Duplex vs. Guest/Mother-In-Law Suite.. Pros?Cons?

[Jerry Thompson]

Hey All!

I've been spending time coming up with my strategy to get my first property by the end of the year! The level of discussion on the forums and the blog has been critical in getting my knowledge up to this point :)

My first property will definitely be a househack; I don't have a lot of capital, want to get started, and live in a "hot" market. Househacking takes some pressure off of finding a great non-OO deal quickly while I build up my experience, savings, and network.

I narrowed my options to a small multi family (duplex) or a SFR with a guest house/mother-in-law suite. I'd rent out the other half of the duplex, and if big enough, even consider renting a room on my side. And for the SFR + MIL suite, I'd rent out either the main house by room or the ADU as a whole.

While I have my first move semi-solidified, I need help seeing my NEXT purchase.. which will also probably be OO. I want the property I'm currently seeking to definitely cashflow when I leave. The duplex seems to be the easier option of the two, just rent out the side I used to live in and I'll cashflow. But how do I manage to cashflow an ADU that I'm not living in?

From the information I've found so far, it may be illegal to rent the main house and ADU separately if the zoning is for a SFR and the property is not OO? From what I'm estimating, renting out the main house alone may just barely cover the debt service, taxes, cap-ex, etc. If rents decrease, I could be in a negative cashflow situation.. not ideal! I love the isolation of having two separate units, but I also need to make smart business decisions.

Anyone with thoughts/experience on this?

P.S. Given the competition in the market, I've also considered buying a 2br SFR with ample square footage, and renting out a room while converting some of the living space into a third bedroom. I guess that would be forced appreciation? Trying to get creative here :)