All Forum Posts by: Dan H.

Wholesalers, bird dogs, networking, MLS (occasionally there is a deal), mailers, SEO, media adds.

Search my recent posts as in the last couple days I posted a list of wholesalers and agents with pocket listings that service San Diego area.  It is unusual that I provide this list.  

Good luck

I have been very successful doing BRRRRs but find them challenging with the higher rates with current property values. The issue is that after a high LTV refinance to extract the value add, the property is large cash flow negative.

having that out of the way, let’s discuss the type of market that provides the best value add prospects.  
let's start with the premise that a successful brrrr has minimal costs and an ideal brrrr has no cost (all investment extracted via the refinance). So purchase price, as long as you can obtain initial funds to execute the BRRRR (including the value add), has zero bearing.
So what is important?

1) being able to add significant value.   Ideally the value add is significant enough that you extract all investment.   Is this more likely in higher cost markets or lower cost markets?   The answer is obvious.  My last value add had some issues but I still did alright because it was in an extreme cost market (~$2k PSF).   A half bathroom in this area adds ~$50k of value.   That is an entire property in some cheap markets.

2) will the rent after the high LTV refi to extract the value add at least break even. I may even settle for one or 2 years negative but would not recommend this unless you have large reserves.

Assuming there is nothing in my post that is not fact, the price of entry should only be an issue if you cannot obtain the funding to execute the brrrr.  If you cannot obtain the funding to execute the brrrr, I question the potential profitability of the brrrr regardless of the market.  

BRRRRs are not simple. Rehabs are not simple. I typically am on site every day during a rehab. I would never recommend a first BRRRR be OOS. They are difficult enough to execute locally.

Good luck

I normally would not provide this list, but I am not currently acquiring in Southern CA because buy and hold do not make sense to me at the current time and I do not flip.

Networth realty

 Fair trade real estate

Joey belcasto(sp?)

Garrett Tomlinson

Zachary Myers 

Maverick Fuller

Mira Xia (I have not received anything from her in a month which is unusual so question if she has exited the game or taking a break)

Remember wholesalers numbers must be verified.  Many require cash purchase.  Many have very short offer windows.  They have elevated risk.  Virtually every property needs work and/or has risk items.  They are not for beginners. 

Most purchasers are better served buying via a real estate agent from the mls.  

good luck

Quote from @Jay Hinrichs:

Quote from @Dan H.:

Quote from @Natalie Johnstone:

@Dan H. THanks Dan! Always good to hear the good bad and the ugly.  I we really are only looking at 2 properties.  We know the area very well.  Will keep you posted.   Can I ask, do you recall how high bids went over opening and how competitive it was? sounds like it was pretty competitive..

My bet is both those will be redeemed prior to auction. We have only bid on 2. One went for over what I expect a wholesaler would have sold. I do not remember the numbers but this property obviously needed full rehab. I suspect someone with cheaper rehab costs than mine purchased it with thinner margins than i seek. The other we were striving for 70% of ARV. It was maintained on outside but a fair amount of junk. ARV (maybe in 2018 - it would be much higher today) was ~$600k so we wanted $420k. It went for nearly $100k over our price. My belief is purchaser had more info on inside condition than I had or was buying to OO. There is no way I could pay close to that amount with risk on needing a full interior rehab.

My estimate is that maybe 1 out of 10 “normal” properties are not redeemed.  If you only have 2 candidates the odds of having one complete the auction is small.  

Between late redemptions and insiders, it is a tough purchase.   In addition, exerting time and effort on properties that are not for sale is not worth it to me. 

However, I am curious if your experience is different.  

Good luck

in my experience in Ca very few actual homes go to auction unlike other states were many go to auction.. Agreed most all redeem last minute and you wasted all that time .. I would NEVER pay for a title report on a property because 98% chance it wont go .. Also Ca tax sales wipe EVERYTHING out the only reason for a pre lim would be a access issue.. which of course one can do on their own.. But for judgements liens and all that who cares they are snuffed out at the sale. The big play for tax sale in CA is bare land in the high deserts and in the areas that have a lot of old recreational communities were lots never got built on.

In addition once it went to bid 4 assets the stupid money comes in and well it just aint no fun anymore.. Our company used to buy 100 plus parcels a year in N. Ca at tax sale. but you have to sift through 2 to 3 thousand to get those.. And you have to really know the market and area we did not have the time to drive everything you just had to already have knowledge of the area and what the parcels looked like etc..

So I guess its just needle in a  haystack these days and frankly at least for us there is better use of our time.

 I never looked at the raw land offerings.   I suspect even a large percentage of those are redeemed prior to end of auction.  

The not normal properties such as those with no legal easement to access get redeemed at a much lower rate than normal properties.   

For the properties that are normal and make sense to purchase, the current owner in default, as time to lose property gets more closer, gets desperate and ends up finding a way to get current.  Maybe they give up partial interest in the property or convince a family or friend to help them because otherwise they will literally lose the property.  It is shocking how many get redeemed in the last 48 hours before the close of the auction.

If the properties listed were beyond their redemption period such that I Knew they were really going to be sold, I would start looking at these again.   Until then, it is inefficient to exert such effort looking at properties when virtually everyone I have interest in will be redeemed.   The process is broken from the buyers’ perspective.

Quote from @Natalie Johnstone:

@Dan H. THanks Dan! Always good to hear the good bad and the ugly.  I we really are only looking at 2 properties.  We know the area very well.  Will keep you posted.   Can I ask, do you recall how high bids went over opening and how competitive it was? sounds like it was pretty competitive..

My bet is both those will be redeemed prior to auction. We have only bid on 2. One went for over what I expect a wholesaler would have sold. I do not remember the numbers but this property obviously needed full rehab. I suspect someone with cheaper rehab costs than mine purchased it with thinner margins than i seek. The other we were striving for 70% of ARV. It was maintained on outside but a fair amount of junk. ARV (maybe in 2018 - it would be much higher today) was ~$600k so we wanted $420k. It went for nearly $100k over our price. My belief is purchaser had more info on inside condition than I had or was buying to OO. There is no way I could pay close to that amount with risk on needing a full interior rehab.

My estimate is that maybe 1 out of 10 “normal” properties are not redeemed.  If you only have 2 candidates the odds of having one complete the auction is small.  

Between late redemptions and insiders, it is a tough purchase.   In addition, exerting time and effort on properties that are not for sale is not worth it to me. 

However, I am curious if your experience is different.  

Good luck

Quote from @Nicholas Davaul:

Quote from @Dan H.:

- it is almost certain that my next RE acquisition will not be a BRRRR. Changing conditions may dictate pivoting.

 Hi Dan, you mentioned that you were using the brrrr method, however in the upcoming years, you are planning on pivoting.   Can you elaborate on which direction you think/plan on taking?

My current focus is 2 fold with the first being the more likely next: 1) nice area STR. Revenue potential for cost and potential STR regulations will be prioritized over a long distance value add. We have looked and made offers at emerald coast and are looking in the CA sierras currently. Note I have no illusion that this path will create returns close to equivalent of what I used to be able to achieve via brrrr (I have infinite return on most of my existing portfolio) 2) sophisticated partition via coop/Tic and maybe CA SB9 on my OO. this can achieve great return but capital Outlay is prohibitive for most (virtually everyone).

We have 4 STRs (2 long time, 2 a couple years old) that we have made a lot of money on all of them but only 2 achieved (past tense) good cash flow and even those 2 are not achieving good cash flow today. In 2019 the 2 had revenue of $160k (not quite evenly split). I think they will do about $120k this year. But the ROE is even more drastically worse compared to the past as the value of them continues to rise but income has not. Even the STR market in my market is not currently achieving good cash flow (especially if using a PM). Fortunately the appreciation has produced outstanding overall returns.

Good luck

I have made a lot of money using the brrrr method.  I was doing them long before I ever heard of the term.  I agree with @Nicholas L.

- brrrr and flips are not passive.   They require a lot of time and work.

- to do a successful brrrr involves a lot of skills.  To have a successful brrrr requires more than paint and flooring.

- I have not done a brrrr since the rates increased in early 2022 because in my market they bleed cash after I perform a refi to extract some of the value add.  
- it is almost certain that my next RE acquisition will not be a BRRRR. Changing conditions may dictate pivoting.

Good luck

My tenant friendly market (San Diego) has long term housing shortage that the tenant friendly laws mostly act as a balance of power. 

My market has near low in nation eviction rate and delinquency rate.  

the family first rental was in the 1970s.  We have never had an eviction.  We have only had one tenant that we did not collect every dollar owed and they moved OOS.  We have never done cash for keys.

My criteria includes zero evictions.   If you have ever been evicted, you cannot rent any of our units.   This is a common criteria in our market.  So if you get evicted, you will find it very difficult to ever rent a nice place in this city.   That pretty much means tenants do not want to be evicted.  

So the tenant friendly laws have had very little impact n our rentals. 

Then add the long term appreciation and rent growth of my market.  Most years in the past decade verage rent growth was double digits.  At my market average rent, double digit currently would be ~$400/month average increase.  Note rent control raises risk that results in the need for increased revenue which implies large rent growth.  the rent control advocates blame the “greedy” landlords instead of their ignorance of basic economics which is the real reason rents increase when rent control is implemented.  

Quote from @Natalie Johnstone:

Hi! Has anyone here purchased from a tax defaulted property auction (in CA specifically, but open to hear about other areas)?  would love to hear your experience, how competitive it was, etc?  Also what your exit strategy plan was?

Thanks!!

 we have participated in the on-line tax auction a few times and believe the process is very broken.  We no longer even look at the properties.

Here is our experience.

You pick out the properties of interest and drive by them.  It is shocking how many are strange beyond belief.  These are all things I have seen in the properties.  A property built on stilts that had virtually no flat scape, but to make it worse the stilts had the property nearly overhanging hwy 163,  You likely can figure out this property.  Another one that apparently had no easement access.  There was a road that led to it, but the neighbor that owned the land that the road crossed had piled up a huge pile of debris to block access.  My drone showed that the structure looked pretty good, but with zero access not sure of its value.  a property that was attached but the next door property had a door to the roof of it with a deck.  The home that had the deck on its roof could only access it via the neighbor or via a ladder.  So you eliminate the properties that make no sense for whatever reason and end up with a still OK list.

- you start your research doing comps, maybe talking to neighbors, trying to see the inside, etc.  But the entire time properties are being brought current and coming off the list of available properties.  Your list that maybe started with 25 properties by the time of the auction is down to one or two (if not zero).

- you bid on the property with your limited information that you were able to gather.  Inevitably someone bids too high for your risk level.  I suspect that many of these over bids have an inside knowledge.  Maybe they know the owners or were able to get the owners to let them see the inside.

The process would be significantly improved if there was an expiration time for the owners to become current on the tax debt.  This would give some confidence that the property that you spend time and money vetting actually will be auctioned off.  Of course this would be harsh on the current owner, but this process is bad enough that it discourages participation which would result in lower prices (if there were not inside buyers).

BTW drones are handy on virtually all properties.  Check the roof, check the back yard.  check surrounding homes.  Find out about the neighbor having access to the rooftop deck of the auction property.  never know what you will see.

If you decide to participate, reply on this thread with your experience.  It has been probably 6 or 7 years since I last participated, but I think it is unlikely that your experience will be significantly different than I described.

good luck  

Quote from @Michael Baum:

That is a bummer @David Siegel. Good luck and I hope there isn't much in the way of fines and the like.

In CA there are laws protecting safe unpermitted units.   Sb13 was the initial law and it was written such than new illegal units would not be protected.  But the state does not want to lose safe units even those created after SB13 so they passed ab2533 to cover more recent unpermitted units (old protection was for those up to 2018, new protection is up to 2020).  Ab2533 law explicitly prohibits local agencies from penalizing homeowners who apply for permits on previously unpermitted ADUs. Instead, inspectors will focus on recommending changes to bring the unit up to health and safety standards.

however, with the track record of extending the protection on newer unpermitted units, how much value is there to convert an unpermitted unit to a permitted unit?   Extending the protected coverage to newer created unpermitted units set a bad precedent and encourages adding unpermitted units. 

it is not a simple issue as the loss of safe units is undesired, but providing legal protection for unpermitted units encourages unpermitted units.  

regardless, if the OP’s unpermittec unit is not real new, it has legislation that protects it.  If it is new, waiting may provide the same protection as the older unpermitted units.