All Forum Posts by: Kevin D.

Seeking South SF Bay Area landlord advise.  My fiancé and I own a rental property in Gilroy, a small city about 45 minutes south of San Jose (Silicon Valley).  For just over one year we have been renting the property to two brothers in their late twenties which are the breadwinners and their mother who works intermittently cleaning homes.  They have been wonderful tenants proving to be very responsible, always pay on time, take great care of the property, friendly, and easy to coordinate when we need to perform maintenance.  We'd initially gone into a 1-year lease with them which is now month to month.  

As happens with good tenants, one of the brothers are moving out to live with his girlfriend, leaving the other brother and their mother to stay in the home.  The brother works and can cover nearly 3x the rent as we require plus the mother works intermittently cleaning homes which we think gets them close to if not at the 3x threshold.  The remaining brother has asked if we could lower the rent to adjust for their new situation.  He has not suggested an amount but we are inclined to accommodate roughly a $100 a month or so rent drop since this is certainly better than a vacancy.  However, we would like to take some steps to ensure we are moving forward in a manner in which our interests will be protected while not asking too much of the tenants with undue paperwork, credit checks, etc.  Here are some of the details: 

1. They are now month to month, should we renew the lease at a longer term or keep as is?
2. The mother moved in after the two brothers moved in so she did not go through any of the application process; however, they'd disclosed she was likely to be moving in so we noted her in the lease.  Should we insist she complete a formal application now that one of the breadwinners is leaving?
3. Our rent is set about right.  Much of the other units on the market are in the better school district in town, are slightly larger, and are single family detached where ours is a single family attached on a smallish lot with one shared wall.  However, those nicer units are consistently $200-$400 per month higher so we feel ours is at a nice price point for those not seeking the premium school districts at a discount.  

Our goal is to balance our protection against problematic scenarios that might arise (late rent, diminished care, eviction) against levying undue or excessive documentation and due diligence (credit checks, applications, etc.)  We want to protect ourselves but not scare them away.  We are not large volume landlords, this is our only unit at the time. We do value these tenants so it's not just about the numbers for us.  We want to provide a nice home, at a nice price, to good people that will in turn take care of our investment.  

Please share strategies, advise, or opinions on this matter.  

Thanks!

Kevin

Tremendous Amit, thank you. Those ball park numbers are indeed daunting, as are the obstacles you mention. I'd thought of some of those but the added risk of the nearby residents is a difficult one to predict for. Ultimately, I am going to consider this an educational endeavor and will likely stick to my slow growth mode with SFR investments. I appreciate the feedback from you, Sean, and Radhika.

Thanks Radhika, I have done some work on the zoning and confirmed this property is zoned R-M and subzoned R-3. It was tough finding a local definition for this but I have found that this allows for multiple structures and more than two dwellings. I believe this property should be legal with the number of units I've proposed. 

Coming back to this for benefit of those following this post. We did back out. The agent carried through on her statement that she had other investors lined up and closed a few weeks later. I have been told several investors (possibly including the brokers that were representing me) purchased the duplex, did significant work on one unit (removed wall separating kitchen from living room, upgraded all kitchen appliances, cabinets, fixtures, and countertops, painted, refinished bathroom with new tile, fixtures, and new flooring). They painted and updated some fixtures in the second unit plus refinished the bathroom with new fixtures, tile, and flooring. Tough to say what hey spent but hey did all this in roughly 2 months then flipped the property for $1.3 million. Pretty shocking gain of $.4 million but they put significant rehab work in and again, this is a highly desirable area with top rated schools and good proximity to big employers like Apple and many other Silicon Valley giants. We would not have been doing all this work so the ARV in our plan was little more than the purchase price. For us, I still feel it was a decent decision to step away although we are now finding the inventory remains to be extremely tight in the Bay Area/Silicon Valley. Especially in the duplex market and even more so in desirable area so this one hurts a bit in hindsight.

I have found an opportunity on a property which i feel is underutilized.  My theory is that the property which currently contains two small duplexes could be demo'd and redeveloped with 8-12 units to increase cash flow, possibly dramatically increase property and asset value, and bring in higher quality tenants.  My experience is in single family real estate, not multi family and not new construction so...

My ask is this, while I'm able to estimate current and post development value as well as minor rehab costs I am not knowledgeable on the estimating new construction, design, development costs.  I am asking to see if there are BP individuals out there willing to provide me some counsel on this subject.  I welcome anyone qualified to provide detailed estimate information or even ballpark typical costs.  

Here are some details:

1. Current buildings to demo are approximately 2600 sf
2. Lot size is 10,700 sf
3. I'm assuming 10 units at 700 sf each to arrive at 7000 sf of new construction
4. Construction type will be timber, shingle roof, low-grade fixtures, and dual pane windows, linoleum flooring, inexpensive countertops and cabinets
5. There is already a driveway along the property line to access side facing units.  I'd presume to reuse this driveway and perform a simple seal/coat 
6. Since I'm increasing occupancy and since the property structures are old, I'm anticipating having to improve the sewer connection.  If anyone has ballpark numbers for this...
7. I do not know status of water service, still gathering information.
8. There are currently 4 gas meters so I anticipate needing to bring more gas services on line.  

Thanks for any assistance or guidance anyone can provide.   Kevin

I am researching investing in buy and hold rentals in the Cleveland area through turn-keys. I was hoping for some suggestions from the BP forum followers. My goals for these transactions are B/C grade SFR properties (3bd/1ba typically), positive cash flow (obviously), CAP rate 10+, purchase price <$70k. My asks: Top three neighborhoods to target. Top three neighborhoods to avoid. Top three tips for vetting out turn key companies. Thanks! Kevin

My fiancé and I own a rental property in Santa Clara County, CA. We hope to make additional purchases in the future so while we'd intended on doing our own taxes, I'm considering a professional for short term plus long term benefit. I'm hoping my BP community can provide some recommendations. Thanks!

Thanks John

We did not plan on upgrading the second, unimproved unit. My analysis assumed we left it as is. 

It would not have cash flowed at that prices. The unimproved unit was revving for 1895/month but we estimated it could rent for $2300/month. We estimated we could have received roughly 2600/month for the improved unit. With 4900/month income minus expenses we would have seen negative cash flow for several years. I estimated this to be roughly -$18k per year. For this reason we would likely have lived in one of the units until rents came up. Using various analysis tools I estimate it could take ten years before we could have cash flowed. 

The dual agent stressed that per HER comps the price was roughly $100k below market. Again, based on price per square foot, the fact this unit was smaller, and the market here had cooled slightly in recent months, we felt it was not nearly that far below market. We estimated it to me 25k under market. 

We recently engaged in a deal on a duplex in the Bay Area and would love some feedback.  Here are some of the particulars.  

Duplex with 2 units, each 2/1.  Total SF is 1641.  Owner occupied unit is upgraded with new kitchen, appliances, and flooring in living room and kitchen.  Rental unit is tenant occupied at below rate rent with no apparent upgrades.  Inspections revealed mostly minor issues, the largest being water damage in bathrooms in each unit.  Damage was focused at the shower with expected repair costs ranging from $5k to $7k for each unit depending on the extent of interior damage.  

Seller was motivated due to three way transaction.  Duplex owner was under contract on a condo. That condo's owner was under contract on out of area new home.  Duplex and Condo sales were handled by same broker with two agents splitting as dual agents on each.  Duplex was not listed...we were the first offer and were accepted immediately as we were willing to go in without our own agent, accepting the dual agent set up and also due to the fact that we offered asking price of $910k.   Agent provided two comps, one at $1.03M and one at $1.07M.  Both roughly 6% to 10% larger in terms of SF.  Our expanded comps place duplexes in this area (all top rated schools, low crime, etc.) at $915k to $1,070,000.  This is the smallest duplex of all the comps in the area over the past year.  Cost/SF was $543 and was among the highest of all the comps we pulled which ranged from $470/sf to $588/sf.  The ranking of this duplex to the others led us to feel this price was too high and since the sellers were unwilling to negotiate on the repair costs as credits, we ultimately backed out of the deal.   

It pained us as this may be a good deal but we didn't have faith in how good the deal was vs. how leveraged we'd have to be (most of our capital would have gone to the down payment and closing costs).  

I have numbers from my property analysis and can add if folks are interested.  

Would love to hear some critique of this deal and of the decision to pull out. 

Thanks!

Hello BP forum,

I am working on an off-market deal in San Jose involving a duplex property in which I'm working directly with the selling agents.  I'd like to hire a real estate lawyer to provide document review of the transaction.  I'd appreciate any recommendations anyone can provide or if you see this and are a real estate law professional working in the area, knowledgeable of local law and requirements then please contact me.  This is a time sensitive transaction in which we hope to go into contract Monday 12/5/16, one week of contingencies, then escrow by 1/5/17.  

Thanks,

Kevin Dupuis