216 – House Hacking a Fourplex and Building ADUs with Shiraz Ali

Synopsis

Shiraz Ali is a real estate investor based in Tacoma, Washington. He started his real estate journey in 2019 and found his niche which is buying single-family homes and building accessory dwelling units (ADUs) to turn them into fourplexes. We hear more about his story in this episode.

Key points

This Is The Time To Leverage

Shiraz works a W-2 job as a biomedical engineer. Born and raised in Canada, he chose to leave the Bay Area for Washington to be closer to family.

He currently focuses on converting the detached garages of single-family homes into ADUs through house hacking. Luckily, he is quite knowledgeable in electrical, plumbing, tiling, and carpentry, so he is not someone that can be taken advantage of or overcharged.

Because of this, he is very hands-on when doing renovations. His tenants also see him doing the maintenance on his own. He believes that if you take care of the people, then they will take care of the property they’re living in.

The Costs Of House Hacking

Adding an ADU increases the value of a home. Shiraz shares how houses previously sold for $700,000 are now being sold for $1M. He has properties bought for $375,000-400,000 which are now worth $550,000.

There are costs involved in building an ADU though. To start, you’d have to pay impact tax of $10,000-15,000, which was initially a huge turnoff for him. But after making lots of calls, he realized that it was actually $1,000 per year.

A permit costs $5,000 then there are also other fees such as architectural design, etc.

By doing the renovation himself, it costs him between $25,000-30,000. If he were to subcontract, it would cost around $70,000.

Where To Find Deals

Most of the deals Shiraz got were sitting on the market, so his agent didn’t have to go off-market.

Shiraz also had a good broker. Even though Shiraz had a lower credit score than his tenants, his broker was able to get him a loan with 3.5% interest.

And by raising rents enough and getting $250 per door, he comes out with $700. This way his 3 tenants paid for his mortgage plus extra for him to live with.

There was also a time when the appraisal came in $10,000 lower. He and his agent each tossed in $5,000 to cover the needed money. So he makes sure to give a good commission because he believes that if you are good to people, it will come back.

It also pays to pay for the private mortgage insurance (PMI) as it will lead to more income towards his cash flow.

His Rental Income

Currently, Shiraz makes the following from his rentals: almost $1,500 for the 2 bedroom units, $1,200-1,300 for the 1 bedroom units, $2,500 for his bigger 4 bed, 2 bath unit, and $1,900 for his 1 bed, 2 bath unit.

Why ADUs Are A Good Investment

Shiraz made only $12,000 from his first flip, but he learned a lot from that. So he advises anyone considering investing to take action and be creative in today’s real estate climate.

Deals are coming soon, so you should know what you’re looking for, hack fast, and be aware of your market.

ADUs are fully private compared to apartments. A lot of people are not doing it yet, and it brings the value up of the home. This presents a good opportunity for real estate investors.

For those concerned about parking spaces, what Shiraz did was gravel the other side of the garage.

Using Technology To Make Everything Easier

Shiraz uses Cozy as his property management app. His tenants pay their rent and make maintenance requests through the app. Also, it allows Shiraz and his accountant to see the uploaded leases, insurance, and other financials all in one place.

Right now, the app is for free, but after being acquired by Apartments.com, he expects a fee to be charged by the next 6 months.

Important Lessons In Doing Business

Shiraz experienced his parents’ business not working out and leaving him poor. He learned that he is responsible for what he does.

The key is to take accountability and have no problem putting in the effort now because your net worth is equal to your network.

Future Goals

Shiraz is expecting his first child soon. Right now, he is averaging $1,500-2,000 per home but still manages their properties. He and his wife want to later start their own company and self-provide the property management.

His goal is to own 10 properties by the next 5 years and make $10,000-15,000. The golden number for him is $14,000 because it gives him $4,000 to pay for their home and the rest as cash flow. In a year, that means he brings in $120,000.

Last Tips

Take action. Listen to as many podcasts. Once you reach the point where you recognize that you know where the podcast host is headed then it’s time to get started.

When your questions change, that’s when you grow.

Resources

References

• Cozy

More from our guest

• You can reach out to Shiraz Ali through his Instagram