Rental Property Investor · Costa Mesa, CA · Member since 2018 · 84 posts · 52 votes
Hello people,
I am a new investor and looking to buy a property within the next 90 days in southern California. I have about 20k saved up and have a pre approval up to 450k using FHA.
I am finding it hard to find cash flow positive properties in these areas, i havent seen any properties fit the 1% rule and in general they all lose money, esp considering pmi and 3.5% down. I would like your expert opinion on this matter? thanks
@Jeff Zimmerman, I had some additional coversations last night and today, with investors who do lease options, but they live in different parts of the U.S. They still target places using the 1% rule and so I was doing research and came across a few Cities that it is close, but not quite that. Bakersfield may be the best of that list. Fresno was about comparable to Highland/San Bernardino and Hemet, both closer to me. Do you have any thoughts on markets that are closer to the 1% rule? Visalia area may be a thought. Do you do lease options or rentals?
@Joe Yobaccio definitely a concern — but making 20k a year in appreciation and 5k in principal paydown/tax helps that concern
20%down.
But ive locked in interest rates from a few years ago.
And ive bought All cash at auction (or direct) for 60-120, fix for 6-20, rent and refi
Hope that helps.
P.s. going forward Im starting to look into building "ADU's" then i can buy retail (with larger lot) and then "force" cashflow with a second smaller unit. (Google adu governer brown)
The state allows the city/jurisdiction to require owner occupied for ADUs so most cities mandate the owner occupy one of the units. Because of this limitation, the properties with ADUs in my area of investment are being comped at a discount compared to duplexes which seems reasonable because a duplex can be purchased by a house hacker or an off site RE investor but the ADU can only be purchased by a house hacker/home owner.
Check this for your area. Verify how the RE with ADU is being appraised. It may not present the value add opportunity that you are expecting.
@Dan H. great points dan. and timely, as at my town council meeting tonight, the city lawyer confirmed they are NOT requiring owners to occupy at least one unit. He also said in his research most cities were not requiring. would be interesting to compile an overall list to see the differences in the law - I've always wanted to sell an ebook for $29.95 ;)
I have lots to learn, but overall it seems significant in its implications - especially in coastal areas with $500 sq/ft + prices.
@Dan H. great points dan. and timely, as at my town council meeting tonight, the city lawyer confirmed they are NOT requiring owners to occupy at least one unit. He also said in his research most cities were not requiring. would be interesting to compile an overall list to see the differences in the law - I've always wanted to sell an ebook for $29.95 ;)
I have lots to learn, but overall it seems significant in its implications - especially in coastal areas with $500 sq/ft + prices.
I have checked two cities in San Diego county: Escondido and San Diego. Unfortunately both require owner occupied to add an ADU. In addition, both cities seem to require owner occupancy in perpetuality. This is impacting the value of the ADU.
I would be very interested in a list of cities requiring owner occupancy to add ADU and cities that do not require owner occupancy to add an ADU. If there was a city in San Diego county that did not require owner occupancy it would present a value add opportunity that would be worth investigating.
@Dan H. The state law does not require owner occupancy, but some cities do require it. Owner occupancy is a real wet blanket for ADUs and can be a deal breaker for a lot of people. In San Diego County, Carlsbad, Chula Vista, Coronado, Del Mar, El Cajon, Encinitas, Escondido, and Solana Beach require owner occupancy.
@Dan H. The state law does not require owner occupancy, but some cities do require it. Owner occupancy is a real wet blanket for ADUs and can be a deal breaker for a lot of people. In San Diego County, Carlsbad, Chula Vista, Coronado, Del Mar, El Cajon, Encinitas, Escondido, and Solana Beach require owner occupancy.
I am more interested in any cities in San Diego county that allow ADU without requiring owner occupancy than those that require owner occupancy to add an ADU.
It appears that every city in San Diego county may require owner occupancy to add an ADU.
Visalia is a good place most likely, I don't do a lot of business in Visalia so I'm not the best source of info there. I own a number of rentals in Fresno and the 1% rule is there but you have to look for them. I haven't done any lease options yet, what I've found is that owners don't love lease options because they favor the buyer so heavily, but we have done deals with year-long escrows with the buyer taking possession early and renting, sellers usually go for that more so over lease options, that usually works better.
If a property has an existing ADU, does this regulation mean that it can only be sold to an owner occupant and not to an investor? I understand the regulation around adding an ADU but what about those homes that have one already? Are those grandfathered in somehow?