All Forum Posts by: Jay Johal

Hey Samdeep, 

I think you are headed in the right direction. I'm actually doing what you are saying right now. 

I bought a house in 2017 that was zoned duplex but only had a SFR. Lived in it and house hacked, now I am building a 2nd unit (for the duplex) and a Granny flat. I am looking to replicate this model again next when when I've completed my 2 other units. I'll have a PITI of 7500 but can get ~9k-10k in rent (granted SD doesn't continue to see rent price drop).

As I keep looking for deals, here is what I've learned. 

Price points for SFR's on big lots are higher (urban san diego surrounding balboa park) so your down payment will be significantly higher. Homes with alley access or garages are also going for a higher price. They can go from 600-800 dollars per sq ft, especially if they are zoned MF. Your cost to build (soft costs and hard costs) is around 300 per sq ft. Time to build usually 2 years (1 year if only doing ADU). Garage conversions are a lot less but be careful of older properties because once your start tearing down walls you may find problems that will add to your costs. Getting funding on a ADU conversion is easier but a new build is a lot harder (I had to call 40 + banks until I got someone who would lend me a 3.625% construction to permanent loan). Some banks like US bank can give you funding upfront for ADUs but make sure you call a ton of lenders and explain what you are trying to do. You don't want to pay closing costs 2x for different loans when you can possibly bundle it into one.

Hope this helps!

 Fees are supposed to be considerably less but they aren't that much cheaper. Also be cautious about JADU's, the language currently states they have to be owner occupied and tied to the owner. How they will enforce it, I am not sure. Also, be careful about adding extra bathrooms/sinks to a property, once you go over a certain number of water fixtures you will have to upgrade the main water line which is super expensive. 

My advice would to be browse the regional forums and look for threads with real estate tax/legal questions and look for CPAs that have thoughtful posts. Once you identify them, reach out to them and see if they are a good fit. 

What are your plans for the property? STR, LTR, Fix n Flip?

Your main issue may be getting financing or selling in the future to someone who will need financing. 

Also, if you rent it out and it is not permitted, you will be held liable for any injury, damage, etc that takes place in that unit. Any lawyer would love to take that case on as it would be an easy win. 

I heard there is possible legislation moving towards having non-owner occupied ADU's + JADU in the future. So you may be able to get a SFR + ADU + JADU. One way to bypass this is to live in the unit while getting the JADU permitted and then move out some time after (1 or 2 years after completion). I don't think JADU's have much value as of now and are greatly underappreciated as an additional income source. So don't expect a JADU to appraise a property for significantly higher at this current point in time. The market has not even yet caught up to SFRs with ADUs.

I don't think you should be concerned about this really. There are plenty of people who are putting up submeters for water and gas without issues and still able to sell properties in San Diego for top dollar as how they were prior to the ADUs. IE a SFR is still a SFR with ADU; a duplex is still a duplex + ADU. A person who's looking to buy a SFR who gets an ADU would look at is as a bonus as long as they can afford it. What I have heard is that lender's will not use rental income from the ADU to help an applicant qualify for the loan.

Most buyer's would look at having individual utilities as a bonus. 

I've been looking to buy for a while and have tracked some house prices recently in Hillcrest, North Park, City Heights, and other neighborhoods around Balboa Park. Prices seem to have come down a bit (like 25-50K) but there's significantly less inventory as of today 5/3. I've seen some homes fall out of escrow stating that it was due to Coronavirus and some homes being listed that looked like prior Airbnbs. Even some homes pulled from the market that are no longer for sale. 

I am currently working on a Duplex + ADU build in North Park and plan to continue forward with it, and still looking to buy and HOLD (possibly build). I am confident in the SD market's recovery and continued appreciation. Rents will drop and stabilize and the economy will recover in due time (whether it is 6 months or 24 months). I feel like if I hold out for a correction or a discount, I would lose out on current opportunities that are presented now all because I "wanted a better deal."

@James Tiu

Why not completed the project as is and then apply for another loan for an ADU addition afterwards? I would recommended trying to build a 2bed ADU because that's going to get you maximum rent.

Yah for sure, I am still in the process. Was hoping to get permits finalized before the New Year but now it looks like it will be the first 1-2 weeks of January. Good thing is I have no holding costs because I live at the property and I'm only invested roughly 20k in professional services/permitting fees thus far. 

If you ever have any questions, feel free to message me. I am hoping to start a small investor group soon and repeat this process several more times in the near future.

The above advice is gold and the advice I get to all my friends. Define your path and your niche you want to focus on, and buy a 2-4 unit to start for your first property.