All Forum Posts by: Johnson H.

I have a friend that did an OMI. Her lawyer was a good talker but did not have the experience with OMI and it took over a year. Buyouts can have a huge range and easily in the mid six figures depending on the property and location. You will need to talk to the tenants and see if they are open to it. Some will never move.

For Ellis Act, there is the law and there is what you can actually do. You should talk to Bornstein Law and see what the current environment allows. Agents are always throwing these words, OMI, Ellis, Buyouts, around but it is easier said than done in SF. Ellis Act will discount the property but hard to say how much by. 

TICs will always sell at a discount to condos as the financing is a bit more specialized. There are several banks that provide TIC financing. Sterling Bank and Bank of SF are two I can think of out of several local banks and credit unions that can do it.

Make sure that there hasn't been an eviction or Ellis Act that can harm the condo conversion. Andy Sirkan law website is a great place for this information. He can also help with the conversion, he will be more expensive than others, but he is basically the godfather of TICs in SF.

It is in your best interest to do the condo conversion. It should increase the value of your property significantly. Make sure that the other owner also has the patience to see it through.

Mines is not active these days due to COVID and a newborn but check out @Account Closed's meetups. He holds them often!

@Ralpheal Doe Thanks for sharing. I understand about all the tire kickers out there. I have a project coming up and just trying to find the right GC for the rehab.

@Varun M., I am born and raised in the Sunset so I know quite well that you want to go somewhere more sunny! I thought it was interesting no one in the other thread liked the idea of moving to a duplex. I would say to take your wife to open houses and get a feel for what is out there. If your wife doesn't like anything, then staying put and pulling equity out to invest is an option, unless she wants to move and buy another SFH somewhere else to live in. Primary residences are so personal that they are sometimes tough to form an investment decision on.

If you are set on pulling money out, first thing is to look at your current primary loan terms. If the interest rate is low, thats great, if not, you could consider completing a refi or cash out refi on the primary loan. It will be easier to do so now than after getting a HELOC/HEL as your rate will be slightly higher trying to keep the HELOC/HEL while refi'ing the primary loan. I think you hit some of the main points on using HEL/cash out refi vs HELOC. I would add that usually HELOC's are interest only so your monthly payment will be lower than a principal and interest payment for HEL/cash out refi.

Getting one over another depends on your investing outlook, what you are investing in, how comfortable you are with variable rates, and tax considerations. Some like to use a HELOC for flipping as they pay back the money once the flip is complete. Some like HELOC's because they are interest only and also the interest is tax deductible if used for business purposes (ask your CPA). Some are comfortable with a variable interest rate as rates continue to trend downward. Bank, credit union, mortgage broker, it doesn't matter, just make sure you go with someone with favorable ratings.

In my case, I took a cash out refi of my primary due to the low interest rate and invested the money into a 14 unit building in the South Bay with some partners that we just closed on. We will be investing for the long term so I don't have any issue with getting the longer term debt. Yes, the money did sit for a bit as the timing wasn't perfect but neither is life!

Leveraging up your primary residence is a personal decision. Questions to ask yourself are if you are able to service the larger debt payments on your own if the investment goes south? Is your spouse comfortable with higher or a certain amount of additional debt on your primary? The lender on your investment property 1-4 units, will consider the additional debt payments but also the potential rent (i have heard anywhere from 50-100% of rent depending on the lender) on the property to calculate your DTI. Commercial lending would be a different story.

There is no one right answer for everyone's situation but it sounds like you are asking the right questions and you'll do well. Biggerpockets can offer a lot of opinions, its up to you to shift through and decide how you want to invest and how it will fit into your lifestyle. Investing is not all about the numbers either, there are lots of intangibles that don't make it onto a spreadsheet and yield calculation. 

Thanks for sharing this great story @Ralpheal Doe. Your pricing is good for the peninsula and great value add to your property when price per square foot is selling for more than double your construction cost. I did a search for your GC and found two, one in Hayward and the other in SF. Could you share which one? Thanks!

@Yi Chung Chen - I will have to hit you up for her email as I am under contract for 14 units in San Jose with my partners and it needs some work. I saw your other thread, glad to see you enjoy the construction process!

Congrats @Yi Chung Chen! The house looks great. Really good costs on the garage and new garage. I'm guessing you are pulling an owner permit and using that contractor? 

@Kathy Utiss The reason that building you found has a better GRM is because it's in a bad part of town. Owning that building is not for the faint of heart. A lot of experienced owners in the city won't invest in that area. It is a lot of trouble and the area is not getting any better.

The OP's building is a trophy property in an amazing part of the city. You don't buy in SF for day 1 or year 1 cash flow, you buy for the appreciation and to build wealth. This is why apartment building's in the city routinely trade for above 17 GRM before covid and around 15 GRM now on average with mixed use even lower due to the shutdown of the city.

@Sailesh Kumar You'll want to see those commercial leases on their options and when the current lease expires. If they decide to leave, you'll have to put in money for tenant improvements which can $10s or even $100s of thousands. You'll also want to see which units are above the restaurant and whether or not smells and noise gets into those units. If so, they may have to be rented for less than market. I also see the listed market rent for the vacant units lower than some of the current rents. I don't know the condition or which floor they are on, but it could be possible that some of the current tenants may ask for rent reductions when they see how much lower those vacant units rented for and if the market continues to be soft when they renew their lease. I would also want to see a long lease for the ATT cell site as the value of the building falls if they choose not to renew.

All over the city, mixed use is trading for a larger discount than an apartment building due to the survival of small businesses and the lower demand for a commercial unit if vacant. Price per a unit is high due to the large units, price per sq ft is okay. When I look at properties to purchase, I like to buy with a margin of safety. A building with all current rents does not have that margin of safety unless you can buy at a discount or there is some time of value add like adding units to the property. This investment doesn't fit my criteria so unless it was super cheap, I wouldn't say it's a good buy. However, everyone is different and this prime location and as a trophy property can't be beat. If you love the property and know there aren't any other suitors for it, you could give a verbal offer of a number lower than $8M and see what happens. They will give you feedback on it. I was once told, if you aren't embarrassed of how low your offer is, its not low enough :)