I'm a first time buyer / investor looking for ADU candidate in the 500-600K range in Hayward / Castro Valley / San Leandro / E Oakland. J Martin has suggested this strategy in the forums; Chris May is also pursuing it. I plan to build a legal, permitted accessory unit in the back, live there and rent out the main house. I'm leaning toward a garage conversion. I'm looking for a 3/2 with detached two car garage on a 5000+ sq ft lot.
My ADU house hack won't be cash flow positive, but my housing expenses will be about $1400/mo (after rental income; maintenence, vacancy, water, taxes, etc) -- for a 600K purchase price, with 10% down and 100K cash in improvements. My current rent is $1200/mo. Based on rental comps, I could rent out the ADU for more than $1400. If I pull this off, I'll do it again : )
California's new granny unit law makes it much easier to build ADU's, and opens up new opportunity for ADU house hacking and BRRRs in the Bay Area. After Portland liberalized its ADU regulations, it stimulated a boom in ADU projects. Case study: Michael Gregory's BRR success story on BP. I have several questions, and would be grateful for your wisdom and experience.
Purchase Timing: Buy Now, or Wait for Correction
The market is softening. I currently save $3000/month, and can out-save appreciation ( if 5% or less.) Should I buy, or wait for a correction?
Project Scope: Rehab & Rent, or ADU Build only?
I have no renovation experience. For the main house, should I buy a distressed property, or stick with a cosmetic rehab?
Pre-purchase Project Cost Estimating
I've read J Scott’s excellent book, and . . .
- I'd like a precise, accurate estimate for the ADU project before I buy a property. Seems like a two car garage conversion would have some fairly standard costs (i.e. electrical, plumbing, sheetrock, insulation). Would it be feasible to create a SOW and a budget for a two car garage ADU conversion before I buy, or even identify, a specific property?
- I'm looking for a general contractor to (a) give me a pre-purchase estimate, (b) do the rehab work, (c) do the ADU project.
- Can you recommend general contractors who will walk through a property with me, inspect it and estimate rehab costs for the main house before I get the property into contract? How much do they charge for this service?
- Do you have recommendations for general contractors in Hayward/Castro Valley, who are accustomed to working with investors? Or great subs you’ve worked with?
- Do you know any retired contractors who can advise me on the project, as a paid consultant?
General Contractor: Fixed Fee or Cost Plus?
I want to save on contractor costs, but don’t have the skills to swing a hammer, or the job flexibility to manage on-site construction. I am a good planner, project manager, and shopper. I like the idea of saving on contractor markups, so I am considering hiring a general contractor on a fixed fee basis, where I hire subs myself and buy materials. Since I'm first starting out, and don’t have any construction experience, should I do a fixed fee contract or cost plus payment with a general contractor?
Which neighborhoods should I target in Hayward and Castro Valley? I'm looking for the best rental markets (i.e. strong middle class, good commute locations, B sections that border A neighborhoods; up and coming areas).
I'm a strong buyer and am under-writer prequaled up to 800K. I'd prefer to do a minimal downpayment and take out a loan for the house, its repairs/rehab and ADU construction
- Will local lenders roll the rehab cost into the loan? Is an FHA loan with a 203k viable in my market?
- Is a down payment less than 10% competitive in this market?
- Should I explore alternatives to traditional financing, such as a portfolio lender?
Market Rent potential
Can I get full market rent for the main house if I'm living in an ADU in the backyard?
Thank you for reading this long post! I appreciate any and all insights.
I live in hayward and can tell you prices and neighborhoods.
You can get something for 500k for 3/1 and add another bath and accessory unit for about 100k
Rent for 3/2 in hayward average 2000 to 2500.
Check craiglist for rental.
That would put you at $600K all in. If you get $2500/month for the main house and $1500/month for the ADU, that gets you a GRM of 12.5. Not bad. Would be especially good if you could wangle individually metered water & PG&E and individual garbage pickup for the units. Water especially is getting very expensive.
Neighborhoods: I would avoid the "Huntwood corridor" and maybe the Jackson Triangle. There's a lot of multifamily out there, and it only takes one bad MF landlord to make a bad neighborhood. Castro Valley should be pretty good. It's famous around here for having good schools. Good schools get you good tenants. Houses are priced accordingly, but it should cost no more to build in CV than in Hayward. Possibly less. CV is an unincorporated area so you would deal with the County of Alameda for building permits and inspections. The County is known to be less restrictive than the City of Hayward.
There is another unincorporated area just north of Hayward that is also called "Hayward" for the post office. "Cherryland". Unfortunately, Cherryland is served by Hayward Unified, and the schools are not good.
The Hayward Hills might be good - there are still some little houses on big lots. Until 20 years ago, it was pretty rural. HOWEVER, the lots tend to be sloped, and you may incur serious engineering costs to build. And I do mean serious.
@Taye N. : Thanks for the info! I was hoping you'd reply, as I notice you're in the know on Hayward, and are a contractor and inspector. I'd love to message you to talk further about this.
Hi @Marissa Myers ,
YMMV, but lately contractors have been slammed. Supply and demand is out of whack -- all those contractors who retired in 2008-2010 are NOT being replaced by younger people becoming contractors. It'll be tough for you to get a contractor to take the time to bid an estimate for a property that you don't own yet, or don't at least have in contract. If you find a good GC that'll give non-garbage numbers for hypothetical work on a hypothetical property (if such a thing is even possible), please pass their name my way.
In addition to 203k, there's Fannie Mae's HomeStyle reno option. But, generally, sellers (and by sellers, I mean listing agents chasing a paycheck) don't want to wait for the longer close of escrow. Most renovation mortgages are either refinances, purchase deals where someone found the property off-market (so no listing agent chasing a paycheck), or purchase deals where the house is not in financeable condition but for some reason all cash flippers don't like it.
This cat urine smelling hoarder special, which was utterly disgusting, for example, no flipper wanted to touch. So it went reno, after sitting on the market for >6 months. Just to give you an idea.
@Jerome Kaidor : Thanks so much for the neighborhood suggestions. I am heading to Hayward right now to drive around on this rainy Sunday afternoon : ) Good idea to stick to the flats and prioritize unincorporated areas. I hadn't thought about getting individually metered water & PG&E. The new law requires that utility fees "shall be proportionate to the burden of the ADU on water or systems . . . and shall not exceed the reasonable cost of providing this service." No doubt the water utilities and PG&E are figuring out what to charge. The law mandates that all cities and counties adopt an ADU ordinance consistent with the new provisions by Jan 1. Last week, I spoke to a planner at the county, who said the county attorney is working on it.
If you head up D street, it will turn into "Fairview", and will lead you in a loop over the hills and then come down back to Hayward passing CSUEB.
@Jerome Kaidor Will do - thanks, Jerome!
one thing to take in to consideration. The location on where you house is located.
If your house has a good path and close to the highway 92 it rents more.
The traffic getting on the 92 bridge is really bad.
If you decide castro calley add another 30mins to your commute.
Hayward is changing. Some area that were bad are getting better.
The bad areas are East Tennyson. East of 880 there are about 100k price differnt from the east and the west of 880.
Parts of west A street is bad too.
I have lived in Hayward for 18years.
Huntwood and jackson triangle is not bad.
@Chris Mason I really appreciate a lender's perspective on this. Sounds like a reno mortgage won't fly these days. Finding a contractor for pre-purchase bids is a tough nut to crack, but I am motivated and persistent!