All Forum Posts by: John Litz

When I was young I had plenty of room mates. The term house hack didn't exist back then. None of us made much money and it's just how we could all afford rent. At 42 I bought a duplex to help pay the mortgage (house hack still wasn't a term then). I am 56 now and still live in the same duplex. My tenants pay the mortgage and I live for free. I was able to buy a second house that I am doing a short term rental in. It is doing well and have plans for an ADU this year for a second STR.

I bought an SFR specifically because of its layout. The upstairs is already setup for stand alone 3 bed 2 bath with a nice back yard space. This area I am doing an STR so it is making a little over $1k per month in cash flow after all expenses plus an additional 15% for vacancy, maintanence and cap x. So even if I don't build the ADU I am doing very well with this property. The downstairs has 2 garages in which I have additional washer/dryer unit so laundry can get done faster. The other side downstairs already has a huge space and a bathroom. I will be building out a 1 bed, 1 bath with full kitchen and living room in this space that will also be another STR with its own entry door. Funding will be done by taking a loan against my TSP where the interest rate will be 4% paid to myself. Complete pay back will be just short of 2 yrs with almost 100% cash flow after pay back since the upstairs will be paying the majority of the expenses. I bought the property for $430k and when complete with permits it-will have an ARV of $650-$700k with about $60k repair costs. Downstairs will produce $25k per year on its own.

I can see both sides of the OP and Dan H. OP gives some numbers on returns that are specific to the area. As we all know RE is very specific locally. So not everyone is going to get $2-3k rents. However Dan H is over stating negatives locally as well. Some areas ROI will be better than the negatives he faces. There are many flavors of ADU's and not all screw up privacy and yard space. I am converting existing space so it won't cost nearly as much as building a detached unit. Won't mess up space for the yard and won't impede on privacy what so ever. Since it is existing structure the cost will be significantly less. I personally am a fan of ADU's but as with all RE you have to run the numbers and analyze the deal to see if it makes sense for your situation. The deal will always tell you if it is right. No emotions, use the right strategy for the right situation. California does have some very good ADU legislation. Cost to build vrs rental income is the issue most will come up against if your area allows them to be built at all.

Have house hacked for 13yrs in a duplex. Tenants have always known I am the owner. I have nothing to hide. To mitigate liability, I make sure any issues are fixed right away, keep good home owners insurance, have a large umbrella insurance, and keep a mortgage on the property so if I get sued the bank lawyers also help fight. I use Hemlane for rent collection, finding tenants and vetting tenants. My bank accounts are separate from my personal account to make it so much easier to see profit/loss and taxes. Every property should cash flow and pay for itself, no alligators !!!

I live in Reno Nv. FMR is what section 8 pays. You can easily look this number up with a google search for your area and then inputting your zip code on the website. Market Rent is what the regular market pays. However these two numbers are fairly close at the moment for Reno. Bath count does not matter for FMR, but you can get a little more with additional baths for Market rent. Section 8 or FMR- is more hassle but also more guaranteed. Market rent can get slightly higher rent but has more risk.

If you want a generic sq ft price just ask ChatGPT. If you want a more accurate price you will need a scope of work easily generated with AI as well and submit to a GC. A sq ft price is just to get in the ball park and not very accurate at all. A scope of work is easy to generate for a baseline then do add on’s to the scope you need customized for your exact preferences. The GC can give you a much closer estimate the more detail you give them. 

I’m sure I will make a post about the whole experience. It is certainly a long game to make this one happen. But it will pay out in big ways when it is complete. 

During your analysis did you include a percentage amount for vacancy, maintenance, and cap x? I usually hold 15% total for these. Did you figure in the additional cost of no rent for one of the tenants and how long it will take to evict them? This is part of the cost to acquire. Did you figure in the cost of the other tenant paying less than market rent until you can get them up to market rent or replace them with another tenant and how long that will take? This is also a cost to acquire. 
When you have studied your market properly you should be able to provide the answer of if single family or residential multifamily is better for cash flow. 1% rule was for a time when almost all deals were decent as a way to rule out the lessor deals and concentrate on the best deals. Very few will hit this metric these days. Not a great rule for today’s market. Some can still hit it but not most

I am in the middle of getting zoning legislation changed in my city to do the exact same thing. It is a huge challenge but it is looking poitively so far. 

Regardless of if you could get 95% LTV. It's more about should you create that much risk in your portfolio. Personally I would not go above 70% and when your done building mode drop down to roughly 50%. At 95% any negative change places the entire portfolio at risk. Just not a position I am willing to put myself in. At certain times it could be a huge winner but there are plenty of other times where it is a huge loser as well.