All Forum Posts by: James G.

I'd strongly recommend working with an experienced commercial real estate broker that has expertise in the particular type of property you're dealing with. Interview half a dozen. Look for someone who will listen, advise and not pressure you into any sort of formal agreement. The broker will be able to answer all of your questions with a bit more info and a 24-48 hour turn around. Good luck!

Mark - I think the items you requested above are spot on.  I have vetted many tenants using similar documents.  In addition to the bank statements you may also want a balance sheet depicting their net worth - all assets and liabilities.  Also, their business plan should include a pro forma financial statement that accurately reflects their occupancy costs and shows positive cash flow.  If they plan on negative cash flow in the first year or two - do they have sufficient reserves?

Regarding the commission ... most brokers will not offer to reimburse you if the tenant goes belly up before the term is up.  If you have significant doubts and their potential failure will put you in a real bind, you may want to pass on the deal.  Or, like you suggested - obtain a personal guarantee or have them put up a big security deposit.  You could offer to reduce the amount of the deposit on each anniversary of the commencement date.  If you offer an early termination option, make sure to include a fee that will allow you to recoup your un-amortized TIs and commissions.  Good luck!

Ditto on the need to get permits.  If you want to be a professional some day, act like a pro now.  Also agree that you should get a fixed price contract for each sub based on a very thorough scope of work.  The subs should review the SOW in detail and note any uncertainties that may result a change order.  If you do the demo first and everything is exposed before the sub contracts are signed you should not have any surprises.  Also, make sure each sub sees a complete plan showing the work of every other sub.  All the subs need to coordinate well with each other and understand how their work impacts others.

A couple of other comments: 1) get a drywall sub contractor to do that work.  They will be much faster and cheaper than a general carpenter - unless the carpenter also did drywall  in a past life.  It is amazing how fast the rock is installed and you can hardly buy the materials for their all in $$.  2) If you can get a way from your day job on occasion it is well worth it to keep an eye on the project. Take a vacation day if you need to.  Volunteer to be grunt labor for the subs.  Stay out of their way of course but you will be amazed how many problems can be resolved quickly with a little oversight.  Good luck!

I would highly recommend a detailed statement of cash flows for the past 2-3 years as well as balance sheets / bank account statements.  They may pay their bills on time right now but will their cash flow support the rent you will be charging? If you have a bank loan on the property, someone in their underwriting department may be able to help you analyze their financials.

You may want to listen to J Scott's Bigger Pockets podcast on flipping. (Episode 10 I believe). He is in favor of getting a real estate license and does a great job of making his case.  I will begin working towards mine shortly.  

The devil is in the details, some of which were mentioned above.  The key in my mind is what are the terms of the restructuring every five years - binding arbitration or non binding arbitration? CPI increases? Can either party terminate if they do not agree to the rent proposed? Is the rental increase based on the value of the unimproved land or does it include the improvements?  Can the bank scrape its improvements if it does not agree to the rent proposal and the lease is terminated? ...  Your question is tough to answer without seeing the lease. I would consult with a qualified commercial real estate broker (commercial if this is admin or retail if it is a branch).  Your family member may be sitting on a gold mine or they may be able to capture a lot of value by selling to an investor that is infatuated with the bank's credit.  Final comment - banks merge and dispose of surplus real estate all the time.  That trend will continue to accelerate.

The SFR I would purchase is well outside of my immediate area. Thinking Astoria, Longview, Salem ... Not an apples to apples comparison to my ADU opportunity but that is the alternative investment I have been considering.

The info on Beaumont Wilshire was just to paint a picture of where I'm located and the general market conditions here. (In the Alameda / Beaumont MS / Grant HS school boundary, south of Wilshire Park). Not sure how/if home values and monthly rentals on SFR correlate to the value of an ADU but felt is was relevant to the discussion. I have been doing some research on Craigslist and it's tricky to find comps on ADU rental rates for my particular area.

Sorry for the double post... Thanks for the info Jeff S. $650 - $800 was what I had in mind for our area for a studio / small 1 bed apt. I'll post more defined economics of my ADU deal in a separate post for feedback from the community. I think it will cash flow nicely. Really just concerned about any negative impacts to resale value. Any realtors out there with experience in this area?

The opportunity for the ADU is in inner NE Portland. Beaumont Wilshire to be more precise. Typical homes in our area are going for $600k - $900k (retail) and rents range from $2200 - $2700.

Portland area folks - I'd like to know if any of you have any first hand experience with Accessory Dwelling Units. Buying, selling, developing, renting etc... I am considering adding a studio apartment above my garage. I can pull a bit of equity out of my home ($30-$40k) and net about $400-$500 monthly cash flow (after PITI, maintenance, etc...).

The two key questions I have are: 1) Will installing the ADU negatively impact the resale value of my home despite the positive cash flow? and 2) In principle, would it be better to just take my equity and use it to secure a SFR or duplex? I know the answer to the 2nd question depends on a lot of variables... Let's assume that I can acquire a SFR in the range of $150-$200k that I can clear $100 monthly.