All Forum Posts by: Sean Autry

*convert

*were

Hi BP Community- I’m looking at a deal in Hesperia, CA. It’s a duplex separated in the middle by a 2 car garage and a one car garage (both are enclosed, this is one continuous structure).

I want to covert both garages into a single one bedroom unit, making this duplex a triplex.

(1) for this of you who have done this, we’re you happy with the outcome?

(2) in rough terms, how much should it cost?

It has w/d hookups, so plumbing is already there.

I submitted an LOI to buy 2 duplexes in Hesperia, CA. I don't like the purchase price, but the seller has agreed to carry a portion of it so I am not out of pocket any cash. Apologies if this is lengthy or complicated, tried to get all of the details in as concisely as possible.

Please poke holes in this!

Here are the details:

-2 Identical duplexes @$310k each

-Each has (1x) 3bd/2ba w/2car garage & (1x) 2bd/1ba w/ 1 car garage

-Each 2bd/1ba’s has a bonus room that can be converted to a 3rd bedroom

- the duplex units are separated by their garages (in the middle)

-Currently rented on month to month leases way below market.

-asked for seller carry of $165k @ 2.5% IO, 30yr amort with 5yr balloon

My plan is to:

-convert the 2/1’s to 3/1’s

-raise rents to $1,350 for each 3bd ($5,200 total)

-combine existing single car and 2 car garages and convert them to a 1bd/1ba in each property, turning each duplex to a triplex

-rent the new 1/1’s for $650 each, bringing total rents to $6,500

My assumptions:

-3 bedrooms will rent for $1,350 in zip 92345

-cost to convert bonus rooms to bedrooms = $2,500 each ($5k total)

-cost to combine and convert garages to 1bd/1ba $30k each ($60k total)

@James Purvis- I agree with a lot of what everyone else is saying. My only other suggestion would be to consider HELOC?

Or a combination of the HELOC and cash out refi?

I like HELOCs because you won’t incur interest expense until you use the funds. If you cash out refi, the interest starts accruing on day 1 after closing and it might take some time to find property- so a lot of unnecessary interest expense. Pentagon Federal Credit Union does HELOCs on investment property.

@Jacob Walls- I don't have an LLC, just sole prop, but we've named ours after the street we bought our first home on. (1) because the street name had a good ring to it, and (2) because it was our primary residence we have since sold, made a lot of money on, and ultimately is the reason we've been able to start investing. So it's basically a tribute to the property that "launched us".

Side note, there are some challenges with putting your property in an LLC. Financing and additional state tax (tax varies by state). If you have a lot of assets to protect outside of your RE investments, an LLC might make sense. If not, you can get a lot done with an umbrella insurance policy, avoid financing challenges, and reduce state tax. Just some food for thought. Your accountant may have suggested it based on something you told him/her but might be worth asking his/her reasoning to make sure it is right for you.

@Jake Alger- very very helpful. We fly back tomorrow AM and will research a bit further. Nonetheless, we love it here and hope the STRs aren’t too restrictive. We shall see.

Appreciate all the feedback, Jake. If it’s alright with you, we may connect with you when we get more serious.

@Jake Alger- loved Wallingford and Fremont. Thanks again for the suggestions.

How’s the city’s attitude toward STRs? AirBnB and the like... overall positive, or is there some risk that the city might limit, ban, or heavily tax STRs? Not sure if this is your area of expertise, but figured you’d know the answer better than I would.

@Jake Alger- got it. Thank you, Jake. We’ll check out those neighborhoods. Our goal is Short Term Rentals, but we want a property that will still succeed as an investment as a long term rental if the city regulates out STRs.

So, long story short, we'd like a 10-12% CoC return as a STR, but will be satisfied with a 5-6% return if there's a turn in he STR market.

Does that make sense?

@Jake Alger- love the detailed response. Thank you, Jake. I'd love to make it a productive day, and drive around an area that would support BRRRR and Cashflow. We may drive through an area we love- but if it's a proxy area that won't support our goal, it will have been unproductive to spend time there.

Any areas you’d recommend? I hear Capital Hill and Greenlake might be decent choices?

Would it be hard for a standard long term rental to Cashflow in these areas?

We’re in Seattle for the weekend, and we love it here. Love it enough to want to buy rental property to give us reasons to come back and places to come back to.

We're renting a car today to tour the surrounding area. What areas close to downtown Seattle should we check out today that are good candidates for BRRRR with some Cashflow?