1st investment property. Questions!
Finally have a refi loan on our home approved. The amount can get us an average home in a slightly cheaper area or one of the lowest priced homes in a more affluent area... we want to rent the property out and ideally breakeven. However all 3 homes we are so far considering have either an illegal ADU/unit or unpermitted rooms. Common here in Santa Cruz County CA.
One is for sale by owner $550,00, officially a 1 bed home but actually has a 2 bed apartment upstairs currently renting at $2300/mth and downstairs a1 bed apartment that could rent for about $1600 (currently empty). This would give us the highest yield but to get the unpernitted spaces permitted could take about a year here and i have no idea what cost to bring up to code. Is it too risky to rent out illegal spaces?
The 2nd home is listed at $680,000 (wed lay up to $620,000) a large 3 bed with 2 ‘bonus’ rooms downstairs of which one is currently a ‘4th’ bedroom. If we advertised it as a 3 bed rental with 2 bonus rooms does that keep it above hoses even if tenants choose to turn bonus room into another bedroom? Whole house could rent up to $4000 & would only involve one rental agreement as one unit. But would bring in lowest return on investment. But is the more conventional choice.
The 3rd home is a short sale about to list for $650,000 a 3 bed house with an illegal 1 bed ADU in back yard, the ADU rents at $1200 currently and the house would prob rent for $3000.
The best rate in return is the one with most illegal space..::is that too risky?Do you negotiate price based on permitted space? Seems the county tax unpermitted sqft.
Most Popular Reply
Hi Sarah..I'd check to see if that 2bd apartment can be legalized as an ADU, then decide after learning costs/requirements from the county. Things are changing regarding ADU's so get the latest info. It helps your husband is a contractor. The 'unpermitted extra rooms' shouldnt be a big deal as thats pretty easily solved if it becomes an issue later. That FSBO sounds pretty good depending where it is.