All Forum Posts by: K James

Thanks @Wesley I..  All of your input is helpful.  It's giving me a lot to think about. 

I see.  Thanks Dan for your input and insight!

 Thanks Chris! Magic to my ears. 

I appreciate getting advice from experienced investors like you and Dan. 

I welcome others opinions too. Keep them coming.  Thanks! 

Thanks @Dan H. for your detailed reply describing one of you own experiences. By the way, Mission Beach is the beach I grew up going to :-).  It sounds like you went through a lot with this last project. If you had it to do again, would you make the same choices?

Of course you're right about the budget.  I allotted $20k for contingencies (could be considered very lean) so this would blow that amount before we've even started.  I could rationalize it's for my long-term investment in the property and still sleep okay if it's the right thing to do.  But not knowing what else we may encounter once we get things opened up, I don't want to end up regretting it.  I think if I have to go over $20k for the rest of anything else that comes up is where I might start to question things.

Decisions, decisions.  

Advice Needed

TLDR - Spend an additional $30k now to upgrade the sewer system on-site while the contractor is already mobilized or go with a sewer injection pump which is likely a viable solution the will last for years with proper maintenance.  What would you recommend?

Background:

I have a property with a duplex (3bd/1ba & 2bd/1ba), detached house (4bd/1ba) and detached garage on it. I recently pulled permits to convert the duplex's attached garages into one 2bd/2ba ADU, convert the detached garage into a small 1bd/1ba ADU, and add 1 bath and laundry closet to the 4bd/1ba house. I'll be going from a 3-unit to a 5-unit property.

As the project is getting ready to break ground I need to decide on the level of sewer improvements I should do.  The existing system is pretty old cast iron except some ABS pipe towards the front of the property before going into the street. The detached garage is in the very back, at the lowest spot of the property.  It would be a challenge to get the 1/4" per foot fall necessary to tie into the existing main line on the property, although not completely ruled out.  

Since it's low in the back the contractor bid the project to install an injector pump for the 1bd/1ba detached garage conversion to tie into the adjacent house's system.  This will eliminate the need to try to tie in at some unknown point to the main on-site.  His plumber came out and camera'ed the line and suggested the main line on the property may have issues.  He said he saw some 'bellies'.  As such my contractor gave me an estimate to install new ABS main line (~225 LF) for the property and connect all 5 units (3 existing and 2 ADUs) to it for approximately $30k.  He would tie in before the property line to avoid right of way permits and inspection.  He also suggested I bring out someone else to camera the system again to get a second neutral opinion.

I hired Cable, Pipe, & Leak Detection and the technician that came out today was very impressed with the on-site system.  He said he was able to run the full video cable 130 ft from a couple different cleanouts and didn't see any problems.  There was some minor root intrusion at the very front of the property and this tracks with my service plumber who last came out ~2 years ago and cleared some roots when the back house was experiencing back ups.  He said the system looked very good but being old cast iron he couldn't say if and when it'll fail.  

We did have a blowout at the end of the line where it daylights around 10 years ago.  If I remember correctly it was an issue again at the front of the property (probably roots) that needed to be cleared.  There was crap everywhere in the back.  It hasn't happened since but I usually have to have my plumber out every couple years when the back house starts to report issues with their sinks and tub not draining well.

At this point I'm trying to decide if I should go ahead and redo the whole system while we're out there and consider it a capital improvement benefit that will last for as long as I'll own the property. I've had it 20 years and I plan on keeping it. I think I'm still a little traumatized from the blowout we had a decade ago. It'll be nice to never have any problems with a new system. At the same time it's currently functioning with no sign of substantial compromise to the cast iron pipe beside the age. I had it camera'ed more than once (I did it this summer as well when I was doing due diligence that's how I knew the existing depths will make it hard for the detached garage ADU to tie in to the main line). Both times I was told the line looks great.

One of the main drivers of this dilemma is the low 1bd/1ba garage conversion and $30k seems like a large cost for one element of a 350 sq ft conversion. At the same time it benefits the whole property and not just the ADU. If and once it's done I shouldn't have to worry about it ever again. If I opt not to do it and just go with the pump there will be maintenance requirements for it and I'll have to rely on the tenants not doing anything that will compromise it. Also, if in the future I ever do need to redo the main line it'll be more expensive (L&M increases), I will have already likely spent thousand installing and maintaining the pump, and I'll have more tenants impacted by a sewer construction project (currently a 3 unit but will be a 5 unit at that time.)

Help.  What would you do?  

@Michael Plaks 

Thank you!  

I'm working on a development project for my existing triplex rental property. I'm converting the garages into two new rental units and adding a bathroom to one of the existing units. In 2023 I spent approximately $29k towards consultants for designing the plans and permit processing. We are still working through the City to get the permits so we can start work. I expect/hope to be able to pull the permits, complete construction, and put the new units into service (rent them out) some time later in 2024.

When and how do we account for my expenses on my taxes? Will all my associated costs (i.e. design & construction) be tax deductible? Do we include them in the year they were spent (starting in 2023) or do we need to wait for the year the units are in service (actually rented out)? Will all the costs be depreciated and if so on what schedule or will some of the costs go on my Schedule E? If depreciated, how is that done for soft costs (design, engineering, and permitting)?

Thanks for any advice!

Hi Christina,

I have a lender but the 4.75% is the figure the agent used to provide a rough calculation. It's based on 30 yr fixed.  

Buying something that needs fixing up is something to consider. The turnkey properties he showed me were actually triplexes as well. But your right when there's more units there's more rental growth opportunity. I'll keep that in mind when looking at turnkey properties with current comparable cashflow. 

Thanks, Christina, Trent and everyone for contributing. 

Thanks, Eric. I'll take a look. 

Thanks for the insight William. 

With the timing requirements of the 1031 exchange did you/will you find something else somewhere else in time to avoid taxes on the April sale?