All Forum Posts by: Dan H.

Why would the rates have anything to do with whether you extract all your cash unless you are referring to lower LTV necessary to get positive cash flow. This amount to buying cash flows and the underwriting shows buying cash flow provides a poor return.

I can still find purchases that project a full investment extract. My issue is that if I refi at high LTV after rehab (so top of market valuations), I bleed cash in my market. This negative cash flow reduces the initial return from the value add. Enough months of negative cash flow can consume all of value added via the rehab.

Good luck

Your post does not indicate why the MTR unit cannot have its own mailbox that the postal service delivers to, but I will assume (you know what they say about assume) for some reason it does not have its own address.   If it has its own address the answer is simple, add a mailbox for the MTR unit for the postal service to deliver to.

It is almost as simple when the MTR does not have its own address.   You provide a mailbox for the MTR that the postal office does not deliver to (someplace that the postal service would not confuse for the primary mailbox).  When you empty the primary mailbox, anything for the MTR gets transferred to the MTR mailbox.

We have been doing this at a unit since we acquired ir in 2020 and previous owner already had this method established.  Only difference is a tenant does the distribution into the personal mailboxes from the primary mailbox.   We have yet to have an issue.

good luck

my view is investing is often risk versus reward.   If the reward is enough to compensate for the risk, then it may be worth pursuing.  

In my areas, jurisdictions varied on their enforcement of unpermitted units and at least one jurisdiction varied within the jurisdiction (city of San Diego had little enforcement in city heights but large enforcement in Rancho Bernardo.   My view is the enforcementvaried on their sentiment of the local residents.   In city heights were unpermitted units are common, no one complained.   In Rancho Bernardo the neighbors complain about unpermitted units)

Due to the housing shortage, the state passed a law that basically grace period existing “safe” unpermitted units.   Then they extended the grace period and extended the time for existing.   The state does not want safe units removed but they attempt to balance this with not encouraging additional unpermitted units.   If you told a gamble on safe unpermitted units, the risk got reduced when the state passed its law. 

I took advantage of this on a purchase.   I was aware of the state law protecting unpermitted units.   There was a property where every foot of space appears to have been built with permits.   This space was partitioned into unpermitted units.   This is about as much confidence that a space can be found safe as possible (but I did add an ingress/egress door to a unit).  The purchase has been a home run investment.   In 4 years it has more than doubled in value and market rent had it as a 1% rent ratio property at purchase (a unicorn find in San Diego).   What was my risk?   Grandfather expires, my unpermitted inits need to be addressed and I either need to get units permitted or remove the units.   I do not see much chance that anyone will be mandating safe units be removed from the market.   My believe is as soon as the law protecting unpermitted units was well known I had a $250k effortless value add.  The property value is 150% higher than my cost in 4 years.  In addition, I have had positive cash flow since day 1 and my rent ratio today is about 1.5%.   And with it being 4 years ago, my rate is below 3%.   Anyone above who thinks unpermitted units are universally a poor decision would you not have made this purchase if you had my knowledge about the passed law and associatedrisks?  By the way, I offer anyone a chance to check my valuation   IM me and I will provide address, unit count, market rent at purchase, my rents today, and what I paid is mostly public record (I paid a bird dog on top of what is in the public record).

Make sure you fully understand the risk (odds & consequence) and weigh that versus the reward.  The risks associated with unpermitted units vary by jurisdiction.  You deserve to be well compensated for any risks as if the risk item occurs, the consequence likely will require effort as well as the costs.

good luck

Quote from @Ken M.:

Quote from @Dan H.:

Quote from @Ken M.:

Quote from @Marcos De la Cruz:

Quote from @Ken M.:

Quote from @Michael Plaks:

I have heard this claim before, but California-based attorneys who work with my clients do not agree with it. Did Clint offer any substantiation for his claim, like a code citation or a court case?

When we moved from Seattle to Arizona, California placed a lien on us, even though we had never done business in California, had no properties in California, had never lived in California, had no LLCs in, near, above, below or even thinking about being in California. 

I called, they wouldn't remove the lien (board of equalization or something like that) until I could prove it wasn't me. How does one even do that?  How do you prove a negative?
I believed the hype "innocent until proven guilty". Nope, that is not true in California.

So, from then on, no thought of even doing business California. Why would I subject myself to King George all over again. My people left him in the dust back in 1776. Apparently he moved to California.

 Don't get me started. The best thing about CA is the weather. And it is glorious, but everything else is atrocious.

Unbeknownst to Californians, Florida has great weather, Hawaii has great weather, lots of great weather in Texas, Southern Oregon is generally very nice, South Carolina has great weather, North Carolina has great weather, Georgia has generally very nice weather.
The list goes on.

You might miss the earthquakes and wild fires though. 
 

 Of your list only a few spots in Hawaii can match San Diego’s weather.  Earthquakes do not scare me.  Unfortunately fires do.   Not so much my health but losing valued possessions.

For those that avoid CA, they are ignoring a lot of stats that demonstrate CA has a lot of economic potential.   I am all for those that do not see the opportunity.  stay away!  I do not believe there is a shortage of opportunity but I have gotten a bit less motivated and like the opportunities to be obvious and easy.

Good luck

I agree, San Diego is a beautiful area. We prefer Laguna Beach, but that's just a hop, skip and jump away.

I forgot to mention the mudslides. 

What concerns me about San Diego, or any beach city in Southern Cal is everything is in the way to get away from the coast. In a major event like a  huge earthquake, there are millions of people who want to leave the area at the same time. Looking for shelter, gas, food, safety. 

One bridge goes down, the whole thing stops. And no porta potties.
Once they outlaw running out of gas on the freeway, getting into an accident, or overheating waiting for the line to move, then you've got something. 

Meanwhile, it takes just one silly nilly to get on the freeway with an empty gas tank and when they run out, you're stuck behind them for good. It takes just one connector bridge to collapse and that route is no longer viable.

and there are very limited evacuation routes

Survival 101, always have an escape route . . .  and a backup
and don't drive around silly nilly Southern Californians

 I would not leave the area for an earthquake but your comments apply for fire also and are legit. 

The Witch fire the main Street out of my area was barely moving.   This was not a full city evacuation and many more homes have been built since the witch fire without enlarging the roads.  It could definitely be a problem.   Yet the area continues to build more residences.   Bigger apartments, higher density housing, infill development.  

~5 years before the witch fire was the even bigger cedar fire (21 years ago).   At the time it was I believe the biggest fire in state history.   I am unsure it is in the top 10 biggest fires today.

It could be a big problem.   My view is it is only a matter of time.   

RentRedi is included with BP pro.   It can do data reports and much more.  If you are a BP Pro member, you might as well give it a try to see if it meets your needs.  I have found the support to be good.

For 20 units, it likely will take all day to set up if your tenants confirm quickly.

Good luck

 Of your list only a few spots in Hawaii can match San Diego’s weather.  Earthquakes do not scare me.  Unfortunately fires do.   Not so much my health but losing valued possessions.

For those that avoid CA, they are ignoring a lot of stats that demonstrate CA has a lot of economic potential.   I am all for those that do not see the opportunity.  stay away!  I do not believe there is a shortage of opportunity but I have gotten a bit less motivated and like the opportunities to be obvious and easy.

Good luck

 >This idiot goes with the "cheapest" lender and then complains about how got "lied to" by said lender because he got caught in an old-fashioned bait and switch.

I admit to making this mistake once.   The bait and switch lender was shocked when I did not go for the switch and started the process over.  It cost me more than rewarding the bait and switch lender but was worth it.  plus the cost ensured that I would not repeat this mistake.  

The worse part, making my mistake worse, is that I have a good, trusted lender that multiple times has done things far beyond expectations.  I was tempted by a little savings.   So in some ways I deserved the extra costs.

I have learned my lesson.

 My time is valuable.   I charge a lot for my time, but I freely provide guidance on this site and to certain other people (I have enough that do not need to be compensated for anything).   I do not get bothered by not getting an upvote as much as I am bothered when the person who asks for advice contradicts it or does not value it   I am not saying it is common, but it does happen. 

If they already “know” the answer, why are they asking the question?   More shocking is when multiple people tell them the same thing yet they are convinced they know better.

One of the worse cases was a person in my market who had not achieved a good return on his RE.  It was a small sample size (2), but they had chosen to invest unleveraged.   Because my market is a high appreciation market and poor cash flow market, the leverage is more critical to accelerate the return than most other markets.   This was pointed out repeatedly, but he wanted to ignore that his method of RE investing was stupid for his (my) market. Because his RE did not produce a good return, he tried to convince people RE was a poor investment.  The reality was he is a poor RE investor that does not understand the numbers so he achieved a poor return.

I see it often on underwriting on sustained maintenance/cap ex.   I have maybe been told a dozen times my allocation is too high.  I typically respond asking how they derived their number.   most do not answer.  Those that do basically state they used no numbers to derive their estimate but they tell me mine are too high.  It is almost funny.  Your numbers are too high.  How did you derive your numbers?   I saw other people use it or the calculator I used defaulted to that percentage.  I cannot make up these responses.    at least they did some underwriting, but no effort on justified maintenance/cap ex numbers.  So their underwriting is as good as their inputs that were not good.

Another flagrant case is @henry Clark was helping a newbie to create a self storage facility.   Henry provided detailed instructions, but for some reason the newbie would ignore some of the guidance.  I would have gotten frustrated by the second time my advice was ignored and stopped providing the wonderful guidance Henry was providing.

I had a protege that I was providing free mentoring that ignored some/much of my guidance.   It was frustrating but the protege is doing OK in his RE investing but would be doing better if he had followed my guidance.

After the last BPCon I offered to walk a few newbies through my last purchase including the numbers.  I am up ~$1m above costs on this investment.  I gave these people a multi hour window to show up.  One person drove by after the window. If she had stopped, she would have found that I was still there and I would have walked her through the investment and the plans to complete the value add.   No one else even drove by.  I do not make these offers often, but when I do it is surprising how few take advantage of the offer (and how few of the ones that do that I ever see any resulting action).  Fortunately my first protege has been successful enough that it provides sufficient positive reinforcement for my efforts (he is getting close to 8 digit net worth).

My time is valuable.   I charge a lot for my time.  When I give my time for free but the guidance is not valued, then I do not desire to give additional guidance.

Best wishes

Seth Phillips is in Los Angeles markets and mostly advocates for adding ADU(s) to MF just as you are attempting. He indicates that duplex with ADU Would comp at near triplex PSF. Note he is an ADU vendor. I have heard and addressed absurd claims from other ADU vendors. A big ADU vendor in San Diego used to state value of ADU would be on NOI. I called them out publicly on the absurd claim often enough that I have not heard it in a while.

I hear at San Diego meet ups that Seth’s claim is often not reality.  Not sure about his claim for the Los Angeles area.  Seth speaks often about ADUs.  I last heard his spiel about 2 weeks ago at a virtual presentation for the apartment owners association (AOA).  You can likely find his spiel on the internet.  He was planning on being at the AOA workshop in LA this weekend.   I suspect AOA has a non-member price for going (it is free for members).  I was not interested in driving to LA, so I did not investigate.

Depending on non-member cost and distance, it may be worth attending and asking Seth ADU questions as he should know the LA market (at least he claims to know it). Your plan is exactly what he advocates.

good luck

I question how Zillow can obtain the cost of new construction.   There are so many items that go into the calculation and I would not trust self reported costs to the state for the property tax increase (for holds they will under report). 

Note existing home price is easy in my market.  Closed transactions are public record.   They can easily determine an areas PSF.   Calculating land value is getting more challenging due to consistently reduced number of infill open market sales, but still possible.

In general I would think the candidates for cheaper to build would mostly be the high PSF cities.