All Forum Posts by: Missy Longshore

Thank you both so much, this is very helpful! Since my strategy is to live in the ADU myself so I can rent out the larger space, I would definitely want it to be fully functional with a kitchen so I can feed myself = ). There is something called a junior ADU in El Cerrito which is basically a spare bedroom but that's really designed for an existing space to be modified, not my case where I have a raw basement space (dirt floor, foundation work needed, etc, etc).

Hi @Akshat Jain just curious if you moved forward with this project as I'm close to Berkeley and am pursuing building an ADU. If you decided not to move forward I'd be curious if there were any key reasons as to why you didn't move forward (e.g., more lucrative to focus on your paying architecture clients, etc.). Thanks!

Hi @Mark Hogan, thanks for your reply! I have been talking with several contractors and architects and the most I've been quoted is between $150-200k, but this is very helpful info for comparison purposes and a reality check. I'm curious, have most of these been detached ADUs? I originally looked at a detached ADU but it was at least $10-25k more even when I include the french drain, foundation work, and plumbing pump needed since it's in my existing basement. Thank you again!

Hi Amit, 

Thank you so much, this is a huge help! 

I spoke with my realtor who sold me this home in 2010 and she did say she thought the resale value would be higher if it was a larger home vs. a 2 unit, so I'm having the architect look at an option where I expand it to a 3/2 by putting a staircase in to go to the basement. I wouldn't love giving up my privacy (in this scenario I'd move into the new downstairs master suite, sharing the kitchen with a renter; my other concern is just renting a room would max out at close to $1,000 month) but if the renovation costs are way cheaper and the resale price would be that much higher I might consider it - I'd love your thoughts on that.

FYI the home is small at 869 sf so the max the ADU could be is about 425sf, so I wouldn't add the staircase to downstairs if I build the ADU since that would take up too many square feet.

I did a quick search in El Cerrito and didn't find any recently sold homes with ADUs but interestingly enough there are 3 listings that include 'potential for ADU!' as a selling point.

One other concern is the rising interest rates - does that mean I should rush to try to get my cash out refinance to start the project? My contractor isn't available until the spring.

Thanks!

Missy

Hi,

I live in the San Francisco Bay Area (in El Cerrito, in the East Bay) and would like feedback on my plan to get started in real estate investing. I'm looking for a way to lower my housing costs with this plan.

The plan is to build an Accessory Dwelling Unit (ADU) in my basement, essentially turning my home into a duplex. I would move into the new, smaller unit in the basement (a studio) so I could rent out the 2 br/1 ba for maximum rent. Once the value of the home increases I could do a second cash out refinance and take that money to invest in my second property, likely an out of state or out of area rental.

Here are the numbers:

I currently owe $300k on the 2br/1ba

The current value is $645k (conservative estimate)

I'd cash out refinance a max of $200k to build the ADU and do repairs to get max rent for the 2br/1ba

New estimated value $900k

Cash out refinance rate: 5%

Current mortgage payment $2k (includes escrow account)

New payment: $2,750/mo

Rent for 2 br/1ba: $2,500

Rent for new studio: $1,750

50% rule analysis:

($2,500 in total income * .5) - $2,750 = ($1500)/mo

Obviously we want this to be a positive number, but is it fair to think of this as I'd be saving $500/mo over what I'm paying now ($2k)?

1% rule analysis:

Monthly rental income/Purchase Price

$1750/$150k=1.16% This is good, right?

This assumes 50k of 200k would go to upstairs/overall house repairs; I'm calculating it this way because there's no way I could purchase a studio home in the bay area for $150k.

Other questions:

Would this make me over-leveraged? What do I need to consider given that there is likely a recession coming in the next 24 months?

Thank you so much for your thoughts and advice!

Missy

WOW @David Song, thank you so much for posting! I'm just about to begin my ADU journey here in El Cerrito, CA (East Bay) and this has been eye opening to say the least! Holy cow!

Hi,

I live in the San Francisco Bay Area and would like feedback on my plan to get started in real estate investing. I want to be clear the numbers do NOT meet the 50% rule or the 1% rule, but I live in a high cost of living area and am focused on my financial freedom and security first, and REI is one way to achieve that. So I'm looking for a way to lower my housing costs with this plan.

The plan is to build an Accessory Dwelling Unit (ADU) in my basement, essentially turning my home into a duplex. I would move into the new, smaller unit in the basement (a studio) so I could rent out the 2 br/1 ba for maximum rent. Once the value of the home increases I could do a second cash out refinance and take that money to invest in my second property, likely an out of state or out of area rental.

Here are the numbers:

I currently owe $300k on the 2br/1ba

The current value is $645k (conservative estimate)

I'd cash out refinance a max of $200k to build the ADU and do repairs to get max rent for the 2br/1ba

New estimated value $900k

Current mortgage payment $2k (includes escrow account)

New payment: $2,750/mo

Rent for 2 br/1ba: $2,500

Rent for new studio: $1,750

50% rule analysis:

($2,500 in total income * .5) - $2,750 = ($1500)/mo

Obviously we want this to be a positive number, but is it fair to think of this as I'd be saving $500/mo over what I'm paying now ($2k)?

1% rule analysis:

Monthly rental income/Purchase Price

$1750/$150k=1.16%    This is good, right?

This assumes 50k of 200k would go to upstairs/overall house repairs; I'm calculating it this way because there's no way I could purchase a studio home in the bay area for $150k.

Other questions:

Would this make me over-leveraged? What do I need to consider given that there is likely a recession coming in the next 24 months?

Thank you so much for your thoughts and advice!

Missy

Hi Taylor, 

I'm curious what others have to say about this as well, but personally I think looking at house hacking as a cheaper way to live (meaning a way to significantly decrease your housing costs) vs. getting paid to live in a house (meaning your tenants/roommates completely cover your mortgage and then some) is the way to go. 

In other words, rent out the master suite and take the small dark bedroom for yourself, find a duplex if you can and fix up the rental unit but not yours, etc. 

Maybe it would help if you posted some of your numbers, too, and told us about your current situation and costs for comparison. Like how close are you getting to the 1% rule and how negative is your cash flow looking when you use the calculators? 

If moving isn't an option, paying less than you otherwise would on rent sounds like a good way to go to me! 

Good luck and FYI I bought my first place with an FHA loan and an additional 2013k loan for renovations and it worked for me!

Missy

This is awesome! I wish my city would do this! Up until I read this I thought Portland, OR was the only city in the U.S. that allowed this... I hope more follow!

Thanks all! My boyfriend has decided to cance the deal since the parking lot cannot be expanded. Thanks so much for the feedback and input, I really appreciate it!