Build 3-plex or sell as is now in Hayward CA?

Question

Good evening everyone!

I am remodeling 3 bd 1 ba in Hayward now (close to HomeDepot). Comps are around 600k ARV.

My potential profit is around 100k.

OR

I can refinance the first unit and I can build 2 more units (the property has R2 zoning - so, 1 more 3/1 and 2/1 ADU) for 400k and rent all three units out for 8k total.

I think such a triplex could cost around 1.2-1.5 Mio.

What way would you choose in the current conditions?

Jaysen Medhurst · Answer

We really need more info here, @Mikhail Petrenko.

What are the current taxes and insurance? If you double or triple the FMV of the property, you should expect those costs to go up commensurately.

What are your financing plans? Will you refi and leave 20-25% equity in the property? You could have a monthly debt service payment as high as $6k. That won't give anywhere near enough head room to cover Vacancy, Repairs, CapEx, Management, Insurance and Taxes, let alone eek out some profit.

With the value-to-rent ratio you're suggesting, it will be very difficult to cash flow with LTV of 75-80%. If you leave more equity in the property to get it cash flowing, your Return on Equity (ROE) will be terrible.

This may be a better "flip" candidate.

Amit M. · Answer

hold

more

wealth

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3words

Mikhail Petrenko · Answer

The current taxes are around 5k/year. Insurance is 750/year.

Predicted taxes for triplex are 10k/taxes and 1700/insurance.

$5,694.83 is a monthly debt service payment for 900k refi 30y mortgage. So, I would get back all my previously invested cash (500k) and return a 400k construction loan.

8k - 5.7 - 1k (ins + taxes) = 1.3k/month. 1.3k should cover Vacancy, Repairs, CapEx (as 2 units are brand new ones and 1 is just remodeled), Management

0 or almost 0 cash flow, 0 invested own money and appreciacion for triplex in East bay Area.