First time buyer in CA - Single Family home + ADU or Duplex ?

12 Replies

Hello all, first of all I am very humble to be part of BiggerPockets community.

I will be buying my first property in Los Angeles probably by the end of the year. The strategy is first; investing in a renting property, second; living for “free” (I am currently spending $1,700/mo for my rent).

I have $40K down payment and qualify for a $500K loan (FHA).

According to what I understand so far… I think I have 2 options:

1. Getting a duplex (lease 1 unit, live in the second)

Or

2. Getting a Single home family with ADU (live in the ADU)

The duplex option would require probably an extra $200K but I wanted your point of view concerning these 2 options.

Thank you so much for your time !!

@Jeremy Pelle

Is the $500k including the possible rents you can get from a duplex? You can talk to your lender about this so you can get your limit increased. This was the only way I was able to afford the duplex I am currently in contract in. My lender estimated $2k in rents to about $100k increase to my limit.

@Alejandro Garcia , yes you are right!  I can probably increase that limit this way. I am more concerned about which strategy to adopt. Duplex would mean at least 700K investment (in LA) as first purchase. Not sure if its fear or precaution ;)

hey guys - the numbers will vary depending on city (purchase price etc ). 

There are pros- and cons to both strategies. 

1. less money up front but property is much more expensive (2 units) 

2. Purchase is a lot less, you add value to the home (equity) but you need more money up front for conversion + purchase

https://www.biggerpockets.com/...

Another possibility might be to buy a SFR (preferably on a corner lot) and place a Tiny Home on Wheels as an ADU unit. Live in one and rent out the other. The only construction costs may be to hook up to the septic system and the actual purchase of the Tiny Home, about $30-$45K. Water and electric are pulled from the main house. Just a thought...

You can get a duplex in 90033, 90023, 90031, and 90011 for less than 550k.

@Jeremy Pelle Happy to help!

True you give up appreciation with this strategy, but you also won't see an uptick in your property taxes. If you'd like to know which THOW companies give you the best bang for your buck, feel free to reach out :)

@Jeremy Pelle I went the SFH and permitting and ADU route and I have to say that there were some huge disadvantages when it comes to appraisals that make it very difficult to realize the value of your improvements. In my area there aren't many SFH's with ADU so I was got $25k worth of value on my first appraisal. Even thought its kind of like a duplex, duplexes were not used as comps. I prefer the 5+ unit strategy now since those are valued based on the income, but even a duplex would be better since you can build multiple ADUs as well as have better comps.

Too much hype, too much chatter, etc, about ADUs and duplexes. Chatter drives demand. Demand and supply set prices.

In terms of cheap living area, 6+ bedroom single family homes are what the market is under-valuing at present, I think. 

Run the analysis in a random neighborhood you're interested in (potentially excluding the extreme luxury 'hoods). The 5th bedroom isn't a whole lot more, 6th and up are pretty damned close to free. You might find that in some places it starts at the 4th bedroom. People just aren't making as many babies any more. Functional obsolescence. 

Then get creative from there. You've got the square footage, and didn't pay a whole lot for that last 1000 or 2 of it...

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