Duplex with detached garage

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Duplex with detached garage

April Causapin
New to Real Estate · West Covina, CA · Member since 2020 · 23 posts · 1 vote

Hello, Biggerpockets! 

Advice needed to purchase a multi-family property. Appreciate your help!

I found a duplex with 3/2 (1 bedroom unpermitted) and 2/2 (can add another bedroom as one bedroom is huge). With detached 2 car garage (possible ADU, per city, eligible to be converted, how much does it usually cost?)

I plan to live in one and rent the other as I am currently renting for $2350. 

Price of home is 745k in a C+ neighborhood.
Rents for 2/2 (built in 1950s) is about 2300+
3/2 (built 1910’s) 2800+
with 10% down and 40k for renovation.

Monthly mortgage: $4745.77. 

Tenant pays for everything except for water and trash. 

Planning to have property management. 

Is it worth it to purchase this property? It’s not in the safest part of town but I’m thinking cctv and security may help.

Would it be smart to purchase this or wait for a SFR with garage in a better neighborhood and house hack?


Thank you! 

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    3y
    Quote from @April Causapin:

    Hello, Biggerpockets! 

    Advice needed to purchase a multi-family property. Appreciate your help!

    I found a duplex with 3/2 (1 bedroom unpermitted) and 2/2 (can add another bedroom as one bedroom is huge). With detached 2 car garage (possible ADU, per city, eligible to be converted, how much does it usually cost?)

    I plan to live in one and rent the other as I am currently renting for $2350. 

    Price of home is 745k in a C+ neighborhood.
    Rents for 2/2 (built in 1950s) is about 2300+
    3/2 (built 1910’s) 2800+
    with 10% down and 40k for renovation.

    Monthly mortgage: $4745.77. 

    Tenant pays for everything except for water and trash. 

    Planning to have property management. 

    Is it worth it to purchase this property? It’s not in the safest part of town but I’m thinking cctv and security may help.

    Would it be smart to purchase this or wait for a SFR with garage in a better neighborhood and house hack?


    Thank you! 

    Do you have the capital for an ADU? It would cost $100,000-$130,000 to covert it standing still, or if you need to add on costs go up quickly. Grand up stuff in LA County, probably about $250 PPSF. 

    I would do a deal like this due to be willing to rent out the other unit, and if you can jump into the 2/2 and get a break on the rent you pay now. Drop your expenses to $2,000, build up equity, and increase the rent next year to the max CPI (usually about 7.5% or 10%). So your rent would be reduced by $200+ in one shot come 2024. $1800 a month and then going from there lower and lower.

    You build an ADU on the property $100,000 conversion, $1500.00-$1650 on a 1/1. That is better than the 1% rule. 

    You need to check the crime rate when you have time to make sure if you feel comfortable with you buying it. 

    The McKernan Group4.957 Reviews
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  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    3y

    April,

    You should just buy it as an investment if you are going to put 10% down.  You can put 15% down on a Duplex as an investment and rent out both units.  That way your cash flowing from both units rather than stuck in one unit.  My advice is if you can swing another 5% to put 15% down by it as a investment property.  Rates right now are great under portfolio programs and there are No Prepays.

    If you go FHA your MIP is going to hurt the cashflow and conventional will also have your PMI higher than needed. An ADU can be financed after you buy the home since you can apply for a renovation loan and add in an ADU or carriage unit.

    [email protected]727-637-4289
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  • April Causapin
    OP
    New to Real Estate · West Covina, CA · Member since 2020 · 23 posts · 1 vote
    3y

    Hi Peter, 

    I don't have the full capital. I was looking into applying for ADU grant.

    I checked the crime rate and the area I live in now is about the same but I have more security since I live in a nicer apartment complex with security and gate system.


    Do you have recommendation on eviction? 
    The seller is offering to cover 4.5 months of rent if tenants do not leave in 60 days but wants to close escrow first before doing that. 

    Thank you for your response! 

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  • April Causapin
    OP
    New to Real Estate · West Covina, CA · Member since 2020 · 23 posts · 1 vote
    3y

    Hi Jason,


    Thank you for your response! 

    0Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    3y
    Quote from @April Causapin:

    Hi Peter, 

    I don't have the full capital. I was looking into applying for ADU grant.

    I checked the crime rate and the area I live in now is about the same but I have more security since I live in a nicer apartment complex with security and gate system.


    Do you have recommendation on eviction? 
    The seller is offering to cover 4.5 months of rent if tenants do not leave in 60 days but wants to close escrow first before doing that. 

    Thank you for your response! 


     You need to ask in escrow to get them out, and get ahold of the tenants. Tell them you'll give full security deposit back and maybe a little extra if they leave at closing. The other option would be giving them a bigger amount, I.e. cash for keys about 3K-5K. Start low and then move up. 

    The issue with holding the place with them in there even if they pay 4.5 months, is one, the seller knows something you do not (the tenants probably have already indicated no go on leaving) and you are not only paying 5-7 months on the eviction process (mortgage payments), but you are paying $7-$10K for an attorney to get you through the process. I do have a few attorneys that help in this but this would be a last stand. I would find another property first before going down that route. 

    The McKernan Group4.957 Reviews
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