All Forum Posts by: Dan Gandee

Totally makes sense @Chris Watkins - The only way we got around this was to seize a cash offer at market value. But in terms of REFI, I feel the only way to do this is a seasoning period of 24 months or so with valid income approach appraisal as a multi-unit property, showing a decrease GRM favorable to the market as well as a P&L that provides good cash flow/cap rate analysis. I know that in California, specifically San Diego, cash out refi's are happening all the time after junior ADU and regular ADU's are built. There is no way that the value of the construction costs + raised value of the total improvement value can be limited unless there is some seasoning period that makes sense to the appraiser and time for appreciation to really kick in. Quite confusing, but I know favorable appraisals are happening in other states.

I just did a breakdown if you are interested in building an ADU in Lane County, Oregon as well as The City of Eugene and Springfield.

Biggest advantage to building within the two cities is their pre-approved plans that can be streamlined to the permitting process. 

Biggest disadvantage to building an ADU within RR Zoning areas of Lane County is that it can not be used for vacation occupancy.

Love to hear what other people are doing within Oregon with their value add ADU plays?

This is a big market as I just sold one for all cash in 20 days for SFR + ADU (fully permitted and occupied).

@Cliff Benner - I typically like to hire owner/operators that own property management companies, meaning they have experience with MFH and MFH Parks. My current PM owns two parks and was carefully selected because he understood the unique tenant-landlord laws of these communities, water-testing standards, continuing education requirements, and total valuation repositioning for commercial property cap rate stabilization. I'd call other owners of MFH parks and ask them how they manage the parks. Typically the self-managed parks with owners that live onsite are the WORST operators because they do not have an outside perspective. They hide costs in their P&L and their time operating/managing isn't configured in the sale price valuation. Let me know if you have any other questions. 

I'm so glad this was a helpful forum article as I've had to learn myself most of these battles as we transition into new acquisitions or find out by accident :)
@Logan M.

Mine is passing on a 8 unit property over $10K non refundable earnest money when I knew I was going to stay in the deal. 

Love to hear some short but sweet stories in the comments that could help all of us as we progress in our investment journey!

GO! 

 

So True! Appreciate the insight!

O damn! I didn't know that. WOW! What happened to capitalism? 

Hope I got your attention because the City of Eugene got mine! Phase II Rental Protections just went into place and we are seeing some big buzz in Facebook investing forums and on the local news. 

According to KVAL News, "What are the Phase II renter protections?

Phase II renter protections center on three main policies:

• -Limiting the amount of money a landlord can charge for a security deposit, equal to two times the cost of monthly rent.
• -Processing applications on a first come first serve basis.
• -Relocation assistance."

The impact to this is huge because now there is going to be a centralized database for all evictions filed, for cause or no cause. This data will be available to help them justify their need to overstep their legal authority and regulate rental property further. Also, with the passing of SB-611 at the state level, this creates a toxic mix of rental protections that should push a Mom&Pop landlord out of the business. 

The long term impact includes the following:

-Less compassionate landlords who are willing to be flexible with late payments, evictions, or delayed move outs

-Less supply of rental property due to single family rentals being liquidated and sold to buyer/owner occupiers 

-More competition from bigger REIT's (real estate investment trusts) and real estate holding corporations who can weather limited returns

-Less incentive for real estate developers to rehab and hold properties long term in the local area

-Less flexibility to keep rents affordable without falling behind and keeping up with market rents to appraise at exit 

-Less business in the investment property sector due to lack of supply, including realtor commissions, title and escrow fees, handymen and contractors, property inspection fees, appraiser fees, mortgage lender commissions, and bank refinancing profits 

-More headaches for property management companies having to navigate complex and controversial client demands on their property 

-Less qualified tenants using the first-come, first-serve basis for applications 

Now BEFORE EVERYONE thinks these laws are just horrible to invest here, I want to conclude with some of the major PROs of these laws:

-Less competition from entry-level investors, meaning more deals will be had by liquid and well financed investors looking to scale with the roadblocks in mind

-Higher valuation of rental property over the long term due to supply and demand constraints 

-More stability in the quality of management and landlord professionalism 

-More 1031 exchanges from older investors looking to move assets around more frequently to dump low performing properties 

-More incentive for real estate developers to only build large unit multifamily that will not have regulations for 15 years (from certificate of occupancy)

-More expectation from tenant that they will receive an increase each and every year (more implementation, means more frequency to experience)

As always there are two sides of the argument, but I firmly say that I can still be profitable and make millions of dollars here in Oregon, but with a little more caution and strategy. Pivoting is going to be key and value add projects with no-cause evictions is going to cost more, but will be worth it over the long term. 

Thoughts?

Dan Gandee

One of the biggest problems I see when listing millions of dollars of investment property is that the seller has no proof, track record, cookie crumble trail, or P&L of successful ownership to validate the GRM/CAP/PPUNIT/COCR. And nearly 80% of the time, the MLS or commercial property listing has false, incorrect, or misleading financials. You must dig deeper to figure out what the seller is or has been neglecting to inflate those figures prior to going active with the listing. In doing so, we discover countless issues to cap rate valuation and expense ratios.

I've created our due diligence checklist we provide all of our clients that you are free to make a copy of! (There is probably something missing because this is the marketing version) 

Make sure to ask for the basics prior to writing up an LOI or offer. If they can't provide you this, then you need to hedge risk vs. reward of your time looking further into the property.

1. Current P&L (Trailing 12 at a minimum) But Prefer Last 3 Years 

2. Current Leases In Place 

3. Current Rent Roll 

4. Current File of All Tenant Issues (Delinquencies, Notices, Evictions) 

5. All Utility Bills 

6. All Insurance Statements 

7. Copy of Schedule E (Last 3 Years) 

8. List of All Capital Expenditures Completed In Last 3 Years 

9. Any Litigation Both Pending & New 

10. Copies of All Inspections Completed Last 5 years 

11. Permits & Regulatory Paperwork 

And the list goes on...(Believe me Multifamily Investors...There is much more to ask for so don't freak on me!) 

I can get away with running a simple APOD with just the current rent roll, leases, P&L, and utility statements, so there is some fast tracking you can perform to pencil the deal, but once you do accept an offer i.e. go into contract, make sure to ask for the full gamut of items. 

When I first got started, my commercial broker was lazy and they slacked on providing me Schedule E's which once we did get them noticed they were money laundering cash payments from tenants' rent. LOOK DEEPER PEOPLE! 

If you have any questions - Reach out to me! Happy Investing!