All Forum Posts by: Dan Sundberg

Oh wow - could you also convert the detached into another living space? Turn the whole thing into 3 units? That would make for some awesome cash flow...

Hi @Mike Malyy throwing my 2 cents in here. I'm an investor and Realtor in Sacramento region. I agree first with what @Andrew Postell said about comps being the first go-to. But without good comps, here's what I've generally been seeing. In Sacramento, garage conversions aren't commanding a huge amount of value on appraisals, typically somewhere around $30k - $70k as just a tack-on value add, much like the appraiser treats a pool or premium lot. For what you're talking about going from a ~1,000 sq ft house to almost ~1500 is a pretty material difference, as is adding that second bathroom. 

My gut would say you're going to get more value for the master suite conversion. I'd suggest reaching out to the Realtor who helped you buy the house and ask them to run a detailed comp analysis too. 

One question though - is the garage detached? 

Depends what you mean by "catch". Basically, there are a lot of rules around what you can do with the land, especially in the bay. If you are looking to build a dream home or custom home, then land can be a great bet, but for a cost saving measure...typically not. For an individual, building a 1-off home, the costs typically wind up being pretty close to market value for a regular single family in that area. So in your example, if a 1,500 sq ft. house is selling for $1.5M in the peninsula. It wouldn't be surprising that construction costs are going to be somewhere around $400 - $700/sq ft, converting from raw land, to build a similar 1,500 sq ft house, plus the cost of the land. 

There may be options for alternative housing, like modular homes, or tiny homes, or something like that, so could be a good opportunity. But also due diligence on local rules for what you can/can't build will be critical. 

Miguel - congrats on the upcoming graduation and getting into Real Estate! 

I would absolutely recommend finding a team or small brokerage who can offer you training/mentorship. At your age and being new to the industry, keep yourself open to doing any and every task that needs help with in exchange for the opportunity to shadow more experienced agents and learn from them. Spend some time learning first how these groups work and what they need, so you can understand what value to bring. This is a pretty good article to start with - https://www.kylehandy.com/blog...

One of the biggest things to think about getting into real estate is that it takes time to get your first deals. Plan for 3-12 months. This can happen a lot faster, but better to be pleasantly surprised by a better result...

Conceptually it makes sense as a way to get started, especially if it's something you know. Ryan Pineda did something similar with "couch flipping" to get a start https://www.youtube.com/watch?.... Knowing nothing about the airplane resale market, my questions or considerations would be capital required to do it, holding costs, transaction costs. No reason though you couldn't get a spreadsheet together for deal analysis the same way you would a house...

@Mirla Montanez the local laws around making that conversion could also affect the answer too. Some places have pretty hefty requirements to convert into a duplex to bring everything up to code. It may be that you have more value to add to the house by making updates and even keeping it single family vs. costs of changing to duplex. 

Generally though, pretty good chance it will be worth it to do some amount of updating to the house, especially if it's good "bang for your buck" items like kitchen, bathroom, flooring, paint...this should increase rental rates which will keep you cash flowing post- BRRRR.

Looking forward to it!

The investors I work with have a sort of 3 tier evaluation to figure out what price will work for a project. The project needs to pass most of them, but there's always some wiggle room too. 

First, at least $30k bottom line profit. This is not a hard number but really a quick gut check, based on their business and the other things they can do with the money.

Second, the Cash on Cash Returns should be above 10%. If the project returns $30k, but they had to put in $600k cash, that's only 5% cash on cash and is a bad project. 

Third, Internal Rate of Return (IRR), which factors in speed of the project and how quickly the money can be recycled, which should be around 30%. So for example, a project returns $30k profit, and the all-in costs are $300k, that passes the first 2 tests, but if the project is complicated or in a slow selling neighborhood and will take 6 months to close, that is roughly a 20% IRR, which fails the IRR test, and would be a no-go for the project. If on the other hand it's a super simple job and the property can be turned around in 90 days. That's above a 40% IRR, meaning the money comes back and can be used for another project fast, and makes that project a hard yes.

This last one is really important and often overlooked, as I've seen MOA increase for a project that was mediocre on the profit and Cash-on-cash, but great on IRR, purely to keep a good construction crew busy so they don't all fade away while waiting for a slam dunk project.

@Jonathan Frank - I'm in the same boat! Following this discussion - keep me updated on your project!

@Jonathan Pflueger Thanks! Yeah I'll keep you in the loop. It'll probably be many months before the project is done an cash flowing enough to give it a shot. 

It does sound like one of the big catches is the interest rates start in the high 4's, so it certainly isn't for every property. The lower the Ratio of NOI/Debt Obligation, the higher the rate. But like you said, just requires some creativity to get that ratio as high as it'll go.