All Forum Posts by: Ray Johnson

@Nathan G. I have properties in major metropolitan areas which are still not allowing rent increases under various COVID, or post COVID restrictions. Los Angeles recently announced no rent increases until 2023 for most properties.

For me there is an upside for my Washington DC properties, the freeze on rent increases ends at the end of the month and I do have renewals in February and March.

@Sue M.  The code being spoken is an owner who either wasn't managing their property and raising rents in small increments over time, or a property in bad condition and doesn't warrant increases in rents in the current condition, meaning you'll have to update the property then raise rents.

Things to look out for when someone is offering a property and the main selling point is it's currently well below market rents.

1) Usually the current owner either doesn't have the money to do the upgrades, or the owner knows when you factor in vacancy during the rehab, cost of the rehab, and new tenant lease-up timelines, your break-even from this scenario, is too far in the future and not worth it, so they sell the property.

2) Another thing some investors make a mistake on is buying one of these properties advertised under the guise of "well below market rents", but the seller isn't comparing "apples to apples". I looked at a property advertised this way, the owner was using comps for apartment buildings that had pools, in-unit laundry, gyms, rooftop decks, etc.. but trying to sell a rundown 12 unit building, no laundry at all, no pool, gym, or anything, but telling potential buyers rent for 2 bedrooms in the area are comparable.

3) Make sure to take a look at the leases if you're going to try going the route of not renewing leases, then doing a rehab, and lease-up at higher rents. Tenant friendly municipalities are not good for this type of strategy, as getting the tenants out typically do not go as quickly as planned. Doing unit turns happen over time, so make sure to factor your rehabs, and unit turns over time when looking at your future cashflow projections.

Keep in mind that if a property is well-below market rents, it's that way for a reason.

Good luck analyzing your deals!

@Joan Sambo I've gone through this process. The new property was 2 miles away from the old one I was living in, I told the bank I was looking for a larger home. I stated I would sign the Owner Occupant Affidavit during the underwriting process.

The Affidavit says you will move into the property within 60 days of closing escrow, and will live there for a minimum of 12 consecutive months.

This should get you cleared through underwriting.

Hello @Travis Heppe there are a lot more variables than those that you've listed that will have an impact on your overall project cost. 

To determine if it's worth doing a 4-Plex in addition to the cost you listed, I would recommend looking at; is the lot already graded, and ready for construction, are sewer, water, and gas already at the lot for connection, what type of rents are on your proforma, the biggest one many people forget about are the developer fees charged by the municipality to allow you to build the project, etc.

There are a few soft cost items that will be a part of the project that do not get lower just because you're doing a smaller project. Some cost that may vary based on location will be your environmental impact study, your list of cost from the Architect may see a lower cost for the schematics on a smaller project, with similar footprints for all four units, versus varying unit size, and scope requirements (less work, lower cost for A&E), the feasibility study, proforma, 3-D renderings, and other associated cost are going to depend on where this project is going to be built. 

In my experience since time is money, I always hire out this initial process and have professional who does this regularly conduct a thorough feasibility study to tell me what's the best route to get me the biggest bang on a particular lot, look at Density allowances, etc. 

I will add that I've never looked at a small project like a 4-Plex to have built as new construction because in my targeted areas of investment which are Washington, DC, Orange County, and Los Angeles, California, it's always cheaper to buy smaller properties in these areas unless you're going to build larger apartment buildings, and get the government subsidy's to mitigate cost.  

 Good luck with your goals!

Hello @Pope Lake I've just started the architecture phase of a new multifamily building project I'll be doing in Los Angeles, One of the responses I got regarding the current increases in materials cost, is I could look at the multifamily Modular/Prefab options. 

Not sure if this a look, or options that you'd be interested in looking at for your project. 

I know this options sees a large decrease in cost when doing larger multifamily projects, I'm not sure what you will see as a reduction in cost for a 4 unit Townhome project, but something to look at.  

Hello @Nathan Gesner I experience this in all of the cities that I have rentals in. In Washington, DC I recently had the District conduct an inspection virtually with the tenant to inspect the property due to COVID. 

DC also told me I needed to have a license for each rental property that I have in the District which has to be renewed annually of course, I get the 2 year licenses to cut down on the filing, but they get my money like clockwork. 

I'm sure I could probably rent the properties without a license illegally if i tried but I play by the rules. 

All of the cities say it's to protect the quality of the rentals for the tenants.

They clearly use it as a way to collect fees, I've been fined for some "fine print" violations. In one property I got fined because the carbon monoxide detector was 8 inches too far from bedroom #2, I've been fined because the location of the fire extinguisher under the kitchen sink wasn't marked to say where it was.

There is no way to get out of these fines, they do allow you to request a reduction in the fine after mitigation of the issue, and a reasonable justification as to why you had the violation.    

@Dan N. You're definitely past the deadline date. Prop 19 is based on the transfer date of the inherited property period, there's no way around it. There are some parts of the law that may be advantages depending on the property value. You're definitely going to need a tax accountant, and RE attorney to help you out on this one.

If your properties are under a company structure, maybe adding the children as partners to the company with some sort of dilution of shares tactic that can mitigate your potential inheritance problem. 

I'm sure the very wealthy already have a strategy to get around this problem.   

@Richard Xyminies That's going to depend on the property, the location, and the deductible, etc. I see between $23 a month, and $31. I have properties in California, and Washington DC, The important thing is to make sure you require tenants to have renters insurance to absorb some of the potential headaches that can occur.

@Richard Xyminies If you're going to do this the right way, you should look at an H-06 Condo insurance policy if you're living in the property, if it's strictly a rental, the standard Rental property insurance will work, then make any tenant purchase Renters insurance as a requirement of the lease.

@Henry Lazerow Since you work in an industry where the more clients you have, the better you're able to financially perform. A part of that equation is being able to have access to all available clients, if having a full sleeve reduces that pool of clients, I would just not roll-up the shirt sleeves, to have that access.

The tattoos are a part of your personal life, and lifestyle, leave them out of your business dealings so they do not have a chance to be a negative impact.

I'm someone with zero tattoos, and don't see the need to ever get one, I wouldn't hold it against you, I would probably just think you showed up to a million dollar +/- business deal not looking professional if you presented yourself showing off the sleeve.