All Forum Posts by: Sri L.

@Brett Peters Good points, I've never looked into warehouse or office. You got me thinking. 

I'm in the bay area, ex-data scientist now do real estate full time. Let me know how I can help.

@Issac Chang - I live in CA and for the longest time I told the story that you can't make money in RE here. As much as it feels true as a new investor I encourage you to find atleast a few investors in your own state and ask questions and see if their strategy can apply to you. There are a zillion ways to implement the BRRRR strategy and even small nuances can make a big difference. For example in my investments in SF - I identify properties that I can do layout changes on - I've taken a studio (with a detached kitchen) and converted it to a junior 1br (with open kitchen) That bumps my rent by much more than just doing traditional rehab. If I do that for a reasonable number of units - I can walk away with profits 2-3x my cash, and buy bigger apartments. I do this 2-3 times and I can hold forever after that. I don't deny that it's more work - it is, but there's gains from it. I learnt to do this after my first deal out of state. My only advice for out of state is to find a kickass property manger who will also oversee your renovations (and does this regular for other investors) really that's the golden ticket to getting out of state investing to work. And fire them immediately if they are not a good fit/aren't communicating - no room for waiting on the BRRRR.

@Emil Pinlac -  My answers below:

1) If a standalone ADU can cost between 150-200k estimated, do you have a rough idea of how much it would cost to convert a garage or existing backyard shed space into an ADU? Maybe somewhere in the neighborhood of $20-$30k?

I haven't had one quoted but if I had to guess 60K-90K? Mostly because you have to do electrical and plumbing to code and most detached garages/sheds have concrete foundations with no crawl space, so they literally have to break through the concrete to draw plumbing and electrical. After permitting sometimes the house might get a new tax basis too (I have not personally verified it, but I have read through ADU documentation in Oakland that says when final permit is closed, the ADU value (cost of construction) can be added to the property tax basis)

2) Additionally - do renovated garage ADUs come with both bathrooms and kitchen spaces? I would imagine the inclusion of the correct pipes and etc is what would make these things much costlier...?

Yes if you are looking to do work, then you might as well get top dollar by adding bath and kitchen.

3) I see you are based in the San Jose area - and are adding ADUs to Multi-family units (I'm assuming small multi-family like duplexes, tri's, and quads). If you own a quad, and add an ADU, does it change the financing of the property from residential to a commercial property?

It will be treated as a commercial property (if you buy a triplex and add 2 ADU's) as long as you have 5 certificates of occupancy from the city. Lender gave verbal confirmation but I haven't actually completed the refi yet.
 

@Emil Pinlac Things to keep in mind

1. The cost of building the ADU can wipe out the gains from what you think is excess cash flow. ADU's cost 150-200K to build from ground up. Much better to convert a garage or basement to an ADU (depends on the city if thats allowed or not)

2. When the property is refinanced, you may not get the value you are anticipating i.e. A single family with a ADU maybe ok, but the moment you put 3 ADU's and use up all the backyard space it appeals to an "investor" and no longer appeals to the larger market of homeowners

3. If you plan to keep the property forever, then its a strategy that can work. 

4. ADU's can also be added to multifamily, which is what I am doing. It also appraises as an investment property and there's no debate as to how the property will be valued by the bank's appraiser.

To add to Minh. The game is to force appreciation through renovations or out of the box thinking to increase the income on a property. I have zero faith in single family or condo's cash flowing in an appreciating market (which I believe was your original question). If you meant multifamily, I'd say dont listen to the naysayers, there's plenty of people making money even in today's market, check my profile if you want to see details.

Just an observation. No offense taken.