All Forum Posts by: Byron Valles

Quote from @Andrew Emery:

@Byron Valles what type of ADU did you go with? Any tips or things to keep in mind as I plan this out?

Thanks!

I ended up doing a detached 450sqft garage to a studio ADU. I considered extending the existing structure and foundation to make it a 2-bed but the cost would have been much higher than my budget.

some things to consider: 

Are you hiring a design-build company? this will be the most hands-off approach but usually the most expensive. If you're up for it, you could get an owner-builder permit and act as the general contractor on the project, you then could just hire sub-contractors (what I did). This could save you money but there are tradeoffs to consider such as your time and energy spent. 

If you're building from the ground up, consider the distance between the ADU and the main dwelling. The further the ADU, the higher the cost will likely be since the ADU will need to hook up to the existing main sewage, main water line, electric meter, etc.

regardless if you go the owner-build or design-build company route, be nice and try to befriend your city planner and inspectors! they will either be an obstacle or your aid during this whole process. 

Happy to chat about this further if you find it helpful. 

Byron

Quote from @Andrew T.:

Update: What I ended up doing which I really liked, as some have suggested here, is I built in cost of solar into rent. Its a win win for landlord and tenant. Landlord gets to raise rent and have solar paid off consistently, without hassle of asking tenant for monthly payments based on electric bill and solar production. Its a win for tenant because on their end they don't know rent has been raised due to solar (although you can certainly mention it if need be), and instead they see a lower electric bill. 

nice going, Andrew! I was in a similar situation a couple of weeks ago. I thought about including the cost of the solar into the rent as well but I was afraid the rent was already towards the higher end based on comps. I ended up just charging a flat monthly cost and told the tenant that the cost would cover up to 130% of the monthly average usage, anything above that I would bill based on the utility company's standard rate. 

I hope to adopt your way in the future once rent comps support it. 

Quote from @Anthony Freeman:

Quote from @Zachary Ware:

This post is a little vague. What are you trying to accomplish (buy/sell/promote??) You can have luck if you target groups focused on whatever aspect of RE you are looking to. I know many who use these groups to source deals and see many agent selling residential deals on FB. 

 It is just a question. I want to know the effectiveness of the marketplace pertaining to real estate.

 Hey Anthony, 

I've had success finding prospective tenants for a duplex I have in the San Francisco East Bay. I've listed two properties on FB marketplace and have gotten hundreds of inquiries each time. 

Hope this helps. 

Byron

Quote from @Andrew Emery:

Hey Byron - Thanks a lot for your response, super helpful and good work! I would actually like to do this with an existing MFH so I can live in (and potentially renovate) one unit while renting the other(s) from day 1, and, based on your feedback, initiate the ADU build once I'm in the MFH.

The only reason I'm still thinking FHA is due to what I understand to be a hard 15% minimum DP requirement for conventional on a MFH. I think I'd rather keep the cash to put towards the ADU along with potentially city / state grants similar to what you did.

 Nice, Andrew! your strategy sounds great! happy house-hacking! 

Hi Andrew, 

congrats on getting your house hack plan started! I did exactly what I think you're thinking of doing so I'll try to answer your questions with my own experience. I'm also assuming you meant to build an ADU on an existing single-family home (SFH)

- Does this sound like a reasonable plan?

yes, by living in the ADU you'd likely have more cash flow coming by renting the single-family home. I never lived in my ADU but I wished I had. Living in the ADU and renting the primary would have meant a net $400 monthly cost for an $810K property in the SF East Bay Area. For some reference, the cheapest studio I have found in the East Bay rents for about $1500+

- How would you recommend financing this? 

ADUs are so new that there aren't a ton of financing options for them yet, but it looks like this is quickly getting better. One option I looked into but did not use was Renofi I understand they have a couple of construction loan products that will look at the after-renovation value of the property. I bought my single family with a 5% conventional loan. The ADU cost me roughly $90K. To pay for it I got a $32K ADU grant from the state, took out an unsecured $25K personal loan and the rest came from savings.

- With 11 more months on my current apartment lease, do you have any advice on a timeline/sequence for all of this? Should I engage the ADU builder as soon as possible or wait until I actually purchase a MFH before starting those conversations?

any builder/contractor is going to want you to be the owner of the property before they take you seriously unless you have an existing relationship with them. It doesn't hurt to start having initial conversations but they will not be able to give you any realistic estimate until they can get out there and have a better idea of what you're trying to build and where. 

- If I went down this path, how would you most effectively get into the next property 

Here is how my strategy went: bought the single family for $810K using a 5% conventional with PMI in Dec 2021. ADU construction ended in Jan 2023 and by Feb I already had a tenant in there. I ordered an appraisal to drop my PMI. Property value came back at $950K in March 2023. I've recently moved out of the primary and it's now rented to a separate tenant. The rents from the SFM and the ADU cover about %120 of the property's PITI. So, in terms of an exit lenders will see the income and expense from the property as a wash.

The post was getting kind of long but let me know if I can help answer anything else! 

Byron

Hi Shawn, 

I have some experience with clients utilizing the rule of 55 and I agree with everything that has already been said here by others. What you need to do is review your plan's summary plan description(SPD), you can contact your plan's administrator if you don't have it. The rule of 55 is mentioned in IRS Notice 2020-62. Many plan documents I've seen need to be updated to allow for the early distribution provision. 

Another thing to consider that hasn't yet been mentioned is that distributions from 401(k)s will require 20% federal tax withholding, regardless of the actual tax liability. 

Hi Nico, 

Out of curiosity, could you elaborate on the need for a CFA specifically? From my experience, CFAs tend to be great with the technical side of wealth management (portfolio management, research, etc.) but do not work with individual clients/investors. If you're looking for a fiduciary, there are professionals who hold other designations such as the CFP, who do specialize in working with individual clients/investors. This is not to say that CFAs who work with clients directly don't exist (I know some) but that is usually not their forte. 

Byron

Hi Carlos, 

I started my RE journey in 2020 with a duplex in Antioch that is now cash-flowing nicely. I also picked up a single-family home in Concord in Dec 2021. I occupied the home as a primary while I built a detached ADU in the lot. The ADU was finished in February of this year and it's been a nice house-hack since. I just moved out of that property and will be renting the single-family and ADU to separate tenants. The property will create a small amount of net cash flow, but as you may know, the play here in the Bay Area is not really cash flow but strong long-term appreciation. Let me know if I can help answer any questions.

Congrats on your first duplex! My first house hack was also a duplex. Like you, I also felt that even with the cash flow from the house hack it would have taken me years to save another 5%. You mentioned having a W2 with a decent salary. You could consider borrowing against your 401(k) for the next deal (it's what I did). 

Byron

 Another registered investment adviser here. It's true, unfortunately, the advisor industry has carried a bad reputation over the decades. The reasons have been advisors and companies largely focusing on sales over sound advice and lack of regulation. It's worth pointing out that new legislation combined with concerned organizations and new advisors entering the industry has started to change the landscape. To make it easier for consumers I'd recommend working with someone held to the fiduciary standard of care, legally and ethically required to act in your best interest. To make it easier for consumers here are a few questions you could ask while deciding to hire a financial advisor: 

• Fiduciary Status: Are you a fiduciary, committed to acting in my best interest?
• Compensation Structure: How do you make money? Understand their fee structure and any potential conflicts of interest.
• Consistency of Fiduciary Duty: Do you always act as fiduciary, even when selling commission-based products?
• Financial Planning Approach: What is your approach to financial planning? Learn about their strategies and methodologies.
• Available Services: What financial planning services do you offer? Ensure their offerings align with your specific needs.
• Client Profile: What kind of clients do you typically work with? Confirm if they have experience catering to clients similar to you.
• Account Minimums: Do you have any account minimums? Determine if their requirements match your financial situation.
• Conflicts of Interest: Do you have any conflicts of interest in managing your money? Ensure transparency and alignment of interests.
• Collaboration with Advisors: Will you collaborate with your other advisors, such as CPAs or attorneys? Coordinate efforts for comprehensive financial management.