Turning Single Family Homes Into Duplexes
Today Joseph Peretz joins the show to share how he went from not having money to pay rent to creating a profitable business building ADUs and helping others achieve their dream of financial independence through the power of house hacking.
Interested in being able to own a home without your home owning you? You can get started house hacking.
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Joseph got started in house hacking when he bought his first home and converted the garage into an ADU. Since then he’s built a business helping others do the same.
Joseph’s House Hacking
House hacking has helped Joseph live rent-free and build a business so that people can keep and afford a home. Let’s take a closer look at how he made this happen.
Joseph’s First House Hack
Joseph started house hacking because he didn’t have money for rent. He and his brother, a general contractor, converted the brother’s garage into an Accessory Dwelling Unit (ADU) where Joseph lived for six months while saving money.
Joseph’s Next Move
Joseph bought his home, a single family residence (SFR) with a pool, and converted the garage into an ADU. He lives in the ADU and rents out the main house for $3,500 a month. Joseph’s mortgage is $2,300. He’s living rent-free and paying off his mortgage.
The ADU is a garage conversion in front of the house with a separate entrance. While his renters lose out on having a garage, they gain the pool and backyard, almost 6,000 square feet.
Steps to Building an Accessory Dwelling Unit
Because building codes are constantly changing Joseph recommends calling an architect or the building and safety department of your city to find out about plans and permits for ADUs. And working with an architect or drafter who knows your county’s laws.
Tip: The Best Accessory Dwelling Units (ADUs)
Detached garages are the easiest and cheapest Accessory Dwelling Units (ADUs). Because you already have your foundation, walls, and roof. You can get an ADU finished in six weeks.
Joseph suggests looking for a house with a detached garage (the best option) or an attached garage. Garages don’t need setbacks (the distance between the property line and an adjoining building). You’ll be a step ahead and save time building out the ADU.
If a home doesn’t have a garage but has a big lot, you can build a new ADU. Joseph advises that you research your city’s setbacks. Cities that encourage ADUs and want the housing crisis to end give less setbacks. For example, the city of Los Angeles has 4 feet setbacks but Burbank and Anaheim have 10 feet setbacks.
Most ADUs are tiny, kitchen appliances are a maximum of 24 inches, so Joseph tries to incorporate natural lighting, limited doors (bathroom, bedroom, and entry only) and outdoor space when designing an ADU. One hack to provide space is to add a fence down the middle of the year. This works for detached ADUs where the single family residence has the front part of the yard and the ADU has the back part.
Joseph has built ADUs in a variety of sizes from under 350 square feet (studio), 350 square feet to 500 square feet (1 bedroom), 600 square feet (2 bedroom, 1 bath), 750 square feet (2 bedroom, 2 bath), to 1,200 square feet (3 bedroom, 2 bath, huge kitchen, and large living room). Regardless of size, put in a separate line for the electric.
Financing Your ADU
When financing your ADU, he recommends taking out a home renovation loan instead of a HELOC (home equity line of credit) because “money is cheap today.” A garage conversion costs between $60,000 to $80,000.
Joseph recommends not cheaping out when hiring a general contractor. The goal is to build an ADU that rents for a lot of money so you need a general contractor or a handy man that knows how to do everything.
Not only do you want someone with experience, who is licensed and insured, you want someone who can get the job done fast. The sooner your ADU is complete, the sooner you can start collecting rent. Joseph and NEO Builders Inc can build an ADU from a garage conversion in six weeks. Newly constructed ADUs can be built in 9 to 10 weeks.
Joseph’s philosophy on renting ADUs is to pick renters you like and charge them fairly. When renting in urban areas where you can price rentals higher, include utilities, wi-fi, and water for short term rentals of two to six months. In the suburbs, where rentals are for two to three years, charge renters for utilities, water, and wi-fi.
He believes in the house hacking leapfrog method of going from one house hack to the next. Joseph suggests after you build your first ADU, take the equity out of our first house and buy a second house. Then rent the first house and ADU and move into the second house and build an ADU. Then repeat the process.
The Famous Six
What is your favorite personal finance resource?
Meredith 203 renovation loans podcast
What is your favorite real estate resource?
Rich Dad, Poor Dad
What has been your favorite travel destination so far?
Copenhagen in the summer
What is next on your travel list?
Traveling up and down California and Utah. Spending a quiet week in Miami.
What is the biggest bucket list item you haven’t accomplished yet?
Buy a multi-family and build ADUs on the property.
What is your favorite life hack?
Be happy with where you are. Be very helpful and humble. It might take a minute but everyone comes back. People gravitate towards people that give education for free.
Book mentioned in this episode
How to Connect
You can reach out via Instagram @neo_adu and @neobuildersinc. Joseph’s website is https://www.neobuildersadu.com. His YouTube channel is https://www.youtube.com/channel/UC4iCNgW9Npa6WV1SGLQdMGw
You can check out the best ways to learn about real estate investing, and house hacking at https://fibyrei.com/learn.
Learn more about Accessory Dwelling Unit House Hacking with Cami:
6 Week ADU Challenge
LA ADU Accelerator Program
House Hacking Leapfrog Strategy
Be sure to check out our Ultimate Guide to House Hacking for a great overview of the different styles of house hacking and different types of tenant bases.
Check out the home page for “The House Hacking Podcast” here.