All Forum Posts by: David Isham

Oh wow you are right. I just checked with my go to place Sincere hardware and the granite is crazy expensive now. There is still the Tiger Skin White for $99 but it's so ugly it would never be under consideration. ugh.  

Quote from @Ori Skloot:

If you can do some of the work yourself then more power to you!  FYI: an average price for an 8-foot granite slab at Granite Expo today is $450.  ;)   Good luck whichever you go.  

Quote from @Ori Skloot:

IMHO, the big wrench in your plans is your estimated cost of construction.  I'm a general contractor and have a good sense of building costs in the Bay Area.  $400k for 1200 square foot new build that requires sprinklers is not realistic.  I would budget a minimum of $400/sqft and more likely $450+/sqft.  For your underwriting I would be conservative and make sure that the numbers work even with the top end of construction costs.   

Thanks for your alternative viewpoint Ori. I think your more realistic cost per sqft of $450 is my worst case scenario. For 2400 sq ft that puts me at $1,080,000. I believe the biggest costs will be the utilities so I will definitely make sure I understand if my existing water meter size, electrical service, sewer lines and gas is adequate or if I will need to dig and upgrade which will cost big $$$.

The 3 unit building I live in right now is 4500 sq feet and is a 100 year old mansion. I bought the house 20 years ago with fire damage and I completely gutted it down to the studs and did a very high end remodel and added sprinklers. I remember at the time I was told it would cost me $500/sq ft to do a high end remodel. I did a lot of the design work myself designing the kitchens and picking out and buying all the materials myself. There's so many ways to save on costs like using those $100 per slab granite counter top places you find in the industrial areas of the bay instead of walking into a showroom and buying overpriced granite. I was able to do the whole job for $800k instead of the $2MM everyone kept telling me. If I just hired a GC to do the whole thing I might have paid double. I know things have changed in the past 20 years so maybe there's not as many areas to save. I did get all my grey hairs from that renovation project so while I did save a lot of money it was at a cost. I am not looking forward to dealing with all this again but life is hard whether you are working in a cubicle or dealing with construction projects so we have to pick our hard. 

Quote from @Dan H.:

$800K at 80% LTV would purchase $4m of property or at 75% LTV $3.2m of property. The leverage alone makes this likely to produce a better return than all cash ADU construction that is likely to add a value less than the cost of the additions especially if it loses F/F financing. As for your current loan, they have construction loans, asset backed loans, personal loans, etc as options that would not affect your current loan.

Have you had an STR before? We have 3 (one is currently out of commission), they are a lot more effort than LTRs and we therefore use a professional PM. However, we are not happy with our current PM and so do not have a recommendation. Our professional PM has been both unresponsive and have very high rates (which would be more tolerable if they were more responsive). PM me if you have a referral for a licensed STR PM in San Diego.

I see you are in Poway. Is that considered coastal SoCal? On a $4MM property there what kinds of returns can I expect when you consider all in costs including PM? I mentioned $5k/month as a super conservative # but it's more realistically closer to $6k a month so 2 AirBnBs would net $144k a year with very little expenses compared to an apartment complex.  That's a cap rate of 18% ($144k income / $800k construction costs). Airbnb's do require more work than LTR's so it's not quite apples to apples but still not a bad return even considering the additional few hours a week I put into an Airbnb. 

Yes I'm talking Santa Maria (Northern Santa Barbara County). The last 10 years Santa Maria has outperformed Santa Barbara in home price appreciation (146% vs. 113%). That area is the last affordable place near water in California as you are only 15 minutes away from Pismo beach. As an investor I would rather buy 5 homes for $200k each than 1 home for $1MM. I was buying new construction 4 bed, 2000 sq ft homes there in 2000 for $200k. I can still buy 3 bedroom homes for $500k there which is appealing as I still see sustained growth. In the SF bay area that $500k will get me a 2 bed new construction unit and the Airbnb'ing of units here will produce 2-3x more cash flow vs. a long term rental in santa maria. Santa Maria = slow steady growth + leverage (I can buy 4 homes w/ $500k) vs. Bay Area new construction = 2-3x more cash flow but lots of cash tied up since I most likely won't be able to refi.   

If I got a construction loan wouldn't I need to refinance my existing loan at some point? That's something that I don't want to do which is why I don't see how I can get around paying cash. I supposed I could get a 2nd but those rates are not usually good and I believe rates are going to rise long term so I'd definitely want to fix my loan in for 30 years. I thought about buying homes in northern Santa Barbara where you can still buy homes for $500k. With $500k cash I could buy 4 of these homes but I doubt I would cash flow anything. That ship has sailed unless I want to do rehab but I'm too far away for it to make sense. 

Quote from @Sebastian Marroquin:

 I am in San Rafael in unincorporated Marin County. Because my house is currently multi-family I would be allowed to build up to 1200 sq feet per unit. Both units have to be attached to each other. I don't really know right now what the costs might be other than anecdotal wide ranging estimates from contractors of $400k to $500k per unit. I would need fire sprinklers and solar etc and contractor costs are astronomical here. I have to talk to the water district to see if my current meter is big enough to handle an additional 2400 sq feet units. Same with PG&E and Sanitation to confirm my electrical service and sewer line is big enough. Lots of factors. Airbnb is very strong and consistent here since we are so close to SF and Muir woods and Napa Valley etc. I currently do airbnb in another property in this town which is why I am salivating at putting more airbnb units into service. To live onsite and have airbnb on the same property is a huge benefit as you can keep an eye on things and help guests when they need something. I am fortunate to have a relatively large lot (28k sqft) so there's plenty of space to build and plenty of parking.   

Yes short term rental under 30 days would not be allowed in the ADU's but the 2 existing long term tenants I have in the 3 unit building could be moved into the ADU and those vacated units would be Airbnb'd which is why I mentioned the potential increase in cash flow as Airbnb pulls in at least 2x what I can collect for rent. Btw how do they legally enforce this requirement to not rent out the ADU's for under 30 days? Do they record something on your deed? @Dan H. I dont think I can use financing as I don't want to mess with my low fixed loan. Not sure how else I could finance the ADUs without messing with my existing loan? The beauty of doing Airbnb on my property is that I live here and it's easy to manage and clean the properties rather than having to drive somewhere. Dumpy condos here are $500k and any HOA would certainly not allow Airbnbing. I am open to other ideas on where to deploy my $800k. It would be VERY appealing to not have to deal with new construction as where I live it's a nightmare dealing with the planning department, contractors and all the other sharks that want a piece of me.

I live in a 3 unit building and I have discovered it is possible to add two ADUs (Accessory Dwelling Units) to my property in California. I currently have a $1MM loan @ 2.25% fixed for 30 years so this is a keeper for a lifetime of a loan. If I add 2 additional ADU's my understanding is that this moves the property into a commercial 5 unit classification. What would that do to my existing loan if I did add 2 ADUs? And what if I just added 1 ADU to bring it up to only 4 units? Does my existing lender care that I added these 2 units? I would finance these units myself (about $400k each) so no loan required and I don't plan to ever refi. Each ADU would bring in at least $5k per month if I did Airbnb so it would be a big win for me. I don't want to mess with my existing loan however so I am not sure how to move forward.