All Forum Posts by: Andrew Lawlor

Besides all the issues with ADU additions such as value far less than ADU addition, primary becoming rent controlled, cost outlay long before any income, detracting from primary Even if it is just yard and privacy, the amount of effort required, I question how you think this works cash flow rise.

I do my underwriting always using the worst of any ranges.  Rent $2.5k. P&i $2k.  Prop tax 1.1% of $225k is $187/month.  Insurance varies significantly if attached versus detached so going conservative we will use more expensive detached at $50/montn.  Vacancy 5% is $125. Pm at 8% all inclusive is $200.   Maint/cap ex $300. Misc $50.  $2500 - $2000 - $187 - 50 - 125 - 200 - 300 - $50 = -$412/month.  Now compare with 50% rule $2500 (rent) - 2000 (P&i) - 1250 (50% rule)= -$750/month.  

a lot of work to likely start with a negative equity position and negative cash flow.

Best wishes

I purchased my Los Angeles (Compton) 4-bedroom home in 2013 for 240K; according to Redfin, it is now worth 686K. 2 years ago the entire house was completely renovated (Insurance claim) due to a burst pipe that caused extensive damage while vacant. I'm not sure what I want to do or what my options are. I've been thinking I would like to fix the outside landscaping/fence/Kitchen cabinetry and roof so I that I can get the max rent or just sell and buy in the midwest, 1031 exchange (not sure if I qualify). I mainly would like to expand my portfolio using the equity but am hesitant to refi because my current rate is 3.3%. Even Airbnb would be an option but I'm starting to feel like I need a partner who knows what they are doing to guide me. HELP!!

A few suggestions from an investor turned builder.

Learn the code for your area forward and backward. Just about everywhere in the US uses some version of IRC for its base code and then makes some changes to that as they feel necessary for their locality. I would suggest starting with reading the IRC book all the way through multiple times. Then add any other codes required where you want to build and study those as well. Do not rely on your subcontractors to know/perform the code correctly for your area. This is one of the biggest things that people dont think about when they decide to skip hiring a GC.

Become a familiar face with your local planning and zoning board/committee. This is who will approve or deny your plans when you apply for a permit. Go to some meetings ahead of applying, talk to the members of the board and ask questions if you have any. A lot of problems that arise during permitting and planning can be avoided by being proactive.

Build relationships with sub contractors. This is a tough one for new builders. The good subs in your area will likely have plenty of work already and may not even return phone calls. This is one area where it helps tremendously to have per-existing relationships with people in the industry such as family or friends. The best way to get through the door with subs is a recommendation/connection from someone they respect. Also talk to the local building inspectors and find out who they recommend and who they constantly have problems with. I am also the building inspector for my small town and I certainly know who the good subs are and arent. On the topic of building inspectors, make them your best friend. They can make or save a lot of headaches for you. Make sure you understand exactly what they want to see and when, all through the build process. Nothing will piss off the inspector faster than missing an inspection.

My last piece of advice, in an effort to not make this a book length post, deals with the money. You need to know what things cost. I have spreadsheets filled with material lists for every phase of the build that includes pricing for materials as well as labor, and sources that I use for them. Underwriting a new construction is like a flip on steroids in terms of volume, however you will find that you can get a much more accurate budget in the end because unlike a flip, there are very few unknowns going into it. The trick is just not forgetting something.

Hope this helps! I am a big proponent of self GCing new construction investments, as long as it is done correctly. Not an easy thing, but saving 20% or more on the cost of a new home seems well worth the time and effort if you ask me. I am currently working on starting a youtube channel that will teach what I have learned in becoming a builder, along with following some of my builds start to finish.

you can utilize no income no doc construction loans . fund 50% of the land 100% of construction upto 65% ARV . What is the scenario looking like ?

 I would get in touch with a local builder, and see about getting a mentorship on down days and days you have off.. PTO days you can tackle this stuff with the contractor as the mentor and do.. Or even a contractor that does large additions and then move towards ground-up stuff. There is a lot of stuff to cover, so try to make as much time for it as you can while working your W2.