All Forum Posts by: Dan H.

Quote from @Christopher Robert Noland:

Nobody's giving you $3000 in rent for an ADU unless it's in like San Francisco or Silicon Valley or maybe Seattle but even then I don't know

the cost of building the ADU in Washington state pretty much breaks, even with the after repair value or new equity appraisal. 

It’s not worth it if you’re gonna live in the property short term less than seven years right now and it’s really not gonna be worth it at the building materials go even further in price

>cost of building the ADU in Washington state pretty much breaks, even with the after repair value or new equity appraisal

Where did you get this belief?

I know someone that added a basement ADU (at what seems like crazy cost) in Seattle area and it added a fraction of the value of the ADU addition.

It is also not what I am seeing in high cost Southern Ca.

It is also not what I am hearing national lenders state in general. Virtually universally they state that ADUs do not add cost equal to the ADU addition. They are talking general terms and not a specific area, so I suspect there are some areas that are an exception but I doubt the area is as big as a state.

In my so Cal market a 3/2 new ADU build can get over $4k in many locations. if there was no initial negative equity, it could be worth the other downsides of an ADU addition. However, in my market most ADUs are starting with at least $50k of negative equity.

Good luck

It typically does not pencil out well to build a single ADU even in high priced Southern CA due to the cost versus the value added. The value added is typically at least $50k less than the hands off costs to add the ADU.

Hands off Garage conversion ADU additions are typically over $125k and sometimes much more.

Building a single small residential unit is expensive development. 

There are many other reasons that building an ADU is not a good RE investment but the initial negative equity position is a primary one. The property tax increase is on the ADU addition cost and not the value added. The ADU addition causing the primary unit to be rent controlled (if more than 15 years old) is a disadvantage that is sometimes missed by those adding ADUs.

Before you add an ADU, make sure you know the value that the SDU will be adding. Any negative equity position has to be recovered before the first profit is achieved.

Best wishes

Quote from @Becca F.:

Quote from @Jay Hinrichs:

for others to add to the list

Don Knopil

Mike Dimski

Chris Seveney

Mike and Don for quality or quantity !! Chris gives both. 

I agree on adding Don, Mike and Chris. 

Jay gets a trophy and a big round of applause from me!

For Mt. Rushmore #2 or "baby Mt. Rushmore": I'd add @Nicholas L. and @Dan H. Probably a few other people but they seemed to have stopped posting for at least a few months. 

The pictures with the hair drawn on are great...LOL 

Thanks for the props.

i am also on my way to that bald club (unfortunately, i liked my hair).   I have not done the shaving of the head totally bald but think I like the look better than the nearly bald look (so I might go there or transplants).  

the bald/balding BP Rushmore could not include Joe (too nice a head of hair).

I question if anyone will ever catch Jay in post count.  If you posted 10 a day that is 5,870 days (over 16 years) to catch his current count.  add that he is sill very active and his count is still increasing.   I suspect I have never posted as many as 10 posts a day.  

All 5 have of the Rushmore made quite a contribution to the BP forums.

Jay, it would be my honor to meet you to just say hi at BPCon 2025. 

best wishes

Quote from @Stephen Morales:

Quote from @Dan H.:

I have been to 3 BPCon.  I liked San Diego and Cancun (even though Cancun was unorganized and weather did not help).  Orlando was too big for me. I fear Las Vegas will also be too big.

I attended 2024 MTR summit.  I felt it was mostly a raw raw to get you to sign up for mentoring by the organizer.  It did seem I was in the minority and that virtually all others liked the conference.  By the way 1) I still get emails trying to sell the mentoring 2) at the conference we were told all slides would be made available which I took as available free.  They then sold the charts.  I would have shot photos of key charts except I thought the charts were going to be provided at no cost.  Organizer is all about getting dollars from the attendee.  I do not have same feel for BPCon and BPCon is far better value (more sessions, more perks, more vendors, more perks).  

for females, my wife has gone to 2 InvestHer conferences and has enjoyed both.  You may need to be a member. by the way if looking for a honey mama (ie motivated, financially well off girlfriend/wife), there may not be a better source anywhere.   Hundreds of successful women of all ages all located at the same location.  The last location had InvestHer and WIRE (women in real estate) having their conferences at the same location at the same time.  There were so many women that the hotel Public men’s restrooms were converted to female (I almost blindly walked into one as the day before it was male.  I could not have been the only one as they later put a pathway sign in addition to changing the existing gender signs).  If I needed to use the restroom, I needed to go back to My hotel room. 

Good luck

 Would love to take my team this year to BPCON, what was the most value you got out of all 3 conferences you went to? I think the networking value alone would probably be #1

Networking is definitely highest on the value list. I was under contract on a luxury cabin that fell out of escrow. If we had purchased it, the co-host would have been someone I met at an STR based breakout session at BPCon 2024. Similarly, my agent in Emerald Coast I met at BPCon 2023.

the next most value is going to vary by what areas in RE you are investing but in general the opening and closing keynote speakers are good.  Cancun was not as good as the other conferences but still worth it.  

Enroll in the sessions that are of most interest to you.  Some will be duds, most will be pretty good.  Some will be good enough that by themselves they may justify the cost (seeing I drive to Las Vegas, my cost is a bit reduced).

Someone indicated there is a picture of me somewhere in the bp2025 material. I have not seen it in the material but also have not looked for it. The person sent me the picture. From the picture, it looks like I might be checking in at BPCon 2024  

most important is to have fun

Quote from @John Litz:

I can see both sides of the OP and Dan H. OP gives some numbers on returns that are specific to the area. As we all know RE is very specific locally. So not everyone is going to get $2-3k rents. However Dan H is over stating negatives locally as well. Some areas ROI will be better than the negatives he faces. There are many flavors of ADU's and not all screw up privacy and yard space. I am converting existing space so it won't cost nearly as much as building a detached unit. Won't mess up space for the yard and won't impede on privacy what so ever. Since it is existing structure the cost will be significantly less. I personally am a fan of ADU's but as with all RE you have to run the numbers and analyze the deal to see if it makes sense for your situation. The deal will always tell you if it is right. No emotions, use the right strategy for the right situation. California does have some very good ADU legislation. Cost to build vrs rental income is the issue most will come up against if your area allows them to be built at all.

Where is the ADU addition? How much will it cost? How much value will it add? How did you determine the value added? Will it make your primary rent controlled? How are you financing this and how does the rate/terms compare to what you can get on a SFR acquisition? How long do you expect the process to take (time with expenditure without revenue)?

Building a single, small unit is the most expensive residential development. 

I stand by my claims as typical (there are exceptions but typically the exception is not doing their first ADU addition) for Southern Ca and have looked at many ADU addition underwritings. It is rare for an ADU addition to not have large initial equity position that consumes the initial cash flow to recover the initial negative equity position. I regularly see over 10 years to recover the initial negative equity position. Sure there is equity pay down and appreciation, but a SFH purchase has that without the negative position. Note at typical financing available on ADU, a rent ratio noticeably over 1% is required for any cash flow when properly allocating for sustained expenses (meaning allocating for on-going maintenance/cap ex).

If you desire, I can look at your underwriting.  PM me and I will provide an email address.  

ADU vendors want to sell ADUs. A big local ADU provider used to advertise a value add based on noi. In large part due to me publicly calling this out as wrong numerous times, they stopped doing it. It was intentionally misleading but helped them sell their ADU services. Beware of info provided by ADU providers especially concerning valuations. Talk to appraisers, lenders, mortgage brokers etc to get the real info on ADU valuations. In San Diego it is nearly impossible to get HML (at least from an experienced HML lender) on ADU addition. They know the issue with ADU valuations and may have got burned in the past.

Good luck

I have been to 3 BPCon.  I liked San Diego and Cancun (even though Cancun was unorganized and weather did not help).  Orlando was too big for me. I fear Las Vegas will also be too big.

I attended 2024 MTR summit.  I felt it was mostly a raw raw to get you to sign up for mentoring by the organizer.  It did seem I was in the minority and that virtually all others liked the conference.  By the way 1) I still get emails trying to sell the mentoring 2) at the conference we were told all slides would be made available which I took as available free.  They then sold the charts.  I would have shot photos of key charts except I thought the charts were going to be provided at no cost.  Organizer is all about getting dollars from the attendee.  I do not have same feel for BPCon and BPCon is far better value (more sessions, more perks, more vendors, more perks).  

for females, my wife has gone to 2 InvestHer conferences and has enjoyed both.  You may need to be a member. by the way if looking for a honey mama (ie motivated, financially well off girlfriend/wife), there may not be a better source anywhere.   Hundreds of successful women of all ages all located at the same location.  The last location had InvestHer and WIRE (women in real estate) having their conferences at the same location at the same time.  There were so many women that the hotel Public men’s restrooms were converted to female (I almost blindly walked into one as the day before it was male.  I could not have been the only one as they later put a pathway sign in addition to changing the existing gender signs).  If I needed to use the restroom, I needed to go back to My hotel room. 

Good luck

More than 5 years ago the common sentiment on this site is cash flow is king and appreciation was icing on the cake.   Today the view on the site recognizes that leveraged appreciation in most markets is where the highest return is achieved.

If a market appreciates 10% at 95% LTV, the return from appreciation is 200%. At 0% LTV, the return from appreciation is 10%.

Note high leverage does not necessarily mean high risk or over leveraged.   It depends on how much reserves you have, your reserves, your income, your cash flow and likely some other items. 

My DTI for 2024 is over 600 to 1 meaning for every dollar of income, I owe over $600. In addition, I strive for at high a LTV as I can obtain. Does this imply anything other than lenders consider me low risk for reasons other than my income? Does it imply I am over leveraged? Does it imply that I have taken outlandish risks? My view is I am neither. I assure you the if there was a recession to rival the GFC, I am in a position to come out fine.

In addition, it is best to take risks when you have little to lose.  As you have more to lose, it is prudent to be cautious.

At 20 years old, leverage is your friend.  If you have to start over again, you have plenty of time to start over.  

Therefore my recommendation is to understand risk/reward, but at your age you can be more aggressive than later in life.

Good luck

There is a device called kill a watt for 110v that are priced very reasonable.  You can determine how much power any 110v device takes by plugging it in. 

So I did a search on amazon to see if they have a 220v equivalent and voila https://www.amazon.com/40-300V-Display-Multimeter-Multifunct...

It is over twice as expensive as the 110v versions, but it can tell you how much power is being used to charge the vehicle.  This would allow you to charge the tenant for his increased power use.  

Good luck

Of all the percentage rules, the rule I give most credence to is the 50% rule.  Note I am not stating it is universally true but I want to understand any deviation that my underwriting reflects. 

3500 - 1750 - 1816 (80% LTV, 30 your, 6.75%) = negative $66

I am willing to bet you a lunch that my cash flow calculation is more accurate when including all sustained expenses than your $1k cash flow estimate. 

The cash flow does not justify the purchase.

As numerous other posts have indicated, the quality of this deal really is dictated by the true value of the property.   If it is not selling at $450k, the valuation is less than $450k.   Would it sell at $420k?    Get a justified valuation.   Pay for an appraisal.  Do not rely on a valuation from anyone involved in the transaction.   If you want a quick valuation, propertyHub IMO is better than other automated estimated values (zillow, Redfin, etc).

Beyond determining the initial equity gain, research the market.  Do you use not a strong rental market as a euphemism for a poor rental market?   If so rent growth may be poor.  How is the appreciation outlook?

the initial equity gain and the local fundamentals will determine if this purchase is likely to produce a good return.

Good luck

Some things to consider

- real estate professional: maximizes the deductions

- high leverage reduces cash flow: cash flow is taxed annually, the other RE sources of return are tax free or tax deferred

- depreciation: cost segregation/accelerated depreciation, regular depreciation

- STR "loophole"

- 1031 exchange: transfer into next property the gains deferring the gain taxes

- property value basis readjusts at death   To me this is a crazy law, but as long as it exists there is no reason to ever pay taxes on gains including your heirs.

- 2 of 5 rule for owner occupied allows $20k/$500k gains to be exempt from gains tax.  

with the current rules there is no reason for RE investors to pay taxes on RE profits.  

Good luck