All Forum Posts by: Rick Albert

People have brought up interesting ideas to help you get to the next level. Obviously buying MFU means more income coming in. 

One interesting option is doing a renovation loan to add a unit. For example, buying a triplex and converting the garage into a four plex and converting it to an Accessory Dwelling Unit. Check with the lender but my understanding is they will count that potential income as well.

There needs to be more context.

How much money are your netting/willing to use?

Are you going to rent or buy your next place? Is that factored in?

Where does your experience lie? I wouldn't buy a business for example if you don't have the background for it. That can be risky. Same with hard money lending. High risk and if someone doesn't pay that's a headache in itself.

How much money do you need each month in order to retire? Is that $10K a month or $5K a month? This is probably the most important question. 

I have done a lot of ADUs in LA County. Here's what I have seen:

1. Some appraisers will combine the square footage and go that route and make adjustments. You don't typically don't want this, as this is the lowest evaluation.

2. The more common one is a flat value for the ADU, like they would for a pool or another bonus. This is typically HIGHER than option one.

When did the HELOC on my house with ADU, the first appraiser used option one and I demanded a new appraisal where they would give me a flat value. I got an extra $30K in value out of it.

Appraisers don't use the PPSF because it is grossly inaccurate, despite common belief. Keep in mind the PPSF is the total value, which is land and structure. So if you are doing an addition, you are only contributing to the structure portion of value, not the land value. You have to separate the two. That's why appraisers do the comparative approach and then secondarily the cost approach.

So far, 100% of the time you don't get dollar for dollar back from what I've seen. But that's typical in most cases. You put on a new roof for $30K but the market won't pay you a $30K premium just because of it.

A couple of things to note:

1. The brokerage doesn't matter as much unless you are selling off market and they can share within their office. It's not like the MLS discriminates on listings because of who is listing it. A great example is in 2023 something like 70% of agents did 5 deals or less. That information was data from big brokerages.

2. You could also list low and if the demand is really there, could get bid up. No guarantees but something to consider.

3. If the presentation was weak, that's answers your question. 

4. What marketing efforts are they going to do outside of just posting in the MLS. Professional photos? Video tour? Floor plans? Reaching out to local agents?

I would compare it to you or the Seller buying down the rate permanently. The payback period can be anywhere between 3-7 years depending. It might make more sense. 

So far everyone that has predicted rate drops have been wrong so I wouldn't bank on it. 

Yea I would definitely show before receiving applications. I know some might disagree.

The challenge is if someone applies and meets all your criteria and you reject them, I would hate for you to end up in some legal hot water. The work around is part of the application process is to tour the property, but still, why put yourself in that position?

If you have a ton of activity, then host an open house, get people through and then let them apply.

One thing that hasn't been brought up is if you put a property in an LLC, it MAY be subject to California Rent Control, even if it is a single family home. That is something you need to be aware of. Also keep in mind that if the concern is lawsuits, they can still name you individually in a suit and it is just another battle. That's what one of my mentors told me. Plus you can't typically get conventional financing because they want to finance to a person, not an entity. There are likely work arounds and you will need to discuss with a loan officer.

There isn't one thing.

For my out of state properties, vacancies have been a nightmare. Yes, you can drop the price, but then the numbers don't work. In LA, my last vacancy was about a week.

The hardest part honestly is understanding the laws and dealing with the tenants around it. One misstep and you could be in hot water. 

There are a couple of thoughts:

1. Once you are married, you are going to want your alone time. When we got engaged, my wife didn't want roommates but was willing to do a two unit situation.

2. What I like about multifamily is the splitting of costs. No matter the number of units, there is one roof, one property tax bill, one sewer line, one gardener bill, etc. 

3. Go with what you feel comfortable with.

4. The biggest time suck is finding tenants. Assuming the place is in good shape, there isn't that much management.

5. Talk to property managers and see if they would manage the other units. That way you have a fallback plan if it gets overwhelming. 

6. Run the house hacking numbers. My guess is that you will pay less per month with multifamily than a single family. 

7. It might be easier to scale with MFU. More doors means less vacancies and it might motivate you to save up and buy a new SFR when you are ready to settle down.

Hey Giovanni!

Welcome to the community! I'm a 2x house hacker here in LA (a case study in the BP book The House Hacking Strategy) and an out of state investor. If you want to chat I'm more than happy to.