All Forum Posts by: Dan H.

I do not see what you have to lose with this partnership.  

1) you are tired of dealing with guests.  Partner can or you can hire a pm

2) property has not enough equity to heloc or sell at return but prospective partner is willing to buy into the partnership. 

3) even if the partnership ends up being short lived, there is an opportunity for further appreciation in that span.

4) you fear the risk of a poor season.   This partnership splits the risk.  Assuming 50% partner, you have halved your risk. 

What is the downside?
make sure a lawyer reviews the agreement.  

Good luck

I am often the contrarian but the best actual cash flow over a hold is not the markets listed above.  Some of them may be good markets for initial cash flow   There is a poor correlation between initial cash flow and this is not happenstance.  RE market price is based on many parameters, but two of the biggest (maybe the 2 biggest) is property appreciation and rent growth and those 2 typically have a tight coupling.

Assuming fixed rate loan and rent growth at least even with other expense growth, the higher rent growth market will always eventually have better cash flow than the lower rent growth market regardless of the initial cash flow. 

This implies high rent growth markets like my San Diego market will have higher cash flow for long holds than those cheap Midwest markets that have good initial cash flow. 

My market at high LTV retail Purchases (MLS) currently has large negative cash flow, but I think it is highly likely that the total cash flow in 10 years will exceed a similar size investment in the cheap Midwest markets.

In addition, you will have appreciation far greater than those cheap Midwest markets. 

In summary the best cash flow for a long hold will be markets with best rent growth and these are typically markets with the poorest initial cash flow.  

This may seem like an extreme, crazy concept, but historically the data supports this belief.   Cities like San Francisco, New York, San Diego have experienced the best cash flow on long holds.  

Good luck

San Diego County vacancy rate surged to 6.36% in Spring 2024, up from 3.9% in Spring 2023. Within the region, the City of San Diego also experienced a rise in its vacancy rate to 4.22%, compared to 2.64% last year. The increase in vacancies can be attributed to the addition of new properties to the market and higher than usual vacancy rates in older properties.

https://www.socalrha.org/news/2024-vacancy-and-rental-rate-s...

Note LL, location, and property all have an impact on actual vacancy. If you have a commercial residential property (>4 units), the value is based on NOI. in such case, optimizing rent justifies longer vacancy. In non-commercial residence (<5 units), the vacancy is large impact to cash flow s as nd it typically is worth having rent not at the top of market. Similar, average rent in san diego is noticeably higher than $100/day. It makes sense to hire help to shorten tenant turnover time.

Good luvk

In CA, the tax increase is capped at a maximum of 2% so it will definitely be less than 5%.  

A near 1% property in coastal So Cal is a rare find. Because of this, I suspect his ARV is close and that he has near the equity he indicates (a very good buy in this market).

However, cash flow is not rent minus PITI. Even if everything is new, their lifespan has started. Cash flow should be after best estimate of expenses and maintenance/cap ex will be needed. Even if there has been no vacancy, vacancy needs to be allocated as there will almost certainly be a vacancy.

At the current interest rates, 1% ratio likely is unlikely to have positive cash flow at a high LTV.

This does not imply that this purchase is not a home run in this market.  

Good luck

I am not stating this because I am against it; I have mixed feelings.  I am stating it to provide something to ponder and an explanation why it may appear people are ignoring the data.

If owners of property impacted by climate events are heavily bailed out by FEMA and other sources, then what is the risk?

The latest that I am aware of occurred this past Monday, Rancho Palos Verdes. ~70 years ago a landslide took out over 100 homes in the area. The road is built on top of a previous landslide. Was it hard to predict future issues? FEMA & Ca provided a $42m buyout program for the worst impacted.
https://timesofsandiego.com/politics/2024/10/29/residents-of...

It seems the owners should have known the risk, but let’s assume they did know the risk but also knew the precedence of assistance for climate related impacts.  Is it unreasonable that they would expect aid for a climate related impact?

Same logic can be applied to anyone impacted by the recent hurricanes.

So what is the risk?

By the way I am looking at properties in a high fire risk area.  It will require Ca Fair Plan insurance which is not cheap but is likely cheaper than a free market would dictate.  What is my risk?  I know the state has CA fair plan insurance for high risk properties and I know its cost.  if it burns down, I will have insurance.  Even though climate risk (fire) is high, my risk does not seem high. 

So it appears I am one ignoring the data, but I believe I have a good grasp of the risk and a plan to mitigate the risk.  

Best wishes

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

 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.

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