All Forum Posts by: Chris Penny

I would not buy or build in Malibu, although it is a great place to live.  ;-)

Take a 5 unit building selling for $1MM.  I put down $350,000 and borrow $650,000.    Over the next two years I spend $30K to renovate and raise rents to the point where it is worth $1.4MM.  So I refinance and pull all of my money out.  Now I have a higher mortgage to services.  When the dust settles I have pulled all my money out, but after expenses the building only generates, say. $10K a year in profit.  If nothing changed, that seems like a waste of time.  

I do understand that property appreciates, but after my upgrades I will be looking primarily at inflation and the appreciation it offers to increase the value of the property, which could take 10 years to generate a decent income for me.

I have been studying the BRRR model and have been reading about 30, 40, 50% returns on the money left in the deal. This is my goal. I want a reliable income for my golden years. But when I look at actual properties I have a hard time making the numbers work. I am pretty sure I am missing something.

Hi, All. Been crunching numbers on various possible properties for a BRRR approach. I have found some that can give me infinite returns, but a very low dollar amount. In the end I might get a few thousand dollars per year. Hardly seems worth the effort. I assume that the plan would be to refinance again in 3-5 years. But I suspect I am missing something. Or does a low $$ infinite return mean it isn't that great a deal?

Thanks.

I was the GC on a garage conversion for a house we bought for REI. Pretty sure it cost me more money to not know what I didn't know. My friend has home building experience and decided to GC his one REI rehab. It ended up costing almost twice his original estimate. Much of the costs was due to things done wrong that had to be torn out and redone. Always a painful experience. IMHO, a knowledgable, organized, honest GC is worth twice what you would pay for that service. Your mileage may vary.

My plan is the standard DeeperPockets BRRR approach. I would own the property to produce income. But my goal for all my properties is to get as much of my money out of the deal as possible, so that I have infinite returns, or close to it.

My thinking is...let's assume a 6 unit building.  Looking on Loopnet in LA for a 6 unit building shows a range of  $695,000 to $2,580,000.   The average seems to be around $1,200,000. So what would it cost me to build a 6 unit versus buy it?  I realize that the building would have to be on a certain sized lot with the proper zoning - assuming you could find such a lot.  If I build new I can get top dollar and have now maintenance for years to come. But will it be profitable to do so?

Thanks Russell. The approach I am taking is to work with commercial banks. I do all my real estate through a WY corporation and the banks I have spoken with have a minimum of 5 units before they will look at the deal.  

What kind of financing did your family member get?  And how is a 4 unit more profitable than a 5?

Cheers - Chris

Hi, all.  I am a newbie trying to get a handle on the financial trade-offs between buying a place to renovate vs building it yourself.  I have been looking at 5 unit apartment buildings.  An architect I spoke with recently told me that nobody is building 5 unit apartment buildings because the numbers don't make sense.  Not in Los Angeles. Might be different in Denver or Des Moines. 

So I guess I am trying to get a handle on the profitability of development, especially small strip malls or smaller apartment buildings that are within my means. Is this a profitable line of business in Southern California?  Is it bleakest Mordor?  Something in between?

Cheers - Chris

Thanks all.  Appreciate the info.

I live in Los Angeles and there are many older building that are rent controlled.  l always assumed that a smart investor would be reluctant to purchase such a property because it would have limited upside.  The strategy I am pursuing is buying multi-family units that are underperforming and improve the property so I can raise the rents, making that property more valuable so I can refinance and get most or all my money out of that deal so I can use it on another.   Seem like rent control would slow that process down too much.  But I am a newbie so wanted to confirm my suspicions.

Thanks.

Thanks @Seth Borman.  Found them and will follow up.

Thanks, Min.  Partnering with the neighbor is just one option. The other is to develop just my lot. When I look at the zoning for RD-2, it says that the lot has to be 2000 ft2 for each unit of the building. My lot is just over 5880 so, given that restriction, I could only build just under 3 units.  But I need to hit 5 units to qualify for a commercial loan.  I don't know if I can petition the city to change my zoning.  If so,  can I get a 5 unit building on my lot.  

There has to be a minimum of 3' of grass around the property.  My lot is 116' x 50' so the foot print of the building would be no more than 110 x 44.  That would give me a footprint of 4840.  If I have subterranean parking I could put five units side-by-side.  If I added two stories they could be five apartments at 968' each.  I could double the size if I built two stories, but that would increase the cost. 

At this point I need to know what I can and cannot do with that parcel.  If anybody has a referral for a consultant who can help me figure out zoning and planning, I would appreciate it.