All Forum Posts by: Elijah Householder

I just bought my first property here in Southern California (Riverside). I was very fortunate to come across this home through a family friend. It has a main house and a back house that is currently being rented. I am planning to live in the main house with my grandma so I can save up some cash. Buying this house took pretty much all my funds. However, I am just looking for advice on what should I do next? Here are a couple options I am thinking -

1. Currently, the back house is not permitted as a living area but I believe as a "Carriage house". I am not super familiar with the laws and what it takes to get it permitted but I am thinking of putting my time and focus into getting this done and having the property listed as a "Duplex".

2. Another option I am thinking is doing the minimum to get the house I am living in fairly nice and then saving cash to eventually buy an out of state property that hopefully would cash flow.

3. Taking any ideas that you all have! This is all very new to me so any advice on what would be a good next step would be awesome!

My goal as I think it is for most people is to have a few properties that offer me a decent additional income. So any advice on what steps you all think would be best for this would be greatly appreciated!

Thanks!

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Quote from @Ty Coutts:

Hello, Elijah Householder, I believe I can answer your question.

Using rental income from a room in the house to qualify for a mortgage can be challenging, especially if this is your first home purchase. Here are the key points:

Lender Policies: Most lenders require proof of stable rental income, typically shown through previous tax returns or a history of rental payments. Since you're purchasing your first home, you likely don't have this rental history.

Lease Agreement: While a signed lease agreement is a positive step, it might not be sufficient on its own for a lender to consider the rental income in your mortgage application. Lenders usually look for established rental income history rather than future projections.

Alternative Documentation: Some lenders may consider future rental income if you have a solid lease agreement and other supporting documentation, such as a detailed rental market analysis. However, this is less common and highly lender-dependent.

Using income from an unpermitted ADU is typically not allowed by lenders for qualifying purposes. However, here are some considerations:

Permitting: Unpermitted structures are often a red flag for lenders because they may not meet local building codes or safety standards. The income from such units is generally not considered reliable.

Occupying the ADU: While you could theoretically occupy the unpermitted ADU and rent out the main house, lenders still might not recognize this arrangement for qualifying purposes due to the unpermitted status of the ADU.

Permitting the ADU: If possible, consider working to get the ADU permitted. This process can be time-consuming and potentially costly but may significantly enhance your ability to use the rental income for mortgage qualification in the future.

Hello Ty,

Thank you so much! This is exactly what I was wondering.

The back unit is currently being rented and, I believe, would be up to code. There is a relatively long history on the rental income from the previous owners. Do you by chance know if that would possibly hold up?

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Riverside, California

Hi all,

hope everyone had a solid weekend!

i have a couple quick questions about using rental income to qualify.
This is my first (possible) purchase and basically the home price is outside of my range to qualify on my own. I will possibly be able to have a family member co-sign for me but trying my best to avoid having to do that.

First question is if I have someone who is planning to rent out a room in the house and have a signed lease agreement can this be used towards the income to purchase the house?

next question is the property has an unpermitted ADU on it. From my understanding I can't use this income but could I "occupy" this unit and rent out the main house and use that income?

I’m just trying to do all I can to get creative with my options haha and having trouble finding this exact info online. Any advise would be appreciated!

thanks!

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Riverside, California

Quote from @V.G Jason:

Definitely a gray area. I always just sit on the underwriting process of worst case. Lenders may not qualify it, it's up to them. City may cause issues with it, up to them. And tenant can cause issues, so up to them.

When **** gets bad, it gets bad all at once. For that, I don't take these risk that most deem as minute. You don't want to evaluate it one all things going your direction, do so with all going against and that should make your decision.

For that, it doesn't mean I wouldn't buy it or make a market for it. I just would price it based off what my former statements said-- simply off the main house.

Awesome! Super appreciate the advise.

I believe the price I am getting it for is mainly based on the main house which is great. So absolute worse case scenario if they say it has to be torn down I still have the main house which should hold the value.

Thanks again!

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Hi all,

I hope everyone is having a good weekend!

I am newer to this forum so apologies if I am posting in the wrong place but I have a couple questions about purchasing a SFH with an un-permitted ADU. This is my first (possible) home purchase so I am super excited about it but trying to be smart.

So I have been fortunate to come across a SFH where the owners do not want to post the house they just want to sell it. They are actually neighbors to my parents rental so we have some relation to them. Those who are in socal and I am sure most markets know how tough it is with the bidding wars so I think this could be a good deal.

So as mentioned it is a SFH however there is an unpermitted three bedroom ADU in the back. It is built very nicely and currently being rented for a pretty good price. But here are my questions -

1. Is there any risks I should be aware of when purchasing a house with an unpermitted ADU? I have been reading online about this and I am hearing very mixed feedback.

2. If I purchased it and actually end up occupying the ADU and renting out the main house would that help with avoiding any risk from the ADU? I know a lot of people say there are insurance issues and the tenant can sue for things if it's not permitted but if I was the one occupying it and renting out the main house would that be better?

3. I believe I know the answer to this one but can you consider rent from an unpermitted ADU to qualify for the loan? They have consistent rent payments but from what I've been reading it sounds like there is no way to use this to qualify.

Thank you so much in advanced!

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@Yang Lu

Hi Yang,

Thank you for the response!

I agree and would hope to find a happy middle ground where I could help her find a place. As mentioned in my other comment although yes she has been there for a while she is not taking care of the property. So that is the main reason I am hoping to move into that unit so I can majorly fix it up

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@Alex Forest

Hi Alex,

Appreciate the response!

I am assuming and pretty positive she does not want to leave however when we visited the property there were some issues such as cockroaches that would have to be resolved. She is not taking great care of the property so that is one of my major concerns. That is why I would prefer to move into that unit especially since i’ll be house hacking and have to live in one of the units.

1 Vote

Hi all,

Hope everyone is doing well! I am on the journey of buying my first property so I am not a landlord quite yet but hopefully will be soon:)

So the duplex I am looking at has tenants in both units. One has been in there about a year and the other has been there for about 23 years. The newer tenant has a renovated unit so is paying fair market value while the tenant who has been in there for a while is paying way below. Understandably because the unit is not as nice. I am looking to “househack” so my ideal situation is to somehow live in the unit that the lady has been in for about 23 years and let the other tenant stay. Hopefully renovate and move out after the year.

Anyone know if this would even be possible? I am not sure what the lease agreements are quite yet but hopefully will find that out soon.

Thank you for the help!!

Elijah

1 Vote

Originally posted by @William Allen:

Hey @Elijah Householder, we can help you with a househack here in Charlotte. It's a very very very competitive market around here, so you have to be willing to go after "diamond in the rough" properties to compete. Are you considering larger houses with spare bedrooms to rent out or small multifamily properties? We have incredibly low inventory right now for small multis, so most people are having better luck with larger SFR's. PM if you have any questions!

Hi William, Thank you for responding! I am currently considering a SFH. I do not plan to live in NC so house hacking would not really make sense. I can afford to house hack in California by putting about 15% down but should be okay to buy a SFH in NC with about 20-25% down. I will be sure to reach out!

Best,

Elijah

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Originally posted by @Stone Jin:

@Elijah Householder

The housing market is hot everywhere and people are buying. There is no indication that the market will be slowing down while interest rates are low and more dollars are being printed. By holding off a year or two, the prices may be even higher and you would lose 1-2 years of debt pay down and cash flow.

Since you work in the mortgage industry, you know that the loans being given out now is not like what was being lent out in 2006. The forbearance is an unknown but I suspects the banks will not foreclose rapidly as they saw how much the prices in 2008 dropped due to them doing so.

Have a plan and execute. Real estate investing is not a sprint and it’s also very forgiving the longer you hold it.

Hi Stone, Thank you for your response. I do appreciate the advice. I know many say that good deals can be found in any market. So I believe as it sounds like you do that there is still opportunity but I just need to put in the work and time to learn more about it.

Again, I appreciate the response!

Elijah

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All Forum Posts by: Elijah Householder

Elijah Householder has started 13 posts and replied 43 times.

Post: Got my first property.. What next?

Post: Room rental income to qualify? (FTHB)

Post: Room rental income to qualify? (FTHB)

Post: Buying a SFH with a rented ADU that is un-permitted (First time buyer)

Post: Buying a SFH with a rented ADU that is un-permitted (First time buyer)

Post: Evicting a single tenant in a duplex during new purchase

Post: Evicting a single tenant in a duplex during new purchase

Post: Evicting a single tenant in a duplex during new purchase

Post: Looking to make my first purchase in NC. Any advice?

Post: Looking to make my first purchase in NC. Any advice?