ADU House Hacking in Hayward / Castro Valley

17 Replies

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

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.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211
 @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.

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.

@Taye N. and @Jerome Kaidor Thanks again for your local insight. Super helpful. I'm doing a lot of driving around neighborhoods. 

@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! 

Marissa, what do you expect a contractor to be able to bid *on* if you don't even have a property under consideration? 

Even whatever you may consider to be a "standard" garage (or whatever) is going to vary widely in cost based on things like the specific lot conditions, and *all* remodeling is dependent upon the size and configuration of the building, at minimum.  Time of year, weather, other demand, exact locations, the size of the firm, where it's located relative to your project, and more all go into a bid - and for an actual *bid*, you need to have all of the parts and pieces specified, for a specific property. 

Otherwise, it will at best be an estimate, otherwise known in the trade as a WAG - a wild-*** guess. 

Vary *any* of those parameters and you may as well toss the whole thing out.  Which you'll have to do anyways, since an estimate given without any details specified and not even a jobsite is worth less than any paper it might be written on.

You are *begging* to be taken advantage of by not even recognizing this most fundamental concept, that there is no such thing as a "one size fits all" construction/renovation job, and that it is literally utterly and completely impossible to do what you are asking.  


Since you have zero experience at all with remodeling or building, please ditch the idea of buying materials yourself.  That will end up costing you much more in the end, when something fails, for example, and you don't have the power of history with the vendors (or contractors) to help you through it - and that is definitely *when*, not *if*. 

Good contractors warrant both their work, and in the case of materials they purchase, they will access the manufacturer's warranty on your behalf should a part fail.  If you buy the parts, though, they are very likely to not even warrant their work since they can't be certain what they are starting with, and that will go triple for someone such as yourself who doesn't know diddly about construction and quality materials. 

You also do not have the first idea of what needs to be purchased, to be honest.  Would you know all of the accessories that need to be bought in order to install even just a simple light fixture, tub and shower fittings, or a toilet? 

I can tell you right now that you don't - and that they don't all come in the box with the pretty parts that you see once it's all installed.

You can certainly learn these things, but don't try to wing it without some instruction of some sort, for your own sake.  Fortunately for you, there's a fabulous resource in the Bay Area, the Owner Builder Center in Berkeley, which teaches some terrific classes that help people learn how to do their own renovations.  Even if you never lift a hammer yourself, you will benefit greatly from understanding the construction process and the sheer complexity of what you are undertaking so that you have a better idea of what any contractor you hire is talking about and what they are doing.

Hi Marissa,

How's your search and the process going?  I was in your shoes a few years ago, so I understand the "analysis" dilemma. I looked in all of the areas you mentioned, save East Oakland. I also looked in Fremont.  Personally, I would wait for a correction (keeping an eye on rates) unless a property which met very specific needs /area came on the market & it was a long term hold.  With a 203k, you don't need 10% down. Google Tim Floyd - he's well versed in 203k loans - or Kris Floyd. (I don't get anything by sending you to them.)

My husband & I purchased a Castro Valley property under the 203k program.  A new neighbor around the corner just purchased a 203k home.  We love Castro Valley & live in a fabulous neighborhood in the flatlands.  It's safe, neighbors look out for one another, young families, older couples, people sit on porches and talk to passer-bys as they walk dogs, & we can walk to BART. 

Unfortunately, we are not in the CV school district. So we have the added expense of sending our kids to private schools. The upside is we purchased a property on 1/3 of an acre and have plenty of room for a future ADU rental (income). Our kids have plenty of room to goof around in the backyard. One neighbor just finished building out his ADU. He's moved into it and rents out the main house. I'm aware of 12 ADUs in my neighborhood. One family I know has 2 ADUs. I focused on Castro Valley because there was a higher likelihood of scoring a small property with an ADU, a property on a large lot, or both a large lot with an ADU. Also, because CV is such a family oriented town, it will be easy to sell our property if we so choose. (There's a single screen movie theater, Golf Land, a minimum of 7 places to enjoy ice cream/ dessert, a bowling alley, a great little health food store. Granted, fine dining & shopping's not too exciting - but that's ok. We have the necessities for retail & opted for the small town feel in the middle of the Bay Area. We do love Denica's, though.

Disclaimer - I work for a company that does real estate investments, design-build and provides pre-construction estimates.  I'm on the marketing side - but I was able to take advantage of connections that the average home buyer doesn't have.  That being said, I did manage most of our 203k project with some major hand holding from the professionals.  It was a FULL TIME job. I had to drag the kids with me to the local Home Depots, as well as to Oakland, and SF for building supplies.  There are so many small decisions to make amongst the major decisions...  and all the pieces have to come together like a puzzle. Sourcing and picking up materials is a major headache.  Contractors charge to pick it up for you. Just know that you can make a lot (A LOT) of costly mistakes.  Managing schedules, workflow management, ordering supplies in time, supervising the subs (who'll want to cut corners without a GC they feel loyal/beholden to), design decisions, permits, etc.  If you hire a GC - be sure to get someone who has integrity, pride in workmanship, and can track details.  Construction crews have terrible memories & usually don't take notes - lol.  If I could do it, anyone can. Keep in mind, though, that I had relationships with professionals who I trusted.  I had the oversight of a real estate developer who had managed many jobs like mine. I didn't have to juggle our remodel while working a regular job. That would have been too much with a 2.5 yr old, a 6 yr old, and a husband. LOL

Best of luck,

Nikitha

PS - From the pic with the crown & your strong will, I have no doubt you will succeed!!! Just try to do it with as few headaches as possible. You've had a lot of great insight on here about Hayward & CV. Yes, you can do a 203k, you can find something in CV in your price range, and explore ALL your options on financing. You very well may find an existing ADU that just needs to be "brought up to code" and do a small remodel - cutting your anticipated costs substantially. Check the Baywood neighborhood in CV since you mentioned flatlands & good for renters. You asked for referrals: PanGeo / Construct Business Consulting is in the East Bay. They can be hired for pre-construction estimates & fees go toward the project budget if the company is hired for the remodel / ADU. Not many companies do that. You can contact Debra Johnson with PanGeo Construction in Oakland... Yelp them. There's a seminar coming up on ADU's in Oakland with professionals. I'll see if I can get the specifics. I looked up Kris' info: Kris Floyd (Pinnacle Capital Mortgage) - I get no kickbacks from Kris or Tim... they are just really good guys who know their stuff.

Hi Nikitha, Thanks for your sharing your insights and experience. I really appreciate it!

Hi, I stumbled across this forum and think it's really helpful. I live in Castro Valley and was considering building a detached ADU in my backyard. Does anyone have an idea what a 1bd 1ba unit would cost to build? We're allowed a maximum of 640 sq ft unit. From what I've read it can cost between $150-200k and up which seems pretty pricey. Are preconstructed modular units a lot less expensive vs. building on-site? Thx

Hey @Marissa Myers ! How's things going? Did you find a property that worked for you?

Hi there, @Ben Rice ! I put the project on hold due to some work stuff. Why do you ask? 

@Marissa Myers - Was just curious how things worked out. I'm interested in the same topic. Hoped to learn from your experience!

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