All Forum Posts by: Josh Prince

Hi @David Doyle -

Not sure if you still check your thread but you have been so helpful in the past i wanted to run my current problem by you.  I have been working with the same contractor and same plumber under him for many years.  The plumber seems to be very competent but is a bit of a prima dona. He works alone, personally buys all his own parts and seems to get into a fight with everyone else except this contractor (until now).  But his work is very good. We were set to repipe, replace water heaters, fixtures, install a pump, and put in new cast iron drains in a 12 unit building when he and the contractor got into a huge fight and he walked off the job.  We have signed and stamped plans approved by the city.

Now I am looking for  a new commercial plumbing contractor for the job, but I don't have a good grasp of what was a fair rate.  With the old plumber, he charged $50/hour, and the whole job was bid out at one week per unit, $2000 per week (~$45 per hour @ 45 hours per week), plus materials at cost (me getting the receipts). The job will move at that pace because of needing to move tenants around. Is that a fair rate?  How do you suggest I go about finding a new honest plumbing contractor?  I am not very experienced in this area so once the conversation turns technical, I can't really tell if someone is BSing me.

Any advise you can offer would be much appreciated!

Hi @Steve Veen - when you say value play, does that mean increasing the value of the investment by your actions, like running it more efficiently, raising rents, etc?  If that is what you mean, then that that is what I do. I look for buildings that are being run inefficiently, or are available at what I think it is a low price based on their potential income or ultimate sale price.  

I have only done a few, but instead of selling, I have just borrowed against the buildings.  They end up being 100%+ leveraged based on the initial selling price and cash investment.  To sell them now would only net a small amount, so I keep them. These are all rent controlled buildings and it has taken about 2 years average to stabilize them at the higher value.

I think there are better deals after a price correction drop - e.g., 2009-2011 and I made a number of purchases then.  You get the benefit of the market jump when it comes back up 

But I have also found deals in the current market, where there was an information inefficiency in the market and it wasn't clear what a good deal it was to the average observer. 

Sorry @Account Closed - I took too long drafting my reply - you guys hit all the high points already.

@Thomas Richter You might as well use a California LLC.

California charges a gross receipts tax on any LLC doing business in California. This includes domestic LLCs and foreign LLCs (i.e., other states like Delaware). This usually comes out to an $800/year fee plus the requirement to file a CA LLC return (Form 568) which has its own preparation costs associated with it. If the LLC owns real property in CA or the manager lives in CA, you are doing business in CA and must file the return and pay the tax.

As for Los Angeles City, if you are renting real property in LA, regardless of whether it is through an LLC or individually, you will be subject to LA City business tax. The tax is relatively low, and there is an exemption if you have less than $100,000 of gross income from your business activities (the small business exemption - I don't know about any $1m exemption to the business tax - @Account Closed - please let me know if I am missing out on an opportunity here!).  

If your rentals are outside of LA, I think you are not earning that money in LA, so I think you are OK.

The US and California both impose a tax on their citizens and residents based on worldwide earnings, so I guess LA is just following their example. 

I have wondered about Ventura when I drive through on my way to Santa Barbara.  No one ever talks about it, but it has lovely beaches.  Is it affordable?  I think ultimately all of the coastal cities will increase in value at a higher rate than inland - is Ventura still a bargain?

I am not that bullish about the area around USC.  Student housing is in demand, but mostly only where the shuttle and university police patrol.  Also the school is building a ton of student housing.  

West Adams has been supposed to gentrify for a long time - beautiful Victorian housing stock, vibrant history, central, convenient to freeways.  For some reason it hasn't happened as quickly as other areas.  Maybe the Expo line will finally do it although I remember some criticism about station locations not being particularly beneficial to the area.

I think areas near the current push of gentrification and civic redevelopment are safe bets.  If the last wave was echo park, highland park, atwater.. now chinatown, lincoln heights, boyle heights are the names I hear ringing out.  They are close to the LA river, close to downtown, close to the gold line.  I also see a lot of action in Eagle Rock and other further east communities.  

Curbed LA predicted mid city to be the next area to gentrify. I am still not sure. It is a central location, but I don't see the same kind of fervor as on the east side.  

Finally, I have been hearing about San Pedro recently.  This is the last cheap coastal location in LA.  It is pretty ugly and unsafe now, but there was a time a few decades ago where people said the same thing about Venice. San Pedro has poor water quality, but that can get better.

Hi @Will F. - I have heard this before but never able to find a Civil (or other) Code section limiting late fees to 5%.  Do you have a cite or source for that restriction?

@David Bennett - So to put it another way, the 2 remaining families are buying out the 3 leaving families using a note.

In general, this makes sense, some partners want to leave, some want to stay, the staying partners buy out the leaving partners.  Here are the issues that I see:

1. Price. You propose a pro rata share of the selling price of the entire property. If both sides agree that is great. There is an argument is that the fair market value of a 60% TIC interest (or however it is held) is not the same as 60% of the FMV of the whole. There is a discount, at a minimum, of the cost to partition the property by court proceeding. That is probably balanced out by the desire of the buyers to stay in that particular home. Also, of course, they have to agree on the appraiser.

2.   Note terms.  What is the term of the note?  What is the interest rate?  Is it interest only with a balloon payment, or amortized?  Will the note be secured by a deed of trust on the property? They will all have to agree on these terms. Ideally, the buying owners can obtain a 3rd party mortgage and pay out the selling tenants. 

3.  Property taxes.  Under the structure you described, in California, 60% of the property will be reassessed for property tax purposes as there was a change of ownership.  Is there another way to do it to prevent that reassessment?  Ask a local attorney if he can come up with an alternative structure.

Hopefully everyone can agree on the structure you described or something else, because if not, the alternative is a partition lawsuit which will probably result in less value for everyone.

I would like to hear how this turns out!

As many others in this thread have opined, it is my experience that often times you can only conduct a full inspection with an accepted offer.  In California, most contracts will contain an inspection contingency which allows you to drop the deal if you are not satisfied with the condition. Depending on the market, many people will make their offer on the assumption that the units are in great shape and then attempt to lower the price following inspections because the units are not so hot.

If I had to make an offer without an inspection contingency - I would assume the units are disasters and need full mechanical and cosmetic upgrades in choosing my offer price.

HI @Marcus Summa 

Any transfer of ownership will trigger reassessment in California (except for certain exclusions - and a subject-to sale is not one of those exclusions).  

Now, if you are not recording the deed transferring the property to you, then the assessor will probably not know about the sale and will not have a basis on which to reassess at that time.  However, when the deed is recorded, they will retroactively reassess the property and you will be responsible for the unpaid taxes.