Sac House Hack - MidTerm Rental

Sacramento, California
House Hacking
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Sac House Hack - MidTerm Rental

Leanna Nixon
Member since 2023 · 16 posts · 22 votes

Hi all! We are hoping to put 10% down on a ~$500k-$700k house in Sacramento. We want to live there for a year or two and make some upgrades while living there. Also looking for a home that either already has an ADU or a lot big enough to add one. The plan would be to use the ADU as an office for my hubs while we live then then once we move out to rent the ADU and home separately as long or midterm rentals. Does anyone have any experience doing this in Sacramento and if so have any tips for us? Thanks.

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Tanner PileBusiness Member
Real Estate Broker · Colorado Springs, CO · Member since 2019 · 388 posts · 326 votes
3y

@Leanna Nixon

I would recommend finding a property with an existing ADU. The construction of them can take 6+ months sometimes a year depending on certain scenarios. If this is your first large construction project I would take that into consideration and what managing contractors will look like.

However, I have always seen that building ground up properties have better ROIs if done correctly and bought at the right price. 

Good luck!

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  • Richard Goore
    Realtor · Sacramento, CA · Member since 2015 · 70 posts · 34 votes
    3y

    I would strongly suggest you run your numbers, using various scenarios of interest rates, and potential rents as the market could be significantly different two years from now. I work with a number of investors and they all seem to have different criteria for what works best but I think they are all successful because they run detailed numbers for their investment goals. Work with your agent he should be able to help you with varying scenarios. Finally, I'd suggest starting to track rental rates for an equivalent home and equivalent size ADU so you can see where the trends are. Heading over the first couple years. Good luck with everything! sounds like a great opportunity.

    0Reply
  • Tanner PileBusiness Member
    Real Estate Broker · Colorado Springs, CO · Member since 2019 · 388 posts · 326 votes
    3y

    @Leanna Nixon

    I would recommend finding a property with an existing ADU. The construction of them can take 6+ months sometimes a year depending on certain scenarios. If this is your first large construction project I would take that into consideration and what managing contractors will look like.

    However, I have always seen that building ground up properties have better ROIs if done correctly and bought at the right price. 

    Good luck!

    Tanner Pile4.931 Reviews
    WebsiteView Page
    1Reply
  • Scott ScovilleBusiness Member
    Real Estate Agent · Sacramento, CA · Member since 2019 · 497 posts · 272 votes
    3y

    Hey Leanna,

    Congrat's on starting your journey into Sacramento Real Estate. I'm an investor and agent, working exclusively with investors. I also have my own MTR's and would be happy to share my experience. Let me know if you have time to jump on a phone call. Be happy to help.

    [email protected]415-933-2202
    Scoville Realty & Investments LLC
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  • Leanna Nixon
    OP
    Member since 2023 · 16 posts · 22 votes
    3y
    Quote from @Richard Goore:

    I would strongly suggest you run your numbers, using various scenarios of interest rates, and potential rents as the market could be significantly different two years from now. I work with a number of investors and they all seem to have different criteria for what works best but I think they are all successful because they run detailed numbers for their investment goals. Work with your agent he should be able to help you with varying scenarios. Finally, I'd suggest starting to track rental rates for an equivalent home and equivalent size ADU so you can see where the trends are. Heading over the first couple years. Good luck with everything! sounds like a great opportunity.


     Thanks. This is good advice. I am going to wait until end of summer to see where the market it.

    0Reply
  • Leanna Nixon
    OP
    Member since 2023 · 16 posts · 22 votes
    3y
    Quote from @Tanner Pile:

    @Leanna Nixon

    I would recommend finding a property with an existing ADU. The construction of them can take 6+ months sometimes a year depending on certain scenarios. If this is your first large construction project I would take that into consideration and what managing contractors will look like.

    However, I have always seen that building ground up properties have better ROIs if done correctly and bought at the right price. 

    Good luck!


    Thanks Tanner. We just completed an ADU on on property in Idaho. It was a huge learning experience - ran into many issues. Would feel comfortable doing this now that I know what it takes but would definitely be easier to find a place with an existing ADU. Thanks for your feedback.

    1Reply
  • Matthew Kwan
    Lender · Seattle, WA · Member since 2022 · 482 posts · 768 votes
    3y

    HI Leanna it really depends on what your long term goal on investing real estate. You want to invest just to have a place to live and potentially offsetting your mortgage payment by renting out the vacated rooms or having x amount of cashflow in the future?  Looking into single family houses or multifamily, as there is an actual land that you own and potentially build ADU/DADU in the foreseeable future. However, if you build the ADU and not condomise it, they appraisal will only view it as a SFR and give you the rent as SFR at 75% if lease agreements is being used. If you want to maximize your max rents then if might be a good idea to condomise it so that you can get rents as two seperate units.
    Also, the beauty of FHA is that it allows you to put 3.5% down payment to invest in 1-4 units. However if you plan on buying 3-4units, there is a trigger rule for FHA, it is called the self sufficiency test. In order to past this SS test, your apppraised market gross rental income at 75% has to be more/equal to your monthly mortgage payment (PITIA). These are something to be considered. Feel free to DM and we can talk more about it @Carlos Valencia @Albert Bui

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y
    Quote from @Leanna Nixon:
    Quote from @Tanner Pile:

    @Leanna Nixon

    I would recommend finding a property with an existing ADU. The construction of them can take 6+ months sometimes a year depending on certain scenarios. If this is your first large construction project I would take that into consideration and what managing contractors will look like.

    However, I have always seen that building ground up properties have better ROIs if done correctly and bought at the right price. 

    Good luck!


    Thanks Tanner. We just completed an ADU on on property in Idaho. It was a huge learning experience - ran into many issues. Would feel comfortable doing this now that I know what it takes but would definitely be easier to find a place with an existing ADU. Thanks for your feedback.


    In most markets in CA it is much cheaper to purchase a property with an existing ADU than a property without an ADU and then add the ADU. When also factoring in the tine/effort involved, the payments starting long before the ADU is ready for use, the financing typically available to build an ADU (versus buying a property with an existing ADU) it is much better to buy a property with an existing ADU than buy a property and build the new ADU.

    There is of course an exception for the unique property where you cannot find a similar property that has an ADU that is for sale.

    Good luck

    0Reply
  • DJ DawsonBusiness Member
    Real Estate Agent · Sacramento, CA · Member since 2015 · 394 posts · 259 votes
    3y

    finding a place with a detached garage can help expedite the ADU process, new construction is significantly more expensive AND time consuming. I am helping a client under contract now to purchase a house with an awesome 2 car garage we will be assisting them to convert to an ADU! Feel free to send me a message if you have any specific questions about the process. PS: Good to have good drafter and engineer on your team to get your plans ready fast!

    0Reply
  • Ryan ThomsonBusiness Member
    Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Leanna Nixon great plan! Big fan of house hacking with an ADU. I know someone who has experience with this in Sacramento!

    The Assumable Guy544 Reviews
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  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 517 posts · 408 votes
    3y
    Quote from @Leanna Nixon:

    Hi all! We are hoping to put 10% down on a ~$500k-$700k house in Sacramento. We want to live there for a year or two and make some upgrades while living there. Also looking for a home that either already has an ADU or a lot big enough to add one. The plan would be to use the ADU as an office for my hubs while we live then then once we move out to rent the ADU and home separately as long or midterm rentals. Does anyone have any experience doing this in Sacramento and if so have any tips for us? Thanks.


     I'm a broker and investor here in Sacramento, currently living in one of my house hacks. This is an awesome way to get into the game and cashflow while effectively living for free. I'd be happy to talk shop any time! Good luck!

    0Reply
  • Lawrence Potts
    Real Estate Agent · Member since 2018 · 459 posts · 414 votes
    3y
    Quote from @Leanna Nixon:

    Hi all! We are hoping to put 10% down on a ~$500k-$700k house in Sacramento. We want to live there for a year or two and make some upgrades while living there. Also looking for a home that either already has an ADU or a lot big enough to add one. The plan would be to use the ADU as an office for my hubs while we live then then once we move out to rent the ADU and home separately as long or midterm rentals. Does anyone have any experience doing this in Sacramento and if so have any tips for us? Thanks.

     @Daniel Bolduc would have some insight in your specific location!

    I'm house hacking my 4plex and have one rental as a midterm and 2 as long term. The difference between the two is significant: operationally the midterm is much more work to manage and takes more work upfront. However, you make WAY more doing midterm. The more work you do up front for midterm, the better off your tenancy will be (professional cleaning between vacancies, good listing pictures, not going cheap on appliances and amenities, etc).

    Hope that helps! Best comparison I can give is to treat operation as a short term without the amount of turnaround. Best of luck!

    0Reply
  • James Peterson
    Residential Real Estate Broker · El Dorado Hills, CA · Member since 2011 · 101 posts · 40 votes
    3y
    Quote from @Leanna Nixon:

    Hi all! We are hoping to put 10% down on a ~$500k-$700k house in Sacramento. We want to live there for a year or two and make some upgrades while living there. Also looking for a home that either already has an ADU or a lot big enough to add one. The plan would be to use the ADU as an office for my hubs while we live then then once we move out to rent the ADU and home separately as long or midterm rentals. Does anyone have any experience doing this in Sacramento and if so have any tips for us? Thanks.

    Leanna, good for you to make this decision! When I started my RE investment journey I did the same. Your scenario doesn't really sound like a house hack if you aren't renting a unit while living there. Am I wrong? Location, within Sacramento, is extremely important, not only for return on investment, but local regulations on renting ADUs etc. The city has permit ready plans that can shorten the timeframe to build a new ADU and staying under 750sf will keep permitting costs lower. Expect to pay $300/per sf +/- to build new. There are some areas that command $2500+ per month for small 1 bedroom ADU mid-term rentals. There is a ton of info available on costs, regulations etc. that you should get familiar with.

    1Reply
  • Elisa Michals
    Flipper/Rehabber · Member since 2023 · 32 posts · 16 votes
    3y

    Hi Leanna. I've converted several projects into legal ADU's in Sacramento County. I look for properties that have detached garages or additional structures that are easier to convert to ADU's. Right now, I'm adding a full bath to an additional structure that has been grandfathered in by the county. Less hassle than starting from scratch. I try to do as much of the work as I possibly can myself. It's possible. It's hard to purchase a home with a full ADU that is in the city. :) FB has a

    0Reply
  • Elisa Michals
    Flipper/Rehabber · Member since 2023 · 32 posts · 16 votes
    3y

    oops. Premature send. :)

    Facebook has some CA ADU groups you might want to try out also.

    0Reply
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