All Forum Posts by: Rick Albert

Would love to get together, even over Zoom! 

Hey Hector!

I'm house hacking in Los Angeles and on my second property. The first was a condo (rented the other bedroom) and now bought a house and did a remodel and ADU using my own cash and an FHA 203(k). Currently my wife and I live in the ADU while we rent out the main house.

Thinking of only putting 3.5% down, I don't see the numbers working anywhere in the LA area where you can live for free/cash flow.  However, considering that you own the place and would be paying rent for something comparable, it is still a win.

Unfortunately $600K doesn't go far, even for Single Family anymore. Think about your long term goals and consider looking in areas closer to Inglewood where you can buy a SFR with a detached garage. Then utilize a loan (FHA 203k, construction, partner, other) and do the garage conversion. This way you are building a second unit. You will have to be able to manage the loan by yourself while the construction happens (figure about 4 months). With FHA 203k loans, if you haven't maxed out the loan you could finance those payments for a few of the months.

Happy to discuss if you would like.

Best,

Rick

My understanding is the gas line has been fully shut off, but I can't say for sure.

Unless you are your own contractor, the garage conversion might cost closer to $100K. For Los Angeles, the architectural plans, structural engineer, permits, and survey alone might cost you closer to $10K. Plus (at least for Los Angeles), the ADU has to have it's own sewer line. That's another $8K-$10K. And we haven't even touched the inside of the garage yet.

It is my understanding that the ADU would not be subject to rent control because the Certificate of Occupancy is between 2017-2020. However, if the main house was built prior to 1978 (which most are), then the main house would be subject to Los Angeles Rent Control.

You should also look into homes with ADUs. The ADU is not subject to Los Angeles Rent Control and for the first fifteen years of the ADU being built it is not subject to CA rent control. Of course this is subject to change. I have a house with an ADU in the San Fernando Valley and I have a client who has three of them and is pretty happy with them.

With the 2-4 units at $700,000 you are going to need to run your ideal numbers.  The units will most likely be small. Not to say that they won't work, you just need to set expectations.

I've been wondering the same question.  T.O. does have Amgen, but from what my Amgen clients have told me, many of the younger employees are actually commuting from Santa Monica.

The other thing to factor in is SCV is part of LA County, which is going to be more difficult for evictions due to it being packed.  That's what one eviction attorney told me.

Also factor in the cost, time, and guidelines for the ADU conversions. It might be more realistic in one area over another.

I would go with where they are also building. I have a house with ADU in Granada Hills and so far so good. My wife and I live in the ADU and we rent out the main house.

Happy to discuss with you further if you would like.

I'm not surprised at a 4% cap rate.  I actually expected it to be lower.  LA's game is all about appreciation.

My most recent investor client bought a house with an ADU. He's cash flowing about $1K/month. This is his second property and in both cases the main house covers the PITI and the second unit is cash flow.

Just a thought.
 

Got it, that makes sense.

I really like house hacking in Los Angeles.  I'm on my second house hack (totally 3 doors).  I look at it from the long term perspective.

For example, I'm paying about $60,000 a year in mortgages.  Right now my tenants are paying most of it (I'm in one of them) until I move out.  By the time I'm at the retiring age, not factoring in appreciation, I will have unlocked $60,000/year in rental income off of three units since the mortgages will be paid off.  You would need 60 units to accomplish that in certain parts of the US.  

Hey John,

Back during the recession I worked with a developer who bought foreclosures, however it was at the courthouse steps.

In terms of looking before you have the cash, it's not bad to educate yourself and set expectations.

My purchases were in the Los Angeles area, so not sure where you are looking.  However, a couple of things to keep in mind (again, Los Angeles perspective, not sure if it is the same way where you are):

1. You cannot inspect the home ahead of time.  You can't even walk the property.  You could be getting yourself into a bigger fixer than you realize.
2. With courthouse foreclosure purchases, there still could be occupants inside the property (previous owner, tenants, etc).  If they don't leave willingly, then your options are (1) cash for keys or (2) go through the eviction process, which can take months and cost a lot of money.

If you can afford the risk, then go for it.  I'm not saying don't do it.  I'm just saying that you need to understand the risks.

With liens, you can generally see them in a title report assuming they have been recorded.  

Good luck!

Rick