All Forum Posts by: Clarence Johnson

@Anthony Holloway speak to your lender about a duplex approval, you can qualify for a higher amount when they factor in the actual or potential rent from the 2nd unit. FHA loans allow 3.5% down for duplexes. You can buy your duplex using FHA 3.5% down and 12 months later (12 months min, but after that whenever your ready) use 5% down to purchase a condo and 12 months later use 5% to purchase a SFR and 12 months later buy another SFR. If you have equity in the duplex you can use it to possibly add on a garage ADU to the duplex and or your SFR (Im building one now and it cost $65-70k to convert a garage to a 1 bedroom in a mkt that is selling for $300k per unit), and living in the duplex may cut your cost of living enough that you do not need to sell the 1rst property to purchase again. Also, do not buy a 1 bedroom condo, rental and resale demand are not amazing.

@David Leibman the first step would be pre approval, 3.5% FHA loans are what we commonly suggest for first time buyers looking to buy a multifamily property. After approval link with an agent that knows multifamily and your mkt (not just geographic but LA rent control laws). A good deal for me would usually have you paying mkt rent to own or worst case scenario no more than $200-300 more than mkt rent (for the unit you occupy). The closer you are to mkt rent the sooner you can but again and rent your first property with cash flow. Covid is making us tread even more careful with multis when it comes to inheriting and vetting tenants. I think if the deal makes since and risk can be mitigated then buying now makes as much sense as ever. I spoke to a listing agent for a duplex this evening and the section 8 tenant is only responsible for $250ish of the $1300 rent and the rest is subsidized. This is an example of risk mitigation, the worst thing that can happen is that this tenant gets a job or is promoted and their portion of the rent will increase. Study the mkt, ask questions, shoot your shot.

Be careful with rent to own, those contracts are usually to the advantage of the lessor 

@Jon Schwartz hit the nail on the head...househack using FHA, supersize it by turning that househack garage into an ADU later on, drop MI...buy a step up property and repeat

@Jonathan Taylor thanks for the info, that why I love this board, so much value exchanged.  I'm sure they will change the guidline, just a matter of when.  You probably know, but loans are not even counting the potential rent from ADUs for financing, like they do for duplexes.  They have catching up to do.  Congrats on the project, we should start a construction support group, I have a few projects going on and its like juggling cats lol.

@Rajan Ch yes sir, I'm sweeping MLS for properties that already have legal ADUs, if you search specific keywords you can set up an automated search that only fields results using the word ADU. Building an ADU is a great strategy, but from a cost of acquisition perspective its great to be able to acquire a SFR with ADU for less than the cost of building an ADU (likely 5% down using conventional financing). As I mentioned before, appraisers do not have comps for ADU properties and there is not really a rhyme or reason to valuing them, this is resulting in values coming in short (not to mention the flippers building many of them are overpricing them). Short appraisals are a fool proof negotiation tactic, just shrug your shoulders and ask the seller what are they going to do lol.

@Jonathan Taylor wow, I knew an ADU/JADU combo was not sellable on the secondary mkt but not a duplex with an ADU. Do you know what guideline references this, I'm literally building an ADU in my duplex right now lol. Thanks

@Nicole C. FHA duplex is the way to go, I agree with the posters above, just because no one has mentioned it does not means its not possible. If you mention it to your current lender they should be able to use mkt rents for the area you want to provide a duplex approval in addition to an SFR approval, the duplex approval factors in mkt rent so it will always be more. Dont be intimidated by the price, look at cashflow in a 30 year run.

@Yakub Saputra the easiest solution is to consult a lender prior to pressing send on your taxes.  Tell the lender you plans, send taxes and work towards a solution without having to later file an amendment.  Most lender will be willing to assist with this on the front end to earn business.  I do this yearly before filing and advise clients to do the same.

@Rajan Ch I would suggest getting a HELOC to have access to the equity, if you owner occupy it will be easy, if not will can be difficult to find a lender willing to HELOC on an investment property. Pre COVID I was aware of 1 or 2, but now most banks are not offering HELOCs at or or only on owner occupied properties. If needed theres a small Gardena bank I use thats works great for owner occupied HELOCs. Also, your next purchase should be a SFR with a legal ADU. This allows you to purchase using 5% down, low MI, and buying another multifamily property with low downpayment. With there being no sciencebehind the valuation of ADUs I have been seeing properties with them appraise for lower than the list price, bad for SFR/ADU flippers, great for you. One of my clients in Carson purchased a SFR with ADU last year and the appraisal was short and helped us get a $25k price decrease.