All Forum Posts by: Michael Galloway

Welcome Krishna!

Forgot to add this disclaimer:

You will need to check with city for permits. You might not be permitted to add the additional unit.

If you chose to build without the permits where it is not permitted, they have the right to stop your progression with a red tag, and fines. In addition you will have to set up a time with them to check that it is converted back to a garage.

Jose Garza with the financing you have it sounds like a winner!!!! Good Job.

Alex R. i was surprised that you were saying that the 2% rule doesn't work in Bakersfield. What that tells me is that it's time to get creative.

I'm in the bay area, i operate in Contra Costa county, Alameda county and i can still, even with all these property values going up find 2% deals.

You have to look a little closer and see what others don't see.

Here is an example:

I pulled up on realtor.com 1517 Pacific St, Bakersfield its listed for $45,900 its a 3/2 1300 sqft with a detached garage.

At first glance it looks decent and the 2% rule doesn't seem to work because the median rent is $800 (based on rentometer.com comparing 50, 3/2s in the area this would only get you 1.75% (which isn't bad) but that's not the 2% rule. However what if you could make this into two units? Now your looking at probably 5k-10k in rehab. But take a look around in your Google maps. there are many houses in this neighborhood that converted those back garages. What you will end up with is 1 studio renting for $435 and a house renting for $800 = $1235 / $55,900 = 2.2 Rule

Now as long as you keep all costs under $61,750 there's your 2% rule.

Jose, welcome. How old is the home? Are you financing the purchase in the accepted offer? Do you know what inspections you will have? Did you put earnest money into escrow?

Karen Margrave, i do not consider myself a developer even though i have bought houses, did the tear down and rebuilt, (keeping 1 wall) from the ground up.

That said, i can build for $100 per sqft. The big builders in my area can build around $67 to $80 depending on finishes. (permits, fees etc not included) I am guessing this is not a big builder, they would not mess with a small infill project like this.

Based on my quick calculations, it looks like a 12% net profit with an exit price of $650k, and 30% on a $750K exit. You will know better than i on what you think the property can do. If they can do this in 6 months, which if they have the experience, is a possibility,might be a deal.

this is all based on Cash on Cash. If there is borrowed money/ a pref. involved the numbers are less.

Investors are crazy right now. There is a lot of foreign money coming in and they are turning over every stone for returns. (land/builds included)

Hope this information helps.

Kathryn K., welcome to the club! I'm in the Bay Area, would love to network with you.

again Congrats.

Benjamin Lahoy, Welcome from another California Investor.

John A., most title companies in California subscribe to www.reisource.com, they get their records from corelogic.

Almost every state, city, county is available. You can either go through your local Title company, (Old Republic, First American) tell them you need a list of hard money/private lenders and they will refer you to their reisource. page with their name on it. Sometimes they will give you a credit, depends how much business you are doing/ relationship with your title company.

Or you could go to reisource.com directly. The leads are .06 to .20 cents each. Usually out of a couple hundred leads in a particular area i find the type of lenders i am looking for. You can set filters, perimeters to your specifications on the site.

Tip: Cross reference the addresses as many will have the private money lenders name and be mailing to the same Loan Brokers.

good luck

Will Barnard let me be the first to say Congratulations! It's a good Problem to have.

It sounds like you are past the point of moving in for a couple of years? (250-500K exclusion depending on marital status)

I'm sure you have already considered if you need the income on your returns?

Reading your comments above it sounds like you want to add to your lending business and not wait for a refi on the 1031?

i like @joel owens stepped up cost basis advice

However, because you want to add to the lending side of your business, maybe the best strategy would be a blend of both.

You do not have to spend all of your 1031 funds. However any amount not spent will be considered cash boot and will be subject to capital gains taxes and any applicable recaptured depreciation. For example: The Relinquished (sold) property is sold for profit of $1,500,000.00. The Acquired (bought) property is bought for $750,000.00. The $750,000.00 would be considered cash boot and would be taxable. (this is for the benefit of the audience, you know all this;)