All Forum Posts by: William Yeh

@Guifre Mora Yes the goal is to keep it all under the LLC and not involve any individual partners of the LLC. Someone floated the idea of getting the loan in an individual's name and then quit claiming to the LLC but that's too messy.

@Chris Mason Well given that I've already got loan offers better than what your suggesting is technically possible, I guess the universe is imploding?

Hey BP. My group is engaged in residential rentals under an LLC and we've been struggling to find portfolio lenders in the Bay Area California with reasonable terms. We've come across a few lenders that have quoted in the mid to high 5% range and another at 4.75% but with 40% down which also kills any cash flow on a deal.

Appreciate any guidance you can provide!

@Laura C. From a market acceptance standpoint, I don't see there being any issue with the market discounting the desirability of a prefab ADU. If it's nice and it's functional, why would a renter care how it was built?

As for building code, that varies from city to city but most cities have addressed ADU's and have clear guidance on the requirements for setbacks and building standards.

@Abe Shen You are correct in that utilities and foundation need to be prepared ahead of time but that is no different than if you were to stick build an ADU. Every case will be different. There are no shortcuts for plumbing, power, and gas.

If my ADU plans end up working out, I'll report back. Likewise if anyone has any success stories, would love to learn about your buildout.

I'm also considering an ADU build out and am curious if any of you have considered any of the prefab companies such as Studio Shed. The entire crop of prefab companies are all pretty new and I haven't seen anyone on BP use them yet but seems like it's a matter of time. Any one with any experience out there?

Has anyone here considered a prefab solution like Studio Shed? I'm considering using them to build ADU's to generate additional rental income on existing properties but am trying to research total costs a bit more. As long as construction costs stay high, I'd expect more solutions in the prefab space.

I've been chewing on this exact question in recent past. I'm based out of the Bay Area, CA where housing demand continues to outstrip supply and prices/rents seem to escalate endlessly (famous last words I know). Will be interesting to see how the next housing crash affects this place vs. the U.S. on the whole.

I am in agreement with @Robert Adams on hanging onto your best properties while liquidating the rest.

That said, where do you put the proceeds? One idea that I'm considering is changing asset classes, as in 1031 exchanging out of the weaker residential rentals and trading into a larger, more stable, and diversified commercial property with multiple tenants and a strong rent roll. If you believe in the conventional wisdom that the commercial market lags behind the residential market, you should be able to make the switch and ride things out while the residential side is tanking.

On top of that, getting into a large enough commercial deal would allow for the possibility of a cost segregation study to accelerate depreciation. As long as you old the asset for a long enough time, or simply 1031 out of it into the next asset, it should still make sense to run the study.

Going commercial will require more capital so deal syndication may be necessary for smaller individual investors to execute but I think there's merit to the overall strategy.

Anyone else who has weathered multiple cycles care to chime in? @Brian Burke @J. Martin @Johnson H. @Bill Exeter

@Sasan Nemabakhsh

My group is endeavoring to do something very similar to your project, albeit in a different market.

My advice is to get on the phone, have a drink, and meet with as many lenders, developers, operators, architects, etc as possible, asking them for referrals in the other trades you need and seeing what criteria they have for a successful deal. They will be able to answer your questions and help you get a clearer picture of what a successful deal looks like.

Assuming you need financing and you need a developer/operator in order to bring your deal together (which it sounds like), the people who occupy those key roles will make or break your deal and bringing a deal to the table that satisfies their requirements and that they view as a viable deal will greatly advance your learning as to what the critical factors are.

Every market will have different dynamics which will affect your build to cap and it will depend on your expectations as well as the expectations of your investors and lender given the market you're operating in.

As for stabilization, I typically see 18-24 months budgeted but a good operator can get it done in 12 with proper pre-marketing and solid market dynamics.

Get a feasibility study done before you close escrow if you've already targeted a specific parcel. Otherwise, I believe Nicmap is a good place to get general market intel to determine where there may be gaps in the market but it will cost you of course.

Cheers and hope that helps.

I echo Xin's sentiment. Sell it as-is while the market is hot without addressing the foundation.

If you go out and get more bids for repair, those will need to be disclosed if you eventually decide to sell which will hurt your sales price. Further, with the hot construction market, your bids will be almost assuredly be exorbitant.

I think you already have the right thinking on renting the property out given Berkeley's insane rent control rules. Properties with entrenched tenants sell at a discount. You'd be best to not shoot yourself in the foot by renting it out, even at current fair market rent. Doing so will isolate your buyer pool to investors only and they won't pay irrational prices like an owner occupant will.

@Ernest Chamblee I'm both an agent and investor. I started as an investor in my family's business and went out and got my license to better source deals and keep commissions in house.

In my view, being a successful agent can afford you a living but being a successful investor is how you build meaningful, multigenerational wealth. For me, achieving success as an agent is a means to achieving success as an investor. The two go hand initially but long term, investments are how I intend to build long term wealth.

Each has its own challenges. Being an agent requires time whereas being an investor requires money. My agent business is something that I've built entirely passively via my network and I pursue deals on a referral basis only. Could I go out and really pound the agent business and be a high income earner? Yes. But would that lead to long term wealth creation?

There are successful examples on both sides. It will all come down to what best matches your skillset and produces the highest ROI for you. If you become a big time broker, you'll be able to leverage your agents' time. If you become a big time investor, you'll be able to leverage your lenders' and investors' capital. Both have their advantages and disadvantages.

Hey @Xavier 

For partners that contribute investor funds, securing land, and handle entitlements, I've seen as much as 20% equity. I wouldn't take that to the bank as it's certainly not like pulling comps on a home but hopefully that gives you an idea.

Instead of trying to sign an exclusivity agreement with the senior housing operator, you may want to consider organizing your operations into an investment fund/business entity such that you own the relationship with your investors. When you place investor capital in deals, it would be your business entity that inks a deal with the senior housing operator. I can't say I've ever done that before so talk to an attorney but in concept, such a structure would allow you greater control over the relationships. That said, if your investors really want to circumvent you and work directly with the operator, they'll find a way.

@Xavier Caboundefined