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?

Location:
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).

Financing
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.

-marissa

Oakland, California

3 Votes