All Forum Posts by: Jason A.

Sorry for the delay in response. I met with a contractor who inspected the addition and confirmed that it does not appear to be to code (roof slope, foundation, etc). The next step is for him to talk with county and see if there is something that we can do for them to meet us halfway. If not, his estimate for demo was beyond what we can pay. I'm hopeful we'll find some common ground with the County, but at this point foreclosure is looking more real.

See this post for the details.
http://www.biggerpockets.com/forums/52/topics/72585-help-served-with-building-code-violation-in-sacramento

We bought a foreclosure in 2008 in Sacramento County that had a large addition and we didn't check for permits. I know, I've learned a valuable lesson.

We were trying to refinance the property and for whatever reason the appraiser called the county and the county sent out a building inspector.

I'm completely new to the permit process and building codes, but I suspect that the addition was not built to code.

I'm trying to understand my options, but none of them sound particularly great.

I need to find a contractor to get an estimate to either demolish the structure and reduce my income producing property (5/3) down to a 3/1 which will generate rental income slightly less than the mortgage, taxes and insurance. Or bring the addition to code which I assume will mean demolish and rebuild. I'm not sure how much that might cost.

Any guesses for low end features for 800 sqft, 2 bedrooms, 2 bathrooms, family room? Any recommendations for a Sacramento contractor?

The other option we are considering is foreclosure and just walking away completely. We have about $22,000 invested in the property. Does anybody know how foreclosure might work on a house that has building code violations? Or any suggestions on how to deal with the county if we ultimately want to foreclose? I'm assuming I just stop making mortgage payments and keep the renter in as long as I can to try and recoup my $22,000.

Any recommendations for a real estate and/or foreclosure attorney that could help me?

Hi Chris-
I'm a new investor too and one lesson that has taken me a few houses to learn is to be patient and not get discouraged. It's hard as a newbie to let houses go that you have sunk time and money in, but I'm learning there is always another house out there. My first house wasn't much of a deal and on my second house I ended up having to cover the difference between the appraisal and the offer, because I couldn't get the bank to budge. I should have walked away from it, but I couldn't.
For my third house I started to show some patience and decided to walk if things didn't work out. In the end the bank ended up replacing the HVAC and repairing vandilism (stolen copper) while in contract. I would have never been prepared to walk from the third house had I not gone through the first 2.
It's hard to know how to handle all of the curve balls that come at you (broken pool, etc) until it happens.
A lot of the veterans on this site have amazing, enriching information, and I've got quite a lot to learn from them, but as a newbie, don't feel bad about letting this one go and don't get discouraged.
Good luck!

@Mike - The house is 50 years old in a lower middle class neighborhood. The house has had some updating, so it's not all original.
I'm trying to understand why the expectation over the long haul is that expenses will outpace the increase in rents. I had not planned on that in my calculation. We have a home warranty which helps defray the cost of minor repairs. For major repairs or capital replacements, I was assuming a reserve of 2 months rent. It sounds like that's not enough.
Can anybody help me understand why expenses would grow to 50% over the longer term?
"For those that are totally LONG TERM, the 2%/50% rule is carved in stone. "
If these rules are carved in stone longer term, I don't know that I would be able to invest in SFH, at least in all the areas in CA that I've researched. Is nobody doing buy and hold in CA because of this?

Again, thanks a ton for all the responses. I know I have a lot of questions, but I'm really trying to learn and get better at RE investing.

Thanks for the responses. Aside from my question below to Will, what do most investors conisder to be a good starting point for return on cash for buy and hold. I see that Kevin C., says 6 to 7% is not bad, what would be good?

@Will - When you said "$1850 / $176,500 = 1% monthly rent to acquisition cost ratio which is too low for most. " Is this where I should be looking for at least 2%, is that the 2% rule?

This is my first post. I've read through a lot of this site but wanted some validation that I was calculating the numbers correctly. I bought this property as a buy and hold in 2008 in California where prices were obviously still falling. It was a foreclosure and previously sold in March '05 for $355,000.

I've a assumed a generous reserve to cover capital expenses, at least I think it's conservative. The ROI is low, only 5%, but I'm curious what others think, given that the house will at some point appreciate, I'm using renter money to payoff the loan, etc.
I manage the property as well.

My actual return for the first year of ownership was 16%, as I did not need any reserve or spend as much on maintenance.

This property has been a great learning tool for me, but wanted some proffesional input on the deal (or not so deal).

Purchase price $160,000

Out of Pocket
Down @ 20% $32,000
Closing $6,738
Rehab $9,775
Total Out of pocket $48,513

Monthly Expenses
Mortgage $809
Ins & Tax $217
Water/Trash $100
Total Monthly Exp $1,126

Cash Flow
Rent $1,850
Expenses ($1,126)
Monthly Cash Flow $724

ROI
Gross Rent @ $1850 $22,200
Vacancy ($1,843)
Monthly Exp x 12 ($13,512)
Maintenance ($750)
Reserves ($3,700)
Annual Cash Flow $2,395

ROI = Annual Cash/Out of Pocket 4.94%