All Forum Posts by: Andres Murillo

You’re right in that the level of underwriting I presented wasn’t institutional level - but for your average person just starting out, institutional grade analysis often makes the thought of investing overwhelming. That’s why the BP community is filled with would-be investors. I like the concept of making investing accessible and achievable. 

These are some of the best investments moving forward in SoCal. The Private Equity and Institutional investor is playing the ADU game - I'm working with them. Currently underwriting 35 SFHs being purchased as a portfolio by a PE Firm in order to push rents via ADU developments. They aren't balking at a "negative equity investment" when finding such great cash flow from the ADU investment.

Just filled out the Google registration form!

They aren't necessarily easy or viable. I've seen clients just opt to build an ADU rather than go forward with a full lot split for several reasons.

1. Tenants. If Tenants are relatively newer you really can't inconvenience them with a lot split, but an ADU build is ok.

2. Not applicable unless you plan on living in one unit. You must maintain a unit as a primary residence - that keeps a lot of pure investors from completing an SB9.

3. Very challenging if not impossible to make lot ratios work if the existing property isn't conducive. 

 Hey Pearse! This is one of the most common challenges in the LA County community on BP. "How do I get started in CA?" The answer is based on your goals.

Short-term goals are tough. AB 968 will make it more difficult for first-time investors to "flip" our quickly "house hack" homes since anything resold within 18 months. There aren't many "short-term, get rich quick" type investment options in SoCal today. 

If your goals are long-term - this market will offer a ton of appreciation and steady renter demand. I helped a client purchase an SFH fixer with a detached garage. We renovated the SFH and converted the garage to a 2-bed ADU. The ADU will bring in around $2800 net per month. That brings his payment down from $4300 to $1500. Very affordable for him and his girlfriend. When they move out they'll rent the SFH for at least $3500. He'll have at least $2k per month in positive cash flow and tons of equity when it's time to find the next home in some years. For less than a $250k investment he'll cash flow about $24k/year down the road. That house was purchased for about $750k and is likely worth about $900k now that the ADU is up. Tons of equity. Long-term cash flow.

 We develop and consult new developers through the full cycle of development.

Financing differs from project to project based on your equity, land cost, construction methods, etc. Are you building for pure investment purposes or are you looking to use some of the space for personal/personal business use?

Hey Byron! Just a heads up - if you have strong relationships with church leadership and are getting into real estate, the YIGBY movement may be a great place for you to work in. 

Yes In Gods BackYard (YIGBY) is an incentive program many states offer that allows churches and other religious non-profits to develop low-income housing on their land with speed and cost incentives. Something to explore. 

In my experience - biasing investment strategy towards "renter demand" makes a more successful investment than biasing towards "low maintenance". 

If that new build sits on the outskirts of smaller cities, you receive less applications. Fewer choices of tenants cause owners and PMs to place any warm body in the property since they don't have the luxury of a multitude of applicants to choose from. These tenants can cause excess damages or be unreliable - leading to expenses and headache. 

I own a home built in 1930 near USC - that unit receives dozens of rental apps every time it's vacant. I can be highly selective on tenants and make sure they aren't likely to cause excess damage to the property. 

However, I've helped plenty of investors and institutions buy new builds in SE markets. You need to make sure you're close enough to demand drivers to keep your home rented. Plus, the reasons you have high rental demand are often the same reasons you'll benefit from greater property appreciation. #1 priority should be "Do a lot of people want to live here?". 

As many of you know, Assembly Bill 968 will take effect on July 1, 2024, mandating flippers of residential properties to disclose recent repairs and renovations if they sell within 18 months of acquisition. While the intent behind AB 968 is clear—adding transparency around recent repairs and renovations—this bill may not accomplish its aim in the ways its proponents hope. Here’s why I believe the real impact won’t fall on flippers, but rather on wholesalers, sellers of distressed properties, and buyers.

1. Higher Costs for Distressed Properties
To comply with the new regulations, flippers will need to rely on licensed contractors for repairs, who typically charge higher fees than non-licensed labor. Flippers will have to price in these added expenses to maintain their margins, leading to lower offers on distressed properties. Sellers looking to offload such homes quickly will likely receive lower offers, translating to less cash in their pockets. The ripple effect of AB 968 could be that fewer distressed properties hit the market at affordable prices, ultimately impacting those looking for a fixer-upper to build their equity.

2. Lengthier Escrow Periods
New flippers, unestablished in the market, will feel the weight of this bill most acutely. With the necessity to disclose repairs and renovations by contractor information, flippers will face added time and complexity in sourcing quotes from licensed contractors, extending the escrow process. Expect buyers to experience delays as new flippers scramble to navigate these requirements and pin down reputable contractors willing to handle the work within reasonable timelines and budgets.

3. Workarounds for Established Flippers
For seasoned flippers, AB 968 presents an inconvenience rather than an impediment. Established flippers have the resources and networks to build close relationships with contractors, making it relatively easy to coordinate compliance at minimal cost. It’s likely that some contractors will offer a sign-off service for a fee, allowing flippers to comply with the letter of the law without significant extra labor costs. While this isn’t ideal from a transparency perspective, it’s a foreseeable outcome when the regulation doesn’t directly impact flipping economics.

The Bottom Line: While AB 968 may promote transparency in theory, its real impact will likely create more complexity and hurdles for sellers of distressed properties and newer market participants rather than significantly altering the business strategies of established flippers. For those impacted, it may mean less money, longer sales processes, and fewer affordable homes available to buyers.

Would love to hear your thoughts—do you agree that this bill’s impact might miss the mark?

Your ADU application will likely need to be signed by the tenants occupying the property so having a conversation with them is important.

I had a similar situation in Chino except instead of losing out on a garage my tenants lost out on parking. We had a paved area for parking where we built the ADU. My tenants had also been in the property for a couple of years and were under-market on rent (not $1200 but still under). There is plenty of street parking so it wasn't a giant issue.

The conversation was pretty straightforward. I approached them and told them our plan to convert the space (assumptive sale style) and offered to renew their lease and lock them in for the same rate for 18 months at the same time. I made the new rent agreement easy for them to terminate, just a 30-day notice like m2m without penalty. The new lease didn't mention any off-street parking. I wasn't going to bump rents anyway and they got to feel good about locking their rate in.

Everyone there is happy now. 

Use Notion! Their Project Management tools are great for things like this. You can upload docs, set up dependencies, etc. I use it for everything professionally and personally.