All Forum Posts by: Nathan Vaughan

I wonder if there are any case studies where this has been done well in San Diego or elsewhere in California. It's surprising the allowance for that kind of density on a rather small lot! It's hard to imagine, but I know there are architects out there doing some really intriguing things to address this lack of housing on micro scales or with unusual infill lots.

Affordable is so relative too! In San Diego affordable is probably 3x the rent for somewhere in mid west! And we're not as insane as the other rental markets in California like the Bay Area or parts of LA. It's gonna be interesting to see how developers respond to these new measures and how the city changes over the next few decades as more and more downtown and downtown adjacent neighborhoods are revitalized. Fascinating for sure!

So the thing that makes it all possible is the new ADU law. I would have to pull up the specific language, but from what I've gathered if you have a property that is zoned for up to 2 units you can now add both an ADU and a JADU. There are some restrictions and contingencies for both the ADU/JADU compared to a regular DU, but there are also lots of advantages. Namely, being able to get 4 units out of a 2 unit zoning. Our property is 7441sqft zoned rm-1-1. We have an FAR of 0.75 so we can build up to 5558 sq ft. Rm-1-1 is 1 DU per 3500 sq ft. So in our case we can have 2 DU, 1 ADU, and 1 JADU.

We're working through what the most advantageous configuration is. Whether thats adding additional square footage to the site or partitioning out these units from the existing built square footage, doing a garage conversion etc. I don't know what it will be defined as when we're done. I suppose legally it would be a duplex with 2 companion units, but would function and rent as a fourplex. It's all new stuff, I'm working with @Colin L. on this one. He's digging through the code and he'll be the architect for the project!

I guess it's a personal project! We don't plan to live here once its done, and are going to be looking for our next house/project afterwards. My hope is that it's a repeatable model for these specific types of properties and that it will be a way to get good cash flow from rm-1-1 lots. The other lots I want to look more in to are the rm-2-5 density bonus incentive properties that you had commented on as well. That could be a really unique challenge and interesting way to do a small scale development.

As we get further along with the project I'm happy to share with you! Hit me up with a direct message and I'd be down to meet for a coffee or lunch when we have more of the project mapped out!

Take care,

Nate

Investment Info:

Single-family residence buy & hold investment in San Diego.

Purchase price: $390,000

Built in 1926, The Spanish Mansion is a sprawling 3600sqft 5bed/2.5bath Spanish style single family home with a 400 sqft garage. Since 2013 I lived in the house restoring the original hardwood floors, windows and doors, remodeling the bathrooms and kitchen. It's also been the location of my audio recording and mixing studio!

What made you interested in investing in this type of deal?

I loved the layout of the house. I'm an artist and musician, and at 25, was super excited by the idea of jams in the basement and a big detached garage for a painting studio and all my surfboards. Plus I was eager to get my hands dirty with a long list of DIY projects!

How did you find this deal and how did you negotiate it?

The seller was flipping a foreclosure, we bought it as-is for their asking price. We offered them cash but they wouldn't budge!

How did you finance this deal?

We had a 30 year fixed mortgage, but in 2015 paid it off.

How did you add value to the deal?

In 2020 we decided to convert the home in to a multi-unit rental property. We are looking at different strategies to leverage the significant equity in to another string of investments. Construction will likely begin early 2021 or perhaps sooner dependent on site design. We can create 4 units. Our goal is to have steady cash flow to pay for our next home mortgage + rehab cost.

What was the outcome?

TBD!

Lessons learned? Challenges?

Have a plan for the house from the beginning!!

If it's your primary residence and you're going to want to live there for more than 10 years, if you can pick somewhere you want to be.

Choose contractors very carefully and learn to manage them or find someone who can.

Spend as much time planning a project as makes sense -- don't begin until you know exactly what you're doing.

Get AS MUCH AS POSSIBLE done before you move in to the house if you're going to live there.

 Hey David,

I agree, I'm definitely not at the point where I could accurately get a sense for those numbers especially some of the more esoteric costs. I dug a little deeper in to the city code and it looks like there's a 100% density bonus for 'micro-units' that average a total of 600sqft. So you could do (10) 600sqft units. Or you could do something like (4) 400 sqft studios and (6) 730 sqft 2bed/1ba. There's probably a configuration where this would make the most sense, especially if you were to be really careful in your design and construction costs.

I'm definitely gonna investigate this a bit more!

Thanks for the response!

Nate

Hey ya'll!

So I was in a meeting today with an architect talking about my current project.

I showed him a property that's zone rm-2-5 with a 40' height allowance. It's basically a teardown on a 7500 sqft lot. Right now listed at $560k... A little steep, but maybe they would come down. I haven't run any numbers, but the architect said that if it was development as affordable housing, you can double the number of units as long as over 5 units are allowed.

I'm not really sure where to start on looking in to this. It would probably be a conversation with the architect to find out more about the building requirements. I also have no clue on how the rent system works for section in terms of how you collect rent when its subsided.

It's really intriguing and I'm gonna look into it more! There's potentially to create some really interesting architecture, provide affordable housing, and create a great cash flow asset.

Does anyone have any experience with this kind of development? Does it work?

I started by sending an email to the real estate agent just to get a read on where the seller is at. It's been on the market for 90 days. So maybe they'd be open to negotation...

If we ran the numbers and the construction/time cost maybe it would be worth it and could be our next project!

- Nate

@Justin R.

That’s true, and certainly something to consider.

We’re interested in playing with what the planning department considers a ‘unit’. For example, we could create 4-5 units on the ground floor around a central communal kitchen. Each 350-500sqft unit could be self sufficient with its own entrance, bathroom and small kitchenette but still have access to a shared common kitchen. The architect Ted Smith pioneered this idea in the 80s and 90s and has a few buildings using this model around San Diego.

The adu and jadu would be built to code and independent. We wanna max our the lot but make sure that it’s enjoyable to live in. Everything kinda hinges on how much it will cost, how much it will rent, and how easy it will be to keep rented and maintain.

@Robert Comstock

Hard to say how things will develop. I’d say that over the past 7 years living here I’ve definitely noticed some big changes. There’s a 150 million dollar project to rehab memorial prep school. And we sit in both a promise zone and opportunity zone. It’s also super close to downtown, the naval yards, and Coronado. It’s in a transit corridor so no need to add parking for ADUs. That said, I still wouldn’t buy anything I’m this area right now unless it was a killer deal. That’s the part I don’t know how to find!!

Nate

@Andrew Aladjadjian

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@Andrew Aladjadjian

@Andrew Aladjadjian

Thanks Andrew!

It definitely make a lot of sense to go the ADU route versus a full new units. Rents are so high right now, and housing supply so low, seems the legislation reflects California's desperate need for more housing.

A neighbor of mine who’s also an architect developed a pretty interesting concept that we may incorporate in to our build out. We would essentially create self sufficient units within the primary residence. We still have doors between units so it would count as 1 unit. I’m an audio engineer and a builder, so building a sound proof door wouldn’t be a problem. That way instead of renting out the primary residence as a 5bed/2bath, we rent out 4-5 400-800sqft interconnected units each with their own bathroom, kitchen and bedroom. The largest one with a real kitchen and the others with smaller kitchenettes.

@Guifre Mora

Thanks Guifre!

Just joined that group! I’ll follow up, I would be super interested in hearing how that side of things is going, especially in San Diego right now! It’s amazing how relatively quick things are moving. Only 15 years ago North Park was an area to be avoided. 10 years same thing for Logan Heights.

I feel like a lot of developers are kind of getting ready to build in Logan or already doing so. Especially considering where the markets are, and the opportunity zone incentives. Seems good on all fronts to be building and rehabbing in Logan and national city.

Talk soon,

Nate

Hey there!

I live in Logan Heights neighborhood in San Diego. I’ve been a homeowner since 2013. We got a great deal on an big old home on big lot. I’ve been restoring and remodeling it for about 7 years. Didn’t really have a plan for what to do with it long term. My partner and I have decided we didn’t want to stay in the area and we also didn’t want to have roommates.

The house is worth about 2x what we paid for it, there are some cosmetic things that need to be done and a few unfinished projects. We got excited about buy a new place with a bigger budget - around 800-900k.

After thinking through things and talking to some realtor and architect friends, I ultimately decided that I needed to do some more investigating before we made such a big decision.

Thank god we did!! I found out that we could have an extra unit on our lot. We could also have an ADU and potentially a Junior ADU. We've decided to divide the 3600sqft of living space and detached garage and build our the house in to a multi-unit rental. Since that discovery and decision, I've been scrambling to get as much education on the topic as I can. I started with ready rich dad, poor dad. Then million dollar real estate investor. And now bigger pockets rental property investor. Started listening to the podcast as well! All really fantastic reads and hugely helpful!

I feel a little bummed that we missed out on so many other great deals in the area back when we got this house. I do feel very fortunate to be where we’re at now having gained all the skills in carpentry, restoration, and design. Plus the house is fully paid off and we have the cash to do the build out.

My plan is to make the conversion, do it tastefully and not cut corners, get cash flow from this place. Then our next I want to get would be triplex or multi unit. Use the cash flow from the Logan house to repair the new place then rent and start paying down that loan. Then move to another place and repeat! Eventually I would like to have enough cash flow to pay others to do the work of finding deals, upgrading the units, and managing the properties. For now we’ll start with this project and see where it takes us!

I would love it if anyone would suggest any other books or sources of information that might help in this endeavor. Also, if anyone lives in the San Diego area and would be up for a coffee or lunch chat, let me know! I super stocked to get going on this and to learn as much as I can!

Sincerely,

Nate