SF with ADU

[Will Cruz]

I recently own a Single family built in 2020 that is 4bed 3.5 bath between Ewa Beach and Kapolei which I owe 770k and is worth 1.250M. I also went under contract on yet another Single family with ADU back Jan2023 and is now complete and ready to be moved into which I bought for 1.1M and is worth 1.250M. I currently rent out the 1st ADU for $2100 and the front of the house can be rented out for $4100 for a total of $6200. My payment is $3375 at 2.25% interest which leaves me a net profit of $2825. The new SF ADU will also be rented out for $2100 which my payment on that is $5450 at 5.25% interest and I will move to the front of it for now (When I move out i can rent the front of that one for $4100 for a total of 6200 minus the mortgage which is $750 dollars profit but Brand New. I have a duplex in VA beach which I net 1000k a month. My question is should I sell the new ADU and use funds as down payment for the new home or should I stay here another year and just save up for a down payment to use on the new home and keep both SF/ADU's? Is the $750 worth keeping?

[Brian Lucier]

Aloha @Will Cruz

Hmmm, why sell at all? You mention being able to stay put for a year while you build up the next downpayment. If you are not being forced to recapture equity, you are ahead of the game. I have always enjoyed the tax free benefits of a refinance from a portion of our portfolio. 

You are blessed to have your properties in the United States where you can absolutely leverage the equity in your assets at 20% to 30% down payments to stay in the property and equity strip the asset.

One possible strategy to consider.

Move into the least expensive ADU or rental unit on the island. Might as well live in paradise if you need to "suffer" through the time to build up equity. Then, when the time is right, do a cash out refi, or even a HELOC to free up the funds for your next deal. In this way, your assets produce the equity needed to purchase the next acquisition of assets. And the best part, you get to keep the asset and have the residents pay down the debt (again, and again).

We followed this strategy for decades and cashed out our portfolios 2 years ago and now live and operate our businesses from the island of Aruba. We paid almost 2M cash for the beachfront condo. Again, you are blessed to live in the USA where banks allow greater leverage for a real estate asset. Here on the island, we are looking at 40% to 60% downpayments. Absolutely makes more sense to buy in the US.

If you have the time, play the game and wait it out.

No one knows where the fed is going with rates. But I would imagine the rate hikes are going to cool down in a year or so. The opportunities to buy may be more abundant, but fewer buyers "afraid" of the rate hikes that just happened. We are on the sidelines to buy larger apartment complexes. Loving every minute of life too.

I think you are in a great spot "literally" and have a wonderful problem to solve. Keep us updated on your action plans. Exciting Times!!!

[Will Cruz]

Brian,

Thank you for your thorough response as you are correct. I will be keeping both Single families with ADU's and save for my next down payment. I am currently an IT and make about 140k and an active real estate agent both here in Hawaii and in Florida. I need to motivate myself again and start grinding in real estate to save and build the next down payment. I close on it the 25th of May, which is next week and will keep you posted in a few months. Thanks again for the input which has made me reflect on what is the best choice to make. At 36 years old its easy to get distracted. lol