All Forum Posts by: Jackson Wu

I am doing a rehab on a rental unit that currently has the type of drop down ceiling tile that you see in office spaces. This ceiling tile is there to cover up some ugly electrical work. For me to do a full rehab and re-run the electrical does not make economic sense for the space I have. 

So my options are to keep the drop down ceiling or remove the dropdown ceiling and rerun electrical and repair the drywall, to the tune of $2,000-$3,000.  I'm trying to see if there are any drop down ceilings that don't look like crap.

What are some alternatives to the the drop down ceiling tile? I don't want a tenant coming home and feeling like they never left the office. 

Hi @Carlos Morales This is a 500 sq ft apartment with an eat in kitchen and a bedroom. Somewhere between a studio and a 1Bed room.

We are planning on re doing the floors as well. So technically they can spray down the entire space. Any recommendations on painters?

Can anyone recommend Painters and contractors with reasonable prices in Harrisburg, PA?

I'm currently being quoted 1,100 to paint a 550 sq ft apartment.  They are saying that the windows will take extra time and treatment, and I understand that. But $1,100 is more than i bargained for.  

@Andrew Erickson If this thing scales, you could talk with lenders that specialize in the mobile home space. If you get a lender on board then you just connect them to your buyers and you have your machine up and running. 

Also, I just read your updated ADU rules. It looks like according to the new rules, you can have law enforcement step in and help you with evictions.

I like that you are using an 8% cap. Its a nice conservative number. But you still have to factor in other maintenance costs, insurance, utilities, and repairs. 

Since the owner would be paying for electricity, I would consider looking into adding a solar option for certain buyers. That additional big ticket item might be price prohibitive for people trying to enter the market, but on a spreadsheet it would pencil out to an additional $1200 a month in net income. 

This is a great product to push in any high rent low cap rate markets: San Diego, LA, SF, Seattle. 

@Andrew Erickson I thought about where to go next. You need to find a lender that is willing to lend on these units. That way you won't restrict your market to all cash buyers. You could also learn the HELOC process and develop relationships with banks so that when you have customers, you can streamline the process for them.

Your goal is to reduce the amount of work your customer has to do to get this up and running and make the upfront cost as low as possible. 

If you have an issue with a tenant and you are not zoned to have a legal rental,  you will not be able to evict them with the assistance of law enforcement.  This means the only way to get rid of a bad tenant is paying them to leave.  With these types of rentals its best to opt for short term or rent to a friend or family. 

Also, the math is a little funky. Its not really a 100k bump for the customer. You might get $1200 a month in rent(14,400 a year), but you cannot apply a standard GRM or CAP rate at the point of sale. The banks won't underwrite the income or the square footage.

 I'm guessing these will be installed into single family homes. If you were to ask an appraiser, they would value these at a flat rate that mother-in-law/pool house/guest houses would be valued. They would not value it by the amount of income or the added square footage. Last time I checked, the appraised value for one of these in the state of California was $25,000 and thats when the thing is permitted. 

Your value based on a 16x GRM at $1200 a month in California is $230,040.

Your Value based on 380sq ft at $500 a sq ft would be $190,000.

Your value based on a California licensed appraiser would be around $25,000.

So the thru value for a buyer is somewhere between the bank's number and the value of the rental income for the owner.  

Other than that, it looks like you have a nice little niche product. I think for a new investor that is house hacking, or someone who owns a 3/4 unit with the land to install one of these, you have a really interesting product.  

I have a plot of land on a signalized corner, in a busy area in so-cal. What is the best way for me to get a list of National Credit Tenants' new location managers?

@Simon C. I'm available to chat anytime. I love talking about different investment vehicles in real estate. I'm currently focusing my efforts outside of Los Angeles and Orange County. I own 9 doors in the So-Cal area, but unless I want to sell and 1031 my money won't go very far here.  I've acquired 5 more doors outside of my local area last year and this year.  I'm also in 3 syndicated deals in the bay area. 

For me personally, understanding how to underwrite a long distance property is the key to my passive income growth, while I wait for the Socal market to stabilize. There are a ton of reasons why the LA/OC market is overpriced at the moment. There are still plenty of opportunities for a savy investor, but like I said, its not the best place to learn.  The more time I spend with expert flippers and expert commercial investors in the Pasadena area, the more I've come to understand that its not the right time for new solo money.  The margin for error is just to slim when you are borrowing at negative leverage.

I would love to attend one of @Jeff Greenberg's meet ups and will try to fit it into my schedule.  Maybe I can drop the wife and kid off at 3rd Street and come chat.

If cash flow is your goal, you will have to abandon the Los Angeles and Orange County markets. Cap rates have become so depressed that you will bleed out every month. Most of the big speculative money that is buying at these 3.5-4 caps are waiting for the rents to increase over the next few years.  Which sounds crazy because rents are already insane in Socal. But the idea is that once minimum wage reaches $15.00 an hour people will have more disposable income for rent.

A downside of investing in socal(SGV specifically) is that you need a lot of cash to play. All the deals you see on the market are purchased all cash. So even if you are going to go in an BRRR, you better have 700k ready to go in the SGV.

The biggest downside of investing here is that the competition is high. There are so many flippers and private equity firms that compete in this area because the returns can be high. This makes it a tough market to learn in.

Flippers and private equity firms love operating here because, when you have money, knowledge, and experience, your money can go very far in Socal.  

Look at it this way.(very conceptual) If it costs $200 per sq ft to build in Los Angeles and the properties sell for about $500.00 a sq ft. You make $300 per sq ft you build. Meanwhile in the B/C markets, it might cost $175 to build, but you can only sell a property for $200 a sq ft. So you can only make $25.00 per square foot.

Thats why the experienced money flocks to the major markets. This is a great opportunity for them, but makes it harder for you to break into the market.

My advice is the same for all newbies. Educate yourself and find a mentor. Consume as many books, blogs, forums, podcasts as you can.  And find a mentor, someone who is doing the specific thing you want to do and either buy into one of their deals or do a joint venture with them. 

Lets say you ignore the entire first part of my post and you want to play in SGV. You will be swimming with sharks. So I would recommend, do not go alone, find a shark that wants to swim together. 

Oh also, another thing I don't like about being a newbie in socal. The books aren't written for the socal market. They are written for B/C markets with higher cap rates on rentals. So it is a little bit tougher to learn from books meant for a national audience. Have you been to the FIBI meeting in Pasadena?

If you are going to be buying out of your area you have to make sure you pad in a lot of extra expenses on your analysis sheet. For example, if a market report shows you an 8% vacancy factor, pad that thing up to 13%. Same thing with rehab costs. If you know you could rehab an SFR in your town for 20,000 make sure you take a look at the market rate of a rehab in the new market and pad in an extra 5%. There is a learning curve to every market.

I spoke with a friend who runs a successful turnkey operation and this was his advice. I purchased a 3 unit in Harrisburg this year, which entails a 5 hour flight and 4 hours of driving.  I am looking to pick up more properties in the area. Hopefully @Travis Wylie can find some other deals for me.