All Forum Posts by: Rick Albert

Hey Jonathan,

I've been involved in a few ADU properties (including my own) and you are right, the lending world isn't quite caught up. Generally, I'm seeing values in the range of $50,000 in the San Fernando Valley and about $75,000 for the Westside. However, it can cost a minimum of $100,000 to do it right.

It's been a struggle with lenders and I'm seeing less and less flippers/investors build out ADUs for resale because of it. This is keeping ADU properties scarce unless it is for personal investment (like myself). It's too bad, I have a few clients looking for properties with ADUs.

Happy to answer any questions from an agent's perspective.  I've represented clients buying, selling, and developing ADUs.

Best,

Rick

Hey @Eric Alvarez,

Every situation is different but I would first think about where you will be spending most of your time and go from there.  For example, I bought my first house hack minutes from my office because it makes sense.  Now I own my second house hack further north closer to friends and family.  In either case, the appreciation and potential cash floor is good.

Happy to discuss further if you would like.

Best,

Rick

I'm definitely interested.  For now I'm available over Zoom.  I live in the LA area and a 2x house hacker.

@Myles Blackwell, of course! Let me know if you need referrals.

Hey @Myles Blackwell,

Well I was the first of in my sphere to do an ADU from scratch, so we ended up over budget on the ADU (especially because the City changed some of their guidelines). It cost us about $75,000 all in (and would cost closer to $100,000 now). We had thought we could have gotten away with $40,000, which is what was covered in the loan.

The reason for the 203(k) loan was so that we could qualify for much more (higher debt to income limits) and at the time it was the only one I was familiar with. I definitely would have not used the bank that we picked because they were difficult to work with. There are other programs such as Home Ready that I will start digging into. The issue with the financing is even though the cost of converting the garage into an ADU is $100,000, appraisers are not giving it much more than $50,000 or so in the San Fernando Valley or about $75,000 for the Westside. This will make it difficult to identify a property that makes sense.

Overall I'm very happy with how our ADU turned out. In terms of finishes we could have gone less expensive but the savings would not have outweighed the emotional impact that it has. When doing the ADU, we wanted it to be a mini version of the main house. This way later on if we wanted to sell the property, it could be marketed for both investment purposes or a house with a guest house. If we were to make a change and we had the money and time, I would have separated the water meter. We already made the unit all electric so we didn't have to split gas and the meters were already split. This just would have given the unit total autonomy.

In terms of financing it versus cash, that is a personal choice. If you finance it and it costs $500 more per month on your mortgage, but you can make $1,500+/month and you get to keep your cash, then it can be worth it. I have an investor client who owns three properties with ADUs, and his highest grossing one is a property that he bought with an existing ADU. It allowed him to rent out the units immediately rather than taking the 3-4 months to do the conversion.

Happy to chat further if you would like.

Best,

Rick

@Edgar Ehrsam

A big part of college is the extra curricular activities and the networking. I wouldn’t be where I am without the fraternity that I joined. Plus you develop leadership skills and other benefits that is too long to list. Why not got to college and major in RE?

As an agent and 2x house hacker in Los Angeles, there are a three of questions to think about:

1. What do you qualify for? FHA has a lot of fees and you can do 3% down on a conventional loan if you are a first time home buyer.
2. How long do you plan on living there?
3. What are your financial goals?

If I were in your position, I would house hack.  Interest rates are really low and even if there is a downturn in the market, it's a paper loss.  The experts are expecting a V shape recovery as far as the economy is concerned.  Therefore, there are two routes I personally would consider:

Buying no less than a 3 bedroom condo.  I have a hunch as home rental prices go up, 3 bedroom condos are going to become popular for tenants as it will be the alternative.  Ideally one that needs work to increase the value since remodeling condos is cheap.  Once finished, I would rent out the other two rooms as a house hack.

If you go the multifamily route, get familiar with the rent control laws. I would go house with ADU or build out the ADU. The ADU would not be subject to LA rent control but the main house would be. However, you then have flexibility whether it is living in the ADU and rent out the main house (which is what I am doing) or rent out the ADU and live in the main house with roommates. In the beginning your expenses wouldn't be that low since you will have to finance the ADU construction but that is short lived because once it is paid off, you are in good shape. My investor clients make the most money off of their SFR with ADU properties.

In both scenarios, it just depends on what you would qualify for. I'm happy to discuss your options. I just helped a house hacker in Los Angeles by buying a house with ADU. If all goes as planned, he will be paying the same as he was in his one bedroom apartment and when he moves out it will be cash flow positive.

Best,

Rick

I think that would work if the two units were the same size. Otherwise in our example we would be paying more (we live in the 350 square foot ADU). Especially because we consume much less since our backyard is drought tolerant versus their large grassy backyard.

Let me know and I would love to join!

The people already mentioned good options above. We laid out our ADU so that we have privacy from our main house. However, to have natural light, we bought the front door from Home Depot that has glass in it with a built in shade. That way we can get natural light when we want it, or privacy when we need it.