, pay off the ADU loan and move on to my next deal.

there’s got to be a way to make this happen 

I closed on my first deal back on 10/16/24 so I'm a newbie. This deal was found on MLS and is a new construction 4/3.5 SFH with DADU and I purchased on n FHA owner-occupied loan. I only brought 3.5% down to closing and the seller paid 3% CCA which I used to buy down my rate to 4.8%. I'm house hacking living in the DADU and renting the 4 bedrooms out by the room. I had no trouble filling my rooms and the house appreciated for $10K over purchase price, the tenants are paying utilities. I'm cash flowing $1100/month. So even though I'm new I've seen enough to know I want to scale this new construction/build to rent by the room strategy in my market. I'm not renting to students! My property is in a depressed area walking distance to the largest employer in the area which is a shipyard. The area is loaded with men on 1-2 year contracts who have homes some where else and they just need 1-2 years of safe, clean, comfortable housing and the only other option is seedy hotels.

That being said, I approached a local DSCR lender who refuses to look at my specific rental strategy in underwriting. The lender actually said he will only underwrite my property as a single renter long term rental based on comps. So I did that and my property revenue cannot service the debt but using my strategy I'm cash flowing $1100/month after PITI on a new construction home under warranty. The lender seems to believe that the only rent by the room strategy that exists is renting rooms to college students and his quote to me was "more people, more leases, more problems".

What do I know?? But my 4 renters are in there 30's-50's and work 50+ hours / week building naval ships and submarines and they enjoy being close enough to walk to the shipyard and coming home to a brand new house with all the modern upgrades. My house has no vacancies and other guys are constantly calling and inquiring about rooms available. I'm not really "pitching an idea" as much as I'm wanting to scale up something that is untapped and ready to roll. My builder has 4 houses in the area already built and on MLS but I can't deploy another owner occupied mortgage for another 11 months.

A DSCR would be perfect for me because I have funds for down payment, I have good enough credit and my strategy has proven to do a lot more than just service the debt.

Does anyone know of any good DSCR lenders that I could contact?

Thanks,   Brian

MLS #10543365 Norfolk, VA

Side by side duplex 4/1.5 (1,000sqft), and 1/1 (650sqft).  Asking Price $315,000.  Built 1917, full reno 2022.  Planning to rent the 4/1.5 side by the room and house hack by living in 1 of the 4 bedrooms then planning to also rent the larger 1/1 side.

Planning 5% down as owner occupied financing.  I calculated rent estimates using both BP rental tool and Rentometer.com so the larger side will rent for average $550/month per room.  The larger 1/1 will rent for average $1,145/month.  Once I move out the entire property will generate $3570/month in rents.  I did my analysis as if I was not house hacking one of the rooms or as if I was counting myself as a paying tenant. 

My PITI + PMI is $2,369/month if I get 30yr fixed at 7% with 5% down.

I'm budgeting 5% capex/ 5% repairs / 8% vacancy and I will self manage.  All utilities will be billed to the tenants.

Using the BP calculator to underwrite this deal I'm showing NOI $32,274, Monthly cash flow $698/month, and CoC ROI 30.99%

file:///C:/Users/Provider%20QCK%20Richmon/Downloads/9284%20Peachtree%20St%20(1).pdf

Please pick this analysis apart and tell me what I'm not thinking about .........

Thank you for the wise tips Tom and Harry!!  I really appreciate it.

 Thanks Steve!

Yeah, the property was already listed with an agent so I couldn't do anything about that.  The heirs are from out of state and so we'll see what they say.  It's not ideal because agents are involved and neither mine nor theirs seems knowledgeable about seller financing.  Maybe I just wait it out and if it doesn't sell in the next 6 months the listing will expire and I can reach out to the heirs directly?  Or perhaps the 100K over asking price will at least prompt a conversation and we can negotiate about interest if they need that.