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 :)
@Jerry Thompson the obvious answer is you have to run the number on both individual properties and see which makes more sense in the financial aspect of profiting.
Originally posted by @Matthew Moore :
Jerry Thompson the obvious answer is you have to run the number on both individual properties and see which makes more sense in the financial aspect of profiting.
Thanks Matthew, maybe my question was unclear.. I'm trying to gather more specific details about each approach conceptually speaking. There may be something I don't know about owning a duplex, and there are definitely things I don't know about having a MIL suite (beside confirming the structure is legal to begin with). For example.. if renting a MIL suite as a non OO is illegal, it's a total non starter for this first property. After that, it's a more focused evaluation on the nuts and bolts of specific properties and numbers.
@Jerry Thompson from my experience coming from a family of builders. You will have to check with local building codes to make sure that the building is legal as you explained, if the building is up to code and has all the proper permits for an ADU then it is acceptable for you to live in the unit or to rent it out. As far as legal issues for then you should contact a RE Lawyer for a consult.
I'm interested in hearing the answer to your question about the legality of living in the MIL suite and renting out the rest of the home. I would like to do this too if I can't find a duplex, and I will have to occupy it as my primary residence since I'm using a VA loan. Can anyone weigh in?
Hey @Maxwell Reeder , it's definitely legal to rent out either the ADU/MIL suite or the main home once you own it (as long as the ADU is a legal structure). However, I was concerned about the legality of renting them out separately once move out.
I'll still have to ask a RE agent to get clarity on that. Will post once I have some info :)
Ah, I misunderstood a bit, but I'd like to know that too when you find out haha! Thanks for your response, that's very good to know :)
What's your rental market like? I know around here people will rent anything and not care one bit.... but that's because people need/want places and will overlook a lot of stuff. However, I have a house in KC and once you crunch the numbers it didn't make as much sense to rent a 1bd apt above the garage vs renting it as one. I'd of only made a little more per mo but I'd of had a harder time finding someone to rent each space separately and then I'd of had a hard time getting the utilities separated (additional cost). Then at the end of things zoning would of been an issue.... and it just wasn't worth the headache for what would of likely been no extra money at the end of it.
Curious if you ever got your answer as to the legality of renting out both the main home and ADU.