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All Forum Posts by: Justin R.

Justin R. has started 16 posts and replied 1059 times.

Post: San Diego limiting Short Term Rentals

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158
Originally posted by @Dan H.:
Originally posted by @Justin R.:

I love everyone as investor colleagues (and I almost always agree with @Dan H.), but I have zero sympathy for those relying on full time STR as a business model. STR has *always* been a risky business model and it has always been at odds with the letter of city ordinances, spirit of city ordinances, the will of people who live nearby, and the interest of renters in the City. The problem is they benefit the owners and visitors while hurting everyone else. Situations where we (as investor) benefit AT THE EXPENSE of others are just not tenable in the long term. Never going to be a recipe for sustainability. And, the tough times from Covid or regulation or being forced to sell is the natural flip side to previous years of outsized returns. Investments (almost) always revert to risk-adjusted levels of return.

Bravo for Mission Beach - STR has been part of the culture there for decades. Totally understand that exemption.

I have no exposure to STR and it might seem odd that I'd take that position since, by all accounts, STRs indirectly benefit me personally through decreased available LTR units. And, I generally lean intellectually libertarian. But, on a macro level, they just don't make sense in the form they evolved into. I dunno - maybe that viewpoint comes after years of dealing with ordinances and zoning. Neighborhoods are communal places, established by the City for the enjoyment of those who live there. As property buyers, we accept those rules and buy into that idea when we buy a piece of property. It's near impossible to change those rules of a neighborhood because everyone purchased and accepted those rules -- that's why development requiring discretionary review is so dang difficult.

Like I said - no ill wishes towards anyone.  Just advocating for thinking about the macro impact we as investors have, and staying focused on activities that add net benefit without exacting costs on others.

 
Even though we have a duplex in Mission Beach that has been primarily an STR since 1999, I am not a fan of STRs in all areas for many of the reasons you cited.

However, in general, I am against quick changes.  I believe the fed minimum wage is too low.  I do not advocate instantly bringing it to where I think it should be.  My preference is to not let it get so low that a big increase is ever warranted.  In the absence of that being a reality, my view is to raise it gradually to get it to a more livable wage.

I take a similar view on STRs.  If they are to be phased down or out, I do not advocate basically over night placing a 1% limit on the STRs (even if they are treating Mission Beach with a higher threshold).  A slow phase down, or to only ban new STRs, I find more in my avoid extreme impacts policy.

One thing I like about the policy as it was voted on is the preference given "good actors". Ideally, well run units with few complaints will get a preference over units that have resulted in numerous complaints. I think between our units being professionally managed by a company that seems to address issues immediately and the higher Mission Beach threshold, there is a good chance that our units will not be impacted by the new STR regulation.

My primary advice is that STRs in San Diego county are high risk and that anyone planning an STR in San Diego should have a back up plan.  There is no guarantee that even further anti-STR regulations are not on the horizon.  There is definitely an anti-STR faction in San Diego (and I do not disagree with many of their views).

I can respect that POV. I personally disagree on the "gradual phaseout" concept - investors need to be mature enough to understand what we're getting into. The signs have been obvious for years, and any objective consideration of the situation should be enough of a signal of what's coming. Add on the fact that (traditional) lenders won't underwrite based on STR income, and that traditional landlord insurance policies won't do it should be all the indication any newbie (or experienced investor) needs that they're doing something risky.

My passion for this mostly comes from how much hype there's been about STR for the last X years - I don't like to see anyone get hurt, but people do need to accept the natural outcome, IMO.

Post: San Diego limiting Short Term Rentals

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

I love everyone as investor colleagues (and I almost always agree with @Dan H.), but I have zero sympathy for those relying on full time STR as a business model. STR has *always* been a risky business model and it has always been at odds with the letter of city ordinances, spirit of city ordinances, the will of people who live nearby, and the interest of renters in the City. The problem is they benefit the owners and visitors while hurting everyone else. Situations where we (as investor) benefit AT THE EXPENSE of others are just not tenable in the long term. Never going to be a recipe for sustainability. And, the tough times from Covid or regulation or being forced to sell is the natural flip side to previous years of outsized returns. Investments (almost) always revert to risk-adjusted levels of return.

Bravo for Mission Beach - STR has been part of the culture there for decades. Totally understand that exemption.

I have no exposure to STR and it might seem odd that I'd take that position since, by all accounts, STRs indirectly benefit me personally through decreased available LTR units. And, I generally lean intellectually libertarian. But, on a macro level, they just don't make sense in the form they evolved into. I dunno - maybe that viewpoint comes after years of dealing with ordinances and zoning. Neighborhoods are communal places, established by the City for the enjoyment of those who live there. As property buyers, we accept those rules and buy into that idea when we buy a piece of property. It's near impossible to change those rules of a neighborhood because everyone purchased and accepted those rules -- that's why development requiring discretionary review is so dang difficult.

Like I said - no ill wishes towards anyone.  Just advocating for thinking about the macro impact we as investors have, and staying focused on activities that add net benefit without exacting costs on others.

Post: ADU Appraisal California

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158
Originally posted by @Twana Rasoul:

@Justin R.@David Alfaro @Brian Larson @Dan Heuschele the success I've had recently with ADU and getting the value of a full separate unit is having a single family (2bed/1bath) home with detached garage and converting the garage into (2bed/1bath) ADU....the zoning allowed for 2 units so when appraiser shows up all he needs to know is that there are 2 dwellings on a lot zoned for 2 units so he valued it as 2 units and used duplex comps which gave us far more value than we could ever get with single family home with a detached adu. Got over 900k value vs a potential value in the 700s had it been comped as an SFR with ADU

I second Twana's experience - so long as either the actual zoning matches the number of units, or the number of units is common in the area, I've always seen appraisals as duplex/tri/quad as well.

I've got two projects at the moment that will take 4 unit properties and turn them into 5 and 6, respectively.  I'm expecting to see commercial 5+ financing when they're done - I see no practical or technical reason they wouldn't be considered so.  I'll have to share when they're complete.

Post: Short term rental help

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

@Kenny Robbins I have avoided STR for various reasons, so I'm not the one to opine on that.

But, this way of approaching the planning seems totally backwards.  It's like saying, "I want to open a shop and make 100 sales per day. Which shop should I open?"  That's easy - just open a Fry's Electronics location and I'm sure you'll hit that.

Post: How to create new address for an ADU

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

The standard process here is to assign either an address number (if it's a separate building) or a unit designator anytime plans are approved for a permit.  There's literally a department called "MIS Addressing" that handles this - you'll get the assigned address back along with other reviewer comments.

How someone permitted an ADU and didn't get an address (if done in the past 15 years, at least) is lost on me. But, good to know they took care of it for you!

Post: Cash Flow vs. Equity

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

@Charles Masten I generally echo what Twana and Matt have offered you, though I would add one thing: especially when you're starting out, you want to make sure you can get attractive FNMA financing on your first properties.  Make sure that property #1 and property #2 still allow you to get FNMA financed for properties #3 and #4.  This can mean prioritizing cash flow to help your DTI.

If your non-REI income is high enough, or once you've got a track record, there's really no reason to focus on anything other than total return if you're trying to build wealth.

Post: Building up on a value-add, single level, coastal CA duplex

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

@Jon H. What city is it in?

Adding additional stories is way more involved that most people think, primarily because it generally includes changing floorplan on the first floor.  I've seen one situation where a second floor was added that had the same layout at the existing first floor - it turned out to be a simpler process, though it still involved underpinning the foundation and of course all of the engineering and permitting requirements normally required.

Also be aware that, depending on the age of the existing structure, you may have to deal with geotechnical.  Coastal stuff built in the 1960s had none of the earthquake and geotechnical requirements we have today, and parts of the coastal areas present challenges (I'm doing a project about 4 blocks from the water now that happens to be in a liquifaction zone, necessitating plenty of soils work, even for a small addition).

I guess my only other comment is the use of the "construction crew" ... that's no small feat at the moment.  Material costs are high at the moment, and everyone has plenty of work.  That presents two problems: (1) Finding someone who will engage with you early prior to permitting and (2) Finding someone who will charge at a level that still lets you make money.

There's obvious upside to coastal expansion of properties.  Before you pull the trigger, I would recommend at least evaluating a tear down and new build - you might actually find that it's about the same price as trying to add a story and renovate with more certainty and a much better final product.  Depending on the area, it may work out better.

These are all cautions, but in general it's a great option and I'd certainly encourage anyone to look into and see if the numbers work!

Post: Should I stay or Should I go?

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

This feels like Groundhog Day.

With all respect to others' responses, I'd personally advise focusing on @Cody L. and @Dan H. comments.  Both because I think they're great comments and also because I know both of their backgrounds - they have a lot of experience and data to draw from.

Since the OP (@Maya German) asked for input, I'll share mine too: You should imagine what your future looks like 5 years from now, and use that to make your decision.  This is a long game, and decisions you make now take a long time to fruit or to unwind.  Imagine yourself owning a $1M property in whichever-other-market in 5 years.  Do you feel good about having it?  Are you happy with the effect it has on your life every month?  Do you want more of that?  Now imagine owning a $1M property in your current market.  Same questions.

PERSONALLY, real estate for me is only partially financial.  The financial returns are just table stakes, and it's >50% about creating and contributing something and having an impact on a place.  So, it'd be crazy for me to just buy and operate something far away.  I'm active in San Diego because it's where I'm at.  And the best way I've found to marry returns with impact in San Diego is through development - creating additional housing whether through land development, new apartment construction, adaptive reuse of buildings, or expanding existing buildings.  I haven't "just" bought a building locally in several years.  You're probably not just like me so you'd probably take a different route ... which is the beautiful part of humanity.

So when you ask someone like me, or Cody, or Dan, or anyone who's been on BP for a while, you're going to get the "it depends" answer.  We are each doing something different and, if we were just advocating for what we each like, we'd each steer you in a different direction.  It would be a flamey war.  All the output you see from respondents above (including this) is each independently true advice, but they're coming from different contexts.  You've got to identify and articulate YOUR context (What are you interested in? How much involvement do you want? What do you aspire to do?) before any of the advice you get here is really actionable to take.

Post: Peak of the market: gurus everywhere

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158
Originally posted by @James Hamling:
Originally posted by @Justin R.:
Originally posted by @James Hamling:

@Ross Bowman you mention to seeing this more and more in your social media. There is some significant social media documentaries you need to go watch, pretty sure it was on Netflix. What your experiencing is literally by design, and it's how all social media is designed. 

It started with a logical premise, that to gain in users, create algorithms that adjust content shown to users to be more of what the user "wants" to see and less of what they don't. The issue is it creates a feedback loop, that is the problem for us humans and society, not for the companies and their advertising dollars. 

The programs read your engagement, at a level that would make most people gasp. Than it starts adjusting the content your seeing, when your seeing it, how your seeing it. And it tests your response to these changes, constantly refining to achieve their goal of your maximal engagement on platform. 

Think of it this way, your just a digital cow, that's it that's all, a digital cow that social media is striving to find how to most efficiently milk you for ever increasing minutes and hours per day, until every second of your life is devoted unto their platform engaging, because that's how they make $$$$, via your engagement. 

So in the end, it cares nothing for your self as a human person, your experience, growth nothing, it's about finding the perfect sound-chamber for you that keeps you pinging non-stop. So when you start engaging in REI Gurus, yup, it's gonna feed you more and more and MORE AND MORE until you go for something else. It's just feeding the cow to keep it on the milking floor.

People who are outside of the tech industry tend to see this issue as though these companies are trying to capture eyeballs so that they can serve up more ads - more ads equals more money.  Money is what they're after.  Evil companies.

I would suggest that folks leave room for a different point of view, which I've grown to appreciate after 15 years in the industry in the Product Management space.  We (meaning, Product people in tech) start with a premise that personalized is better - it's better because it's more helpful, and helpful software leads to a more rich and full life.  When we design software, we have to choose which signals to follow for that personalization - your previous behavior, or others' previous behavior.  Others' behavior could be people that are likely to have similar proclivities to you, similar geography, similar age, ethnicity, buying habits, interests ... whatever.  Likely, it's some combination of these, but the point is the same: we need data signals in order to improve software. 

When we're creating fuzzy algorithms that use those signals, they need to be constantly measured in order to improve, so we also have to pick which measurements to use to determine how each algorithmic variation is evaluated - does it do better, or does it do worse?  Or, more specifically, does the user like it, or does the user not.  That is most easily measured with click rates; your click becomes a proxy for whether you like something.  And, if you like something, it's likely you'll want more of it.

My point is this: While many people assume the bottom line drives the algorithm, in my experience the PRODUCT drives the algorithm.  And, the success of the product is driven by the customer.  At most (not all, but I'd argue all the big ones) tech companies, you solve the product first, then worry about the bottom line afterwards.  That's the core of startup culture.  Identify a problem, find a solution, prove your users want it, THEN figure out how to make money.

Saying that the user is a "digital cow" misses reality entirely, IMO.  The user is the one in charge.  They are the boss of the product.  The product is only doing what the user wants.  If you don't like what the product is doing, it's your fault -- you told it one thing, but you're expecting another.  That's not logical.  In fact, I'd argue, social media is purposefully designed to SERVE YOU as its master.  Whatever it's doing, it's doing it because it's trying to please you.

Of course, the introduction of ads and intersection with the reality of needing to make money in order to provide the product complicates things, but at its core I don't think it wise to view oneself as the victim of anything.

I like this reply, and appreciate your explain what the tech industry people think, as a tech industry person, because you did a fantastic job of explaining just how many yards the cranial mass is logged up into the anal cavity of the tech industry persons when it comes to any form of reality or criticism on their tech. 

The problem with the tech world is your all wrong, dead flat wrong. And it makes sense, because you yourselves live in an echo chamber, where all you hear and see is your own self-flagellation of how great you all are and how dependent the world is on your next pointless whatever. Social media is designed as an eco-chamber, fact. Eco-chambers are BAD for societies, people, countries, kids, Grandmas, for every human being with the 1 exception of the people who profit from them. 

There has been countless sociological studies done over the decades of what happens to people in such eco-chamber environments, it ain't pretty, they tend to go all Lord Of The Flies and do every more crazy S#i%. We have a country that is literally at each others throats of the other person mentions R or D persons name, and each is convinced the other should be skinned alive for having done it and is absolutely certain they are just in it. It is well known this is in majority thanks to eco-chambers. 

I have 0 doubt absolutely 0 of this will make sense, because you "know" that you are the center of the universe and that tech is the single most important thing to everyone and anyone, you just know this to be true, facebook is a religion in your world, twitter the holy sacrament, only a total nut-job wacko would dare challenge how holly the temple of tech is. I get it, your cultists, lol. But seriously, cultist, and I get how hard it is to break that programing. But try for just 1 hr to come out into the rest of the world and look around and answer 1 question, which is a safe, better, healthier more prosperous America, today 2021 the tech world, or 1991 before the tech obsession? Simple A-B question, which was factual better by the #'s.  

It's so rare in my tech echo chamber that anyone disagrees with me that I almost got flustered on this rare occasion you disagreed with what I wrote.  </s>

I'm not sure why you think I'm defending eco chambers or why you assume I view myself as the center of the universe - I can only assume that you're projecting things you think about a certain class of people onto someone you don't know based on one characteristic (that I've worked in tech) that they all have in common ... much like social media algorithms project which content someone will enjoy based on what "similar" people have enjoyed.

I'm not saying anything about eco chambers, nothing about the attitude of people who work in tech, nothing about the monetization on the business side, nothing about elitism or whatever else.  What I am doing is challenging the notion that tech is primarily driven by hoarding profit.

My point was, again, that people shouldn't assume that the pursuit of profit drives the algorithm -- rather that the PRODUCT that people demand does.  It's generally user-centric instead of profit-centric.  I think one could logically argue that media companies (including media platforms like Facebook and Twitter) have a responsibility to the community and shouldn't always give users what they want most (as measured by how much they use the product).  You could argue that Facebook's algorithms should force people to consume content that they don't want in order to reduce the echo chamber.  I think there's potential danger there and the Libertarian in me doesn't like it, but I can see that POV.  It's an interesting topic.

I'm providing a POV that most people don't see because I have experience being in that process and driving that process firsthand.  The question, generally, is not "how can we make more money". It's "what problems can we solve?"  I will confidently argue that tech isn't the cause of the problem. Our own human proclivities are the problem -- some of the tech we have is magnifying those human failings BECAUSE we as users have directed it that way.  At times, it's definitely not helpful.  But, the companies and people involved, whatever failings they have, aren't the evil ones.  There is certainly a problem, but we should look internally at our behavior rather than blaming the problem on the tech we use. 

On a personal note, you should understand that I was born and raised in a small town, with many of my formative childhood memories coming from the areas just outside the Twin Cities.  I came pretty close to attending St Olaf College outside Mankato for college.  Instead of building tech, now I build homes full time because I get more satisfaction from seeing people move into homes they never thought they'd have.  You and I would probably share plenty in common if we met in real life.  Projecting onto internet users we don't know in real life is a bad habit we should all strive to avoid.

Post: San Diego ADU Garage Conversion

Justin R.Posted
  • Developer
  • San Diego, CA
  • Posts 1,089
  • Votes 1,158

@Cathy S. The primary decision here is how much you want to do yourself (and learn in the process) or how much you want to have done for you (and pay someone else). If you have no plans to do this again, search for "San Diego ADU" in Google, then watch how every ad across the internet is for a retail design / remodeling / "ADU Consultant" / contractor who is looking for customers like you. People or groups purpose-built to sell retail ADU services are sprouting up everywhere. Or, get a referral from someone who knows someone.

The other option is to put the pieces together and quarterback the project yourself.  Honestly, not something I'd suggest unless you really *want* to do it ... but is less expensive and is how real estate investors make a living doing this.

The first and most important thing to figure out is whether your current duplex conforms to current zoning. If it does, converting the garage is going to be a pretty simple exercise. If it was downzoned at some point, the City will look at your existing second unit as your ADU and won't allow a third unit. You can figure that out easily by looking up your address online.

FWIW, I literally broke ground last week on a property where we're building a new construction 3 car garage in the back with a 2bd/1ba unit over it.  I elected not to make the garage living space (though I could have permitted it as so) in favor of giving tenants parking and storage.  Every case is different when making that tradeoff decision.