Investment Info:
Single-family residence buy & hold investment in Fullerton.
Purchase price: $570,000
Cash invested: $200,000
I purchased a 3bed/1bath home with a permitted "workshop" and a permitted "family room". I couldn't afford a Triplex nor did I want to come in with 20% down, so I chose to "create" a Triplex and only come in with 5% down and instead spend the extra money on the remodel so that I could get max rents.
What made you interested in investing in this type of deal?
I purchased a home 4 years ago that had a permitted "Rumpus Room" and after I remodeled it and added a kitchen, it rented out for over half my mortgage while still leaving me an entire 3bed/2bath main house to rent out. I've made over $1,500 a month on that property since the day I bought it and never paid a mortgage!
The light bulb went on. I figured if two homes on one lot was this good, why not go for three?! It was all part of my construction background anyways, so it was easy to do.
How did you find this deal and how did you negotiate it?
I simply searched on Zillow & Redfin like everyone else. I'd love to get the Off Market deals but never knew how, so I was forced to get creative with what I did know, which was construction.
They originally asked $630k, I said $570k, we met at $600k but surprisingly the house only appraised for $560k. I was bummed. I needed my cash for the rehab so I went to back out but before I did, I gave them one last shot at $570k...and they accepted!
How did you finance this deal?
Conventional 30yr with 5% down. This is my go-to for financing because I'd rather save the money for the rehab costs...that's how you maximize your cashflow because a remodeled home with the highest rents, will always trump saving money on a mortgage with extra money down, but no longer having money to rehab and get good rent.
How did you add value to the deal?
The Main House was totally remodeled. I currently rent that one out on Airbnb & VRBO. It has over 100 5-star reviews.
The "Workshop" was converted into a permitted 2bed/1bath "ADU" (Accessory Dwelling Unit) which is rented long term but I plan to also rent on Airbnb once my tenant's lease is up.
The "Family room" was walled off from the main house and converted into a 420sq ft 1 bed/1bath incredible apartment with 10' ceilings and is where i live today and "House Hack".
What was the outcome?
I spent a lot of hard cash but knew that I was playing the long game on this one. I was able to turn this single home into 3 very high producing rentals on one property that cashflows $4k a month over my PITI & operating expenses, and as soon as I move out and make the back house an Airbnb, it will cash flow over $8k a month with only a 3 year ROI.
Lessons learned? Challenges?
The single most important thing to consider when dividing up a single family lot into a multi-fam is PRIVACY. If people feel uncomfortable in their home, they won't stay or pay max rents for it. Lot layout design is everything here from separate entrances to fencing off areas. I even boarded up windows & doors that opened or peered into the other people's area & added them back elsewhere while adding trees and hedges. They have to feel like no one else lives on the property to feel comfortable.
