All Forum Posts by: Steven Nguyen

I'm looking at few apartment complexes in Huntsville, AL.  How is the rental market in Huntsville?

I would refinance your current primary residence and once completed, start looking or make offers to buy your next primary residence.  Talk with your loan officer for guidance.

@Sayantan Satpati 

How much equity do you have in the Milpitas Condo?  You could consider doing a cash out refinance and use that money to down 25% on a duplex or 4plex in Sac.  If you want to 1031 exchange the milpitas condo, you can probably purchase a duplex and 4plex in sac and get around 0.75% rule-1% rule

I've been heavily researching turnkey providers in Memphis, TN. TN has no state tax and is landlord friendly. Lots of Californians are migrating there since it has a warm climate and doesn't get hit with hurricanes. Memphis rentals still hit that coveted "1%" rule. Average 3bed/2bath in B class neighborhood probably cost around 100k with rents $800-1k/month with "pure cash flow" of around $200/month after all expenses (i.e - PITI, Maintenance, Management, Vacancy). I follow 2 turnkey providers in memphis and all their properties are sold within 1 hour of being posted. Still debating if I should take a more passive approach with turnkey or focus on building up equity in CA first then deploying that equity into cash flowing properties.

I just purchased a property in Lake Forest, CA near Irvine down in OC with plans to build a 2bed + den / 2 bath 1000 sq ft ADU from the ground up for approximately 280k using a HELOC from my primary residence. Anticipated rents for the ADU are 2700-3000/month which gets close to the coveted "1%" rule. The main 4bed/2bath house is renting for $3500/month. According to various lenders I've spoken to, for every dollar spent on the ADU, it will add 50 cents at best to the property value (i.e - 280k ADU will at best add 140k value to property). After the ADU is completed in July 2021 and rented out, I hope to refinance the property to pay off a portion of the HELOC. It will be interesting to see how the house appraises.

Hello,

As a workaround, I bought an umbrella insurance policy that covers 5 million (~$1200/year) which covers all 4 of my properties plus 2 of my cars.  I ASSUME this umbrella insurance policy covers for earthquake, but I should verify.

I just bought a house in Lake Forest on a big lot to build an ADU. I put 10% down on the SFH and will use a HELOC to pay for the ADU in full (~280k for a 1000 sq ft 2 bed/ 2 bath). As mentioned in the forum, there are loans that can pay for the main house + cost of the ADU; however, this loan takes 90 days to close escrow. In this hot market, most sellers will not wait 90 days, but would rather do the standard 21-30 day close of escrow. I'd recommend purchasing the SFH on a large lot first, then worry about the financing of the ADU later. If you do not have a HELOC, you can use a margin loan on your stock portfolio if it is > 500k. Worse case, you can do hard money to build the ADU, refinance your house once the ADU is completed, and use that money to pay off the hard money.

Hello Jon,

My mantra is "don't wait to buy real estate; buy real estate then wait." As you can tell CA (Bay Area/LA/OC) are extremely expensive, assuming you have a strong income from a W-2 job, all you need for owner occupancy is 3.5% down (i.e - 750k home, need about 27k down + closing costs). With 3.5% down, you will pay PMI, hence many people believe you "must" down 20% for some odd reason. For perspective, I just bought a property for 770k and downed 10% (77k) even though I could down 20% (154k). PMI is additional $150/month. If I just leave my 77k in my bank saving account earning 0.5% interest, that $385/month which covers my PMI plus I still have liquid cash to buy another deal or for an emergency. I plan on fixing up the house and building an ADU in the backyard. After it's done, I will ask the bank within 1 year to reassess the value of my property and they will likely remove PMI. Since you are young, you can calm owner occupancy on properties every year and get away with <20% down payments. What I plan on doing until I have a family. Once you have a family, harder to constantly move every year.

CA is an appreciation market and takes a few years to have good cashflow.  You can invest in turnkey properties in Memphis, TN.  Cost around 120k for 3bed/2bath in B neighborhood and come out $200/month positive cash flow after putting in about 30k.  $200/month positive cash flow is great, but not life changing.  Instead I am building up equity in CA then when I am ready to retire in 10 years, deploy that equity for cash flow.  For example, I bought a 4bed/3bath in the bay area for 825k in 2017.  Today is it worth 925k (100k in appreciation in 3 years).  I am renting for $3700/month, but PITT is $4200/month so I am negative $500/month in cash flow.  When the tenants move out, I will add a 5th bedroom using some of the living room for around 40k, be able to rent the house for $4400/month ($200 dollar positive cash flow) and now the house will be worth over 1 million dollars.  If I want, I can refinance the property and pull out 210k in equity to buy 7 cash flowing properties in Memphis, TN (7 x 200 = $1400).

I hope this provides some useful insight.  Thank you.

 Hello George,

You can consider buying a property in OC with a huge lot and add an ADU to create your own "duplex" in a sense. I just copied what I posted in another section for reference.

I just purchased a property in Lake Forest with the intent of adding a 1000 sq ft 2 bed / 2 bath with den ADU in the backyard. The company I'm using actually showed me an ADU they were building in Long Beach and are highly knowledgeable. The company does both modular homes built in a factory or build from the ground up. There are a few ADU companies in the bay area as well. Timelines are the same for both modular homes vs ground up - 1 month for plans, 2 months for city approval, and 3-4 months to build depending on weather conditions. The modular home for 1000 sq ft is about 220k vs 275k from the ground up. Ground up requires solar panels and usually appraise better, but modular homes are cheaper, require less on-site construction (usually 2-3 weeks only), don't appraise as high, and tenants cannot tell the difference. Since modular homes must be craned into your backyard, you need a nice rectangular backyard. Keep in mind, just because you spend 275k on an ADU, doesn't mean the house will appraise 275k higher. Since my backyard is L shaped, I have to do from the ground up.

For financing an ADU, best options are HELOC from primary/secondary home or cash-out refinance. Construction loans are an option but interest rates run from 5-7%. Could do a construction loan then refinance the property to pay off the construction loans.

Junior ADUs must be attached to the primary residence (i.e - attached garage can be converted to a jADU, but detached garages do not qualify) and require owner occupancy which is a huge downside if you are trying to buy a new property every year for owner use to get away with <20% down payment.

For some numbers, my main house is 4bed/2bath renting for $3500/month and ADU 2 bed/ 2 bath + Den used as 3rd bedroom will rent for around $3000/month. Main house 10% down with 2.625% interest rate and ADU financed with a HELOC with around 4% interest rate. I am anticipating about $1,400 cash flow after expenses. I currently have tenants in the main house as I am constructing the backyard ADU, but made it clear upfront that there would be 3-4 months of construction. With modular homes, it would be less on-site construction.

I specifically target properties with large lots to build ADUs as duplexes/triplexes/4plexes seem to be extremely competitive in CA.

I hope this helps!

Hello,

I just purchased a property in Lake Forest with the intent of adding a 1000 sq ft 2 bed / 2 bath with den ADU in the backyard. The company I'm using actually showed me an ADU they were building in Long Beach and are highly knowledgeable. The company does both modular homes built in a factory or build from the ground up. Timelines are the same for both modular homes vs ground up - 1 month for plans, 2 months for city approval, and 3-4 months to build depending on weather conditions. The modular home for 1000 sq ft is about 220k vs 275k from the ground up. Ground up requires solar panels and usually appraise better, but modular homes are cheaper, require less on-site construction (usually 2-3 weeks only), don't appraise as high, and tenants cannot tell the difference. Since modular homes must be craned into your backyard, you need a nice rectangular backyard. Keep in mind, just because you spend 275k on an ADU, doesn't mean the house will appraise 275k higher. Since my backyard is L shaped, I have to do from the ground up.

For financing an ADU, best options are HELOC from primary/secondary home or cash-out refinance. Construction loans are an option but interest rates run from 5-7%. Could do a construction loan then refinance the property to pay off the construction loans.

Junior ADUs must be attached to the primary residence (i.e - attached garage can be converted to a jADU, but detached garages do not qualify) and require owner occupancy which is a huge downside if you are trying to buy a new property every year for owner use to get away with <20% down payment.

For some numbers, my main house is 4bed/2bath renting for $3500/month and ADU 2 bed/ 2 bath + Den used as 3rd bedroom will rent for around $3000/month. Main house 10% down with 2.625% interest rate and ADU financed with a HELOC with around 4% interest rate. I am anticipating about $1,400 cash flow after expenses. I currently have tenants in the main house as I am constructing the backyard ADU, but made it clear upfront that there would be 3-4 months of construction. With modular homes, it would be less on-site construction.

I specifically target properties with large lots to build ADUs as duplexes/triplexes/4plexes seem to be extremely competitive in CA.

I hope this helps!