All Forum Posts by: Jon Schwartz

 Toby, just want to chime in to say that CA has some of the lowest property taxes and the worst undersupply in the country. I don't know if your reasons for staying away are sound...

Best,

Jon

Ray,

The ADU will make sense if you hold the property as a rental, but not if you sell the property in the near term.

ADU's aren't valued as traditional additions because they don't add square footage to the original house. Instead, they're valued as an amenity, like a swimming pool or wooden porch. Most appraisers these days are valuing ADUs at $40K-$50K, which is less than you're paying to build it, I'm sure. So don't expect to recoup your costs in a sale.

However, if you keep the home and rent out the ADU separately from the main house, you'll be getting an excellent ROI. What's a 1/1 rent for in your area? $1500/month? If you building an ADU for $100K and it generates gross rent of $18K/year, you're probably looking at a net return of $15K/year or 15%. That's AMAZING in LA!

So if you're planning to sell in the next year, stop construction. If you're planning to hold for a couple of years, keep building.

Good luck!

Best,

Jon

@Dave McCulley,

Who's telling you your plan isn't possible? It seems totally reasonable to me. If the numbers work, it should work fine: refinance out of one FHA loan in order to acquire another.

Do you have a listing for the kind of duplex you want to buy? I'd be happy to run a listing through my spreadsheet, but I need the actual numbers!

Best,

Jon

Allen, you should familiarize yourself with CA tax regulations before pontificating on them!

Best,

Jon 

Jay,

This is really complicated, and there's no reason for it.

If you and your friend are investing in the syndication as limited partners, you already have limited liability in the investment. That means that your liability does not extend any further than the capital you invest. At worst, you'll lose all of your money, but nobody can come after your home or other assets. If you're creating the WY LCC for asset protection, you're creating it needlessly.

And why are you and your friend forming an entity to invest together? Is it because there's a minimum investment amount? Don't worry; syndicators will take money from anybody who qualifies! Just explain that you two are investing together or not at all. Is there some other reason?

Best,

Jon

@Spenser Hachey, you’ll most likely have to put down 25% for a non-owner-occupied property.

Good luck!

Also call @Yosef Peretz. He's a new friend in LA.

I have not built an ADU at a rental, but I've looked into it. Are you converting a structure or building from scratch? Do you have any questions that could be answered here?

David,

Google "AB 3088." It was just passed by the state legislature. Rent unpaid during COVID can now be sought through small claims court. Not that you're likely to recover if you tenants are deadbeats, but that's a plus for landlords!

You're entitled to use the security deposit for repairs and unpaid rent (I'm 90% sure, but you should check with Santa Monica ordinance). You're not required to inform your tenants that they won't be getting their deposit back..

I'd be totally reasonable and above-board with your response. Ask them when they'll be vacating and let them know how much rent you are owed. Don't bring up the deposit; if they ask, tell them you'll return everything minus repair costs and rent owed.

Are the tenants unstable? What's the risk that they'll trash your place before leaving if you have a bad interaction?

In the grand scheme of things, I'd consider $3500 a small cost to get rid of a deadbeat tenant!

Best,

Jon

Daniel,

I recommend you google "Los Angeles ADU designer" and call the results to ask questions. ADUs are big business are here, so these folks will be happy to impress a potential client.

Best,

Jon
 

Dave, at the risk of ruffling @James Bradin's feathers, I'm going to tell you not to listen to his advice.

Firstly, all real estate is local, and the same is true of real estate investing. I live and invest in Los Angeles, so my metrics a totally different than James's and will be different from what works for you. Don't chase the 1% rule into a D-class neighborhood! Don't walk away from a good opportunity because it's cashflow neutral and not $200/door.

Right now, I'm househacking a beautiful, historical duplex in Hancock Park, a pretty ritzy neighborhood in LA. It doesn't cashflow, but I'm paying net about half what my tenants' pay (and I have the better unit!), and the financial advantages don't stop there.

So let's look at the different ways that househacking a duplex benefits you financially:

Firstly, there's the reduced cost of living. Even in a high-price city like LA, househacking a duplex is cheaper than renting a comparable apartment or owning a house down the block. Some markets have price points that allow a househacked duplex to cashflow; some don't. Regardless, your housing cost is likely to be cut in half or more. That's awesome!

Secondly, there's the principal paydown. This is the not-talk-about-enough magic of househacking. Let's say your mortgage cost is $1500/month and you can rent the other unit for $1000/month. Your tenant is paying 2/3 of the mortgage, but all of the principal paydown is going onto YOUR balance sheet. Even month, your net worth increases by the amount of principal that gets paid down.

Thirdly, appreciation adds up -- though this is really dependent on where you live. In LA, appreciation is a powerful wealth-building force. In most Midwest markets, not so much (though of course there are exceptions!).

I'm a bit of a nerd for househacking, so I put together a spreadsheet to quickly analyze a househacked multifamily. Here's an example with a fourplex in LA that a friend is considering:

I'd love to run the spreadsheet for an out-of-state market that doesn't have rent control or much appreciation and see how that changes the longterm projection. You game to find a listing in your local market so we can run it through the spreadsheet?

Best,

Jon