All Forum Posts by: Matthew Forrest

@Vi Nguyen Is the 1/1 the ADU or the studio? It would be helpful to know where you are located, but I would recommend that if your intention is that you want to rent out livable space in the 4/2, 1/1 and the studio then you want all of the structures to be permitted as dwelling units. If two of the three are already permitted as dwelling units and the third is in progress, that's fine as long as you can understand that is possible to complete the ADU permit and what the costs and time are associated with finishing. I would contact the city about where the permit is in the process and try to get information from the seller in writing (if its not in writing it's worthless). I like Wayne's idea about the permit status contingency.

If you choose to buy the property knowing that its not permitted to rent, but end up doing that under the radar, the city can come make your life difficult. Good luck and let us know what you end up doing!

Real estate is so awesome that the "shinny object syndrome" is intense! It's really tough to figure out what you're interested in, but so let that stop you from starting something. In my opinion, you'll never really know what you like until you try it. I'm in Torrance and I have house hacked, built an ADU, flipped, lend private money and invested out of state. I don't do all of those concurrently, but I know what I like now. Feel free to DM me if you want to set up some time to get more info.

I converted a structure that was neither the garage, nor the main house so I think I had some additional saving on top of what a garage conversion would be. I paid about $70/sqft for a 700 sqft ADU. I would be careful about what the salesmen tell you, since they dont get paid unless they convince you to do the project. Personally I do the house hack in the main house and rent out the ADU to maximize revenue. It depend on the layout of the property and the neighborhood that you're in, but I don't love garage conversions. They're kind of small and I think people end up paying too much money per sqft vs building new.

The timeline really varies by your project scope, who's running the project, and how good the city is at responding in a timely manner. I would say 6 - 18 months. 

I love @Dan H.'s response around timing and wish that I could so eloquently formulate my responses like that.

@April Causapin I agree that doing something is better than doing nothing. You could probably do better, but don't hesitate to bring your deals to the forums. Thanks for sharing!

@Michael Schnyder I like splitting utilities by unit square-footage. From what I have seen its roughly proportional to consumption.

@April Causapin I love that you're taking a look at investing and moving yourself further out the risk curve! In regard to your comment that you are "a very conservative person in terms of finances and gets scared when there’s too much risk," what are you considering as increased risk? In my opinion, a higher purchase price isn't necessarily more risk. To exaggerate, if you were choosing between a $1MM apartment building in Santa Monica that rents for $10,000 per month, and the the property you listed above for $400,000 which would you choose? From my perspective there is a lot more safety from a property that has better debt coverage and higher desirability. You might find in your area that you'll be taking less risk buying a larger house for $750,000 than buying your smaller house which I think you're concerned about having a small lot and interior square footage. 

For your cap rate calculation... the cap rate should be the (net operating income) divided by the original capital cost or the current market value. Your expenses should not include debt service. Basically the cap rate is going to tell you what the property would yield if you bought it cash. 

As far timing the market, I think it's so difficult to do that I don't even worry about it. I mitigate market timing risk by being in the market buying good properties every year for the rest of my life. To me, now is always the best time to buy.

@Jose Leanos After having been through the experience of building and renting out an ADU on a single family lot, I would say it was a good learning experience, but probably not the best use of capital. The cash on cash return can be really good for ADU to the money you spend on building the ADU, does not transfer well towards equity in the property. I think you'll see better returns in multifamily, even if you have to partner to get into a property.

@Dave Chan When I'm thinking about putting in an offer, the right answer is to ALWAYS put in the offer (as long as you're not wasting your agents time). Those numbers for your ADU build are definitely in the ballpark, but actual costs depend on so many factors. One comment that I have is that 500 sqft seems small. For most stand alone new ADUs I've seen, bigger is better. In terms of avoiding getting taken advantage of, your best bet is to work with someone with a good reputation. Find a reference within your network, or look BP for a good contact. If you absolutely cannot find any references, work with someone that has significant experience building ADUs in your area. Ask to see examples of past projects and hopefully one will be similar to yours.

@Mel Jones You pose a very interesting investment opportunity... mostly because it is difficult to tell what the final results are going to be. Best case scenario, you buy the lot, CA eliminates single family zoning to address the housing crisis, and you can build a gorgeous MF building on you 0.5 acre hillside lot. Worst case you buy the house, it breaks-even-ish for a while and then California becomes an investing wasteland and your equity in that property and your duplex go to zero. 

Its easy to throw out a large list of possibilities and be "right" when one or several of the many on your list hits. I'd challenge you to try to make this exercise more quantitative than that qualitative. What is a "good chance," "pretty good chance," "likely"? Are those a 20% probability? 30% probability? 5% probability? Obviously we can't be sure, but we should at least make an attempt.

To me this project sounds like a lotto ticket. There are probably other places where you can put your money and have a high expect value (EV) for your investment. However, I do love a good speculative bet!

@Teacha Wong An often overlooked option is private money (friends, family, coworkers). If the cash flow from the new unit is there and you give the private lender 2nd position on your property, people will be willing to lend on your project.