All Forum Posts by: Arlen Chou

@Shantan Kajjam your contractor is wacked. You are going through the process of installing power and AC, you should definitely spend the few hundred dollars for the insulation. The walls are open, put insulation in now. The cost and time to do it is minimal. Seriously a guy with a truck could go to Home Depot get the rolls and install it in the shed before lunch time.

Good luck to you!

@Adam Kuszczak getting to the party late is usually better than not getting there at all... it just depends on when you think the party will end. The BA market has been crazy for over 30 years. People have always said that appreciation cannot continue, this is a massive debate on this forum. The question you need to ask yourself is how long will you stay in this particular market. If you plan to be in this market for 30 years, then the downside is minimal. If you want to play the swings in the market, then I would advise you to be extremely cautious. 

Keep in mind that we have gone/going through 3 rounds of government stimulus. All that has done is kicked the can down the road. We have not had serious correction in a long time, it will come, it is just a matter of when. So the bigger question you should ask yourself is "when" do you think the party will end and if you can deal with the hangover until the next party. If you think the party will end soon, or you don't think you can deal with the hangover then your time might be better spent getting ready for the next party or better yet be ready to take advantage of all of partiers that passed out after the party.

Sorry to the long party analogy, but I think you get my point. Hahaha

Good luck to you!

@Raju Balakrishnan the rent rate issue is actually kind of interesting in that it really is neighborhood specific. The focus on "tech workers" is kind of a limiting thought. The reality is that there is large requirement for "support workers" in the BA, that if addressed correctly can lead to steady income/value increases for you. I have 6 units in Oakland, 1 is vacant and 1 has not been paying due to covid. However, the other 4 tenants have consistently paid and recently went through CPI based rent increase. I rented out additional parking spaces and a storage space to cover the dip in rents received. Currently, the 4 tenants and the additional income cover my monthly nut and then some. 

I have purposely been slow on filling the 1 empty unit because of covid, but now that CA is supposedly fully opening in June I plan to fill it on July 1. As for the tenant that has not paid, I expect that they will either pay the back rent or I will start the eviction process in June. 

My point is that you need to get into the weeds and evaluate the buy opportunity based upon the location and the existing tenant base. If you can do this, I am sure you will do well in this competitive market.

Good luck!

@vipin you did not state the reason you want to add this additional space, that fact alone drastically changes the direction of the project. As for going up, it is not as easy as de-capping the roof and building up. There is a substantial amount of engineering that needs to be calculated to carry the additional load of the upper story. Single story homes are not designed to carry that load. Therefore, you will also be tearing into the lower structure to add strength. All of this adds to cost and to the time line. This might make sense if you are doing this for your own benefit, but it probably does not make much sense if you are trying to make a larger rental. If you are trying to make a larger rental, adding square footage at ground level is the fastest and easiest. As other have alluded, there are sqft issues for the lot size that you encounter with the city. Take all of that into consideration before going to far down the path.

I wish you the best of luck on your project!

@Swetha Ramaiah congrats on the start of your journey. You should reach out to @Account Closed and @sharontseung. They are local and they have been crushing it out of state. They have also put together a course to help people starting OOS investing. I have not seen the course but I hear that it is pretty good.

Good luck to you!

-Arlen

I visited the site last year and the quality of the product is top shelf. Great project @Jay Hinrichs!

@Marina Kedrub unless my understanding is incorrect, converting your apartment building to condos will not help you get around rent control. Costa Hawkins does not apply to the person/entity that does the conversion, it is applied to the anybody that were to buy the units AFTER conversion. There was a loophole that owners used to do what you are suggesting, but in 2001 it was closed by SB 985 requiring the subdivider to actually sell the units before the protections are enacted on a property.

@Krystin Aversa there is a lot of good information and experience in the answers you received. Personally, I am buy and hold guy in the Bay Area, but I understand the pull of OOS investing. I am not going to touch on these topics directly as I think it all has been covered. What I would suggest is that you look at the economic atmosphere from a macro perspective. We are in very unique period of time. Interest rates are historically very low and many economist believe that inflation is coming. What does that mean? Historically investments in real assets are a hedge against inflation. Meaning, the value of real investments go up as inflation goes up. Additionally, interest rates traditionally rise with inflation.

Therefore, if you believe that printing money will lead to inflation and that the Fed cannot keep interest rates low forever, then logic would say that interest rates will go up and the price of properties will rise. The dynamics get a little more complicated for larger rental properties, but in your case of a personal residence, or even a duplex/triplex I think these assumptions hold true.

Of course, if you believe that unemployment will stay high, but all of the printed money will create inflation we could potentially be going into a stagflation scenario. Yes, stagflation traditionally is created by a supply side shock. However, the effects of covid could be creating supply issues in ways we don't understand yet. As an example the semiconductor supply issue is now hitting auto manufacturers, but that could easily stretch out to other consumer electronics. Who knows where else we could start to see supply issues. Obviously we see that with covid vaccines... does that lead to supply issues for other drugs because manufacturing has been shifted? IDK

Either way,I would just look for a property in a good location in the Bay Area. I have to believe that interest rates are f'ing low. If they go down in a few years, you can always refi down. If they go up you are safe. Don't get something in the hood, hoping that the area will get better. If you decide to go back to the East Coast in 5 to 10 years, you should be in a good position to sell. 

@Funmilola Oladini this is really an unfortunate situation. It will be critical for you to look at this from a financial perspective instead of a personal perspective. Unfortunately, that might mean taking a loss. It is hard to help you on this point without knowing more of the financials of the property and what your future plans are with the condo.

You could go through the process of lawyering up, but who do you sue? The HOA obviously is in the wrong, but there is no money left. Do you go after the people who were on the HOA? Do they have money? You also have to take into account your lawyer fees and the time it will take for this to get through the courts, especially during covid. Even if you were to win, you would still be in a position where the building is still in f'd up shape.

You could go through the process of deconversion, and go to an "every person for themselves" stance. The problem with that is that the units are all still attached and the value of 1 unit is still connected to the value of the others in the complex. 3 nice units next to 3 units that are falling apart is still an equation that leads to lower property values. If for some reason you are fond of the unit/complex, you might consider buying out the 3 owners that cannot afford to repair the building. Obviously there are many more things to consider with this option.

The biggest issue might be is that the whole thing might come to a grinding halt because you have 3 owners that can't afford to do anything, so their motivation will be extremely low. Buyout, at a discount, might be the only way to move forward to do repairs. But I am sure that this will not be an easy discussion either.

Personally, I would look to exit the building as soon as possible. You will undoubtedly need to disclose any problems with your unit and most likely about the HOA. It will be important to get out before there are any lawsuits. If you or anybody else gets into litigation, it will make it even more difficult to sell. Obviously, you will need to take a steep haircut on the price. But you really need to consider that potential amount of time and resource you will need to spend to get the property back into the shape it should be in.

In situations where people feel they have been wronged, it is very easy to get into a position of wanting to fight just to be right. The red mist of battle often clouds good judgement. Please be careful of throwing good money after bad...

Please post up and let us know what direction you end up going with this. I wish you the best of luck!

@Johnny Lau I am in the middle of 2 in the SF Bay Area. Have you already sold your properties? I did not close on my sale until I had a clear list of 3 properties that I wanted and I knew I could close on. I basically identified a bunch of properties prior to the 45 day identification period and carved it down very quickly based upon negotiations. 180 days to close seems to be ample time, but anything can happen. For what it is worth, I went from residential to NNN buildings.