New here seeking some advice

[Astrid Perez]

Hey everyone,

I’m completely new to real estate investing and could really use some guidance.

I’m in the process of inheriting my parents’ house in Pacoima, CA, and I’m trying to figure out the smartest way to turn it into a source of income. I’ve never owned property before, so I’m starting from square one here.

One thing that might make this a little unique is that the property has a detached garage, and I’ve been hearing a lot about converting those into ADUs. I’m not sure if that’s something worth pursuing right away or if I should keep things simple to start.

A few things I’m trying to understand:

- Should I rent it out long-term, consider Section 8, or look into short-term rentals in this area?

- Does converting a detached garage into an ADU typically make sense financially for beginners?

- What kind of upfront costs and permits should I expect in Los Angeles for something like an ADU conversion?

- Is it smarter to house hack (live in one part, rent the other) or just rent out the whole property?

I’m not in a rush, but I do want to make a smart, long-term decision and avoid rookie mistakes as much as possible.

Any advice, experiences (especially from anyone familiar with the LA/Pacoima area), or things you wish you knew starting out would really help.

Thanks in advance!

[Dan H.]

There are some unique items to California in your situation.

Prop 13 used to apply to all inherited properties but there are people who keep attempting to strip prop 13.  In 2021 such a stripping of prop 13 was unfortunately successful.  It excluded most inherited properties from prop 13.  This has resulted in many inherited businesses not being viable after inheritance.

One exception to the lost inherited prop 13 protection is from parent primary residence to child primary residence.  Was this either of your parents’ last primary residence?   If so, I would find out what is its current property tax basis before making a decision.   Even if you want to make it an investment property, it could make sense to be your primary for a year to keep its prop 13 accessed value.

As for the ADU, likely not worth pursuing. NAR recently pulled its ADU data on the premise of it being dated. I believe it was pulled because the data showed a narrative not in the best interest of NAR. The data showed in a mass majority of markets, an ADU addition cost much more than the added value. This in effect means you lose money adding an ADU and in some markets (including my San Diego market where ADUs per NAR data added less than $20k of value) a lot of money.

add the following issues: typically worse financing than property acquisition, effort involved likely exceeds a brrrr but the return is a fraction as much as near infinite return of a property brrrr, it is many months between first cash outlay and first income (contrast but a rental, the income starts one tenant pats first rent), if the existing house is over 15 years old it has just become rent controlled, what it detracts for existing home (in your case a garage, likely some privacy and some yard).

Do you have an estate lawyer helping you?   Or at least someone that knows much of what is necessary (loan assumption, time of death appraisal, title transfer coordinated with lender (If not done properly insurance may not match title giving insurance company something to potentially dispute if there is a claim).  Fortunately/unfortunately most of us do not have to deal with this much.  This means we know little.   if you do not know someone you trust that is familiar with the process, I highly recommend an estate lawyer.

good luck