All Forum Posts by: Dan H.

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.  

Not sure what you know about San Diego city STR rules but there are STR quotas. They partitioned the city into 2 zones: mission beach everything but mission beach.

Mission beach had more applicants than permits and had a lottery. The rest of the city areas did not hit quota. Because mission beach hit quota, PB has been adding a lot of STRs. The STR threshold when applied was likely envisioned to be somewhat evenly distributed. The result is PB is getting more anti STR and want a localized quota.

What will they do if they implement a localized quota. If history is an indication, they will barely take into account that you already have a legal STR. In mission beach I failed to initially get an STR permit in spite of having been an STR since 1999 and being able to prove I had paid the required transit occupancy tax.

To summarize, make sure you have a plan b.  

Good luck

Here are things that would not transfer with a sale:

-2.5% interest

- prop 13 property tax benefit is saving ~$40/month

these are awesome advantages that are tough to match   In addition you have achieve outstanding return from the appreciation since purchase.

On the other hand, you have $300k of equity which places the LTV at ~65%. This is not optimal for return, but I have a similar issue with my properties that if there was not the recent interest hikes, I may have refinanced.

I seldom sell so I would keep the property even though the low LTV impacts the return. It is possible to achieve better returns, but this property has already produced outstanding return and requires little effort for this return.

Good luck

I have made a lot of money doing brrrrs but I think the current market is challenging. The issue is in my market, and most other markets, the property is cash flow negative after the as high as possible LTV Refi t extract the added value. This is the primary reason your property has is not a good brrrr.

If piti is $1100 and rents range from $1000 to $1200, conservative underwriting would use the lower of the rent range, we have $1100 rent - $1000 PITI - $120 PM - $50 (vacancy) - $300 maintenance/cap ex - $50 misc (tax man, asset protection, book keeping, utilities that are not tenant responsibility such as for a slab leak, etc) is about negative $420/month.

Rents will raise and property value will increase over the long term. The issue is this negative initial cash flow increases the amount invested which will impact ROI forever.

I do not do flips, but if I purchased this property I would be flipping it rather than suffering that level of monthly negative cash flow on that cheap a property.

Regardless if you rent or sell, add a closet to each bedroom.  It is cheap to add a closet.

Good luck

Quote from @David Yee:

There is also AB-1033. That might give us some ability to sell our ADUs separately 

 Ab1033 has no impact.   It was a law that simply explicitly states something that was lreay allowed.  

A jurisdiction has to opt in to AB1033.  A jurisdiction already could have allowed ADUs to be separated.  A bit surprisingly it has resulted in jurisdictions contemplating it, but the only San Diego jurisdiction that I have heard so much as discuss it is spring valley.  Some Bay Area jurisdictions have more than discussed it.  I had heard that Berkeley and San Jose had moved toward it, but I am unsure that either actually adopted it.  

Regardless, ab1033 will not help the OP in Poway.  In addition it likely will not be implemented in many jurisdictions n the near term.  

Good luck. 

Quote from @David Yee:

Hello! I have 7,200 sq ft lot. I have a ~1,000 sq ft main house and a detached ADU that is also about 1,000 sq ft. Is it possible for me to split my lot? Could I sell off the ADU or main house separately? Thank you!

Btw, I live in Poway, Ca which is part of San Diego county

Look at SB9. It requires 3 years of OO, but if you are not destroying a rental unit it could work for you.

Having a mortgage presents an additional hurdle. 

I have considered doing this, but time constraints.  If you proceed I would like to leverage your lessons learned.  

Good luck