All Forum Posts by: Samuel W.

Quote from @Dan H.:

Quote from @Samuel W.:

Quote from @Emy Bernardo:

Just curious, where is the property located and how did you decide that STR is the highest and best use for it?

The property is located in Bay Ho. STR fits with the lifestyle we want. My wife (who has a background in fashion), has a passion for design/branding and will be designing/running the properties. The cash benefits are just a bonus. The focus for this investment is not cash flow, it’s for appreciation and tax benefits. When the STR laws go into action next year, we plan to pivot to mid-term/corporate housing strategy. 

Bay ho is city of San Diego. The STR quota will apply. Due to existing STRs having precedence, it is very unlikely you have any chance to get an STR permit via lottery for bay Ho. I saw some STR manager's thoughts on where current STRs already are near or surpass the quota and basically his data showed all of the traditional good STR markets (I would include Bay Ho in this grouping) were at least near the quota. So you odds of getting a STR permit is likely zero (meaning area already is over 1% STR) but could be slightly better than zero(current STRs are close to 1% but under the 1% quota) but still very low.

Plan for not being able to obtain an STR permit.

Good luck

“So you’re telling me there’s a chance!” -Dumb & Dumber 😅 I figured that was the case, so our plan B is mid-term/corporate housing. We’re seeing there are growing needs from remote tech workers, traveling nurses, etc.. We’re hoping the proximity to the “golden triangle” will support this. Thanks again for your insight!

Quote from @Emy Bernardo:

Just curious, where is the property located and how did you decide that STR is the highest and best use for it?

The property is located in Bay Ho. STR fits with the lifestyle we want. My wife (who has a background in fashion), has a passion for design/branding and will be designing/running the properties. The cash benefits are just a bonus. The focus for this investment is not cash flow, it’s for appreciation and tax benefits. When the STR laws go into action next year, we plan to pivot to mid-term/corporate housing strategy. 

Quote from @Dan H.:

It is not clear if this property is in the city of San Diego or San Diego county.  If it is the city of San Diego, STRs are to be on a quota with those owning existing STRs having priority.  This implies if you are city of San Diego, you likely will not be able to rent the property in durations less than 30 days. 

AB 1482 will apply to your property.  You can usually terminate the tenant lease for an extensive rehab which seems to be your intent, however the city of San Diego has an eviction moratorium so you cannot evict at this time if your units are in the city of San Diego.  If your units are not in the city you can evict for an extensive rehab which is a legal reason for a no-fault eviction.  You will need to pay the tenants one month rent for a no fault eviction.  Read AB 1482. 

As for the BRRRR, it is what we usually do. The first challenge is refinance appraisals in San Diego are very conservative. They generally are far below what the appraisal would show for a purchase agreement. Prepare for this.

STRs present challenges getting conventional financing. The issue is most loans do not count STR rents. You may want to look into 2nd home loans but I have had issues getting these loans on some RE that was only a little more expensive than your ARV.

I believe prepayment does not make the seasoning period vanish.  Assuming the seasoning is at least 6 months, I am unsure that it would be worth paying the prepayment penalty.  This implies at most the prepayment could get a refi 6 months earlier than the 1 year period. I suspect it would depend on where interest rates were likely to be headed.

A more recent item is interest rates are rising very fast.  By the time you have done the rehab and the loan is seasoned (which ever is longer) the interest rates could be significantly higher than today.  This could result in significant negative cash flow.  

There are a lot f things to consider especially if your units are in the city of San Diego.  If they are not in the city of San Diego, you still have AB 1482 and financing challenges. 

Good luck

Thanks so much for the detailed response! There is definitely a lot to consider. I'm not certain the area is considered within the city or county. The zip is 92117. I will review AB1482 in more detail. As for STR laws, I'm seeing that they will not go into effect until spring ‘23. If/when it does, I plan to pivot to mid-term rental/corporate housing strategy. But I will also enter the lottery, in hopes of getting a STR license.

For refinancing, I need to find a product/strategy that will allow me to cash out before Sept (no seasoning required), I have another deal planned at that time where I would want to use the cash. FYI, For this property, the focus is not cash flow. The investment is focused on appreciation and tax benefits. Thanks again!

Quote from @Andrew Garcia:

@Samuel W., most DSCR programs limit you at a 75% LTV. Therefore, you can take out about $240,000. However, after factoring in the renovation expenses, closing costs, discount point, and pre-payment penalty, it will likely be closer to $160,000 that you get out.

Assuming a 7% rate, your monthly payment would increase by about $1,600.

Which is more important to you $1,600 per month in cash flow or $160,000 to reinvest somewhere else?

I love getting paid for doing refinances as much as the next guy but sometimes they do not make sense.

RSUs cannot be considered as income for conventional financing so it will be tough finding better options than a DSCR.

You could try doing a net rent loan where they underwrite your file as if it were conventional but the rental income is calculated based on the lease agreement or AirBnB payouts for STRs. 

However, you typically need 12 months of rental history to use this product.

The advantage of this is that the rate is about .5% lower than DSCR.

If you want to use this program and avoid the prepayment penalty, waiting a year could be a good option.

Hope this helps! Let me know if I can be of any assistance.

Thanks, cash flow is not a concern. We purchased the property for long term appreciation and tax benefits. Current rate for loan is already 7.25%. My priority is the cash out as I have another deal planned in Sept. 

Quote from @Andrew Garcia:

Hi @Samuel W., how much are you putting down on the current loan?

That will really determine whether it is even worth it to refinance year one.

Hi, I’m putting 25% down. ~$262,500

Hi,

25% down. Thanks 

Hi All! (Reposting also in this forum as I'm not sure the right category)

I'm about to close on my first deal on 5/30 in San Diego, CA!!!!

It's a currently occupied duplex, that is rented waaay below market: $1,700/mo, $2000/mo respectively. Other units in the same neighborhood, same model, are renting at $3,395/mo each.

One tenant is currently month to month, and the other's lease is up in August.

We want to renovate ASAP! The same model home, upgraded, just one block over, sold in April for $1.32M.

We purchased ours for $1.05M and can get it up to same/similar condition as the $1.32M property with minor investment (~$50k).

We plan to renovate as soon as we can get the tenants to vacate. We then plan to turn into a STR and cash out refinance ASAP to Repeat.

According to AirDNA, current ADR for 2bd and the zip is $286 with 83% occupancy (for slower months March-April). Since this is a duplex, total potential ADR is $572 for both units (~$14,242/month), with significant upside in the summer and holidays.

What is the best strategy for cash out re-financing here?

Some background:

For the purchase loan, we had to get a no-ratio program, 30 yr fixed interest only, 1% discount rate, with a 1 year prepayment penalty for this property as it was way under rented.

My W2 income (for loan qualification purposes) will significantly increase in July (due to stock awards), thus potentially opening more doors to other products/strategies.

I believe it will be worth paying the 2.5% (~$15,750) prepayment penalty to get the cash out in year one, but open to thoughts on this.

Thanks in advance for your help!! The BP community is amazing!!

Hi All!

I'm about to close on my first deal on 5/30 in San Diego, CA!!!!

It's a currently occupied duplex, that is rented waaay below market: $1,700/mo, $2000/mo respectively. Other units in the same neighborhood, same model, are renting at $3,395/mo each.

One tenant is currently month to month, and the other's lease is up in August.

We want to renovate ASAP! The same model home, upgraded, just one block over, sold in April for $1.32M.

We purchased ours for $1.05M and can get it up to same/similar condition as the $1.32M property with minor investment (~$50k).

We plan to renovate as soon as we can get the tenants to vacate. We then plan to turn into a STR and cash out refinance ASAP to Repeat.

According to AirDNA, current ADR for 2bd and the zip is $286 with 83% occupancy (for slower months March-April). Since this is a duplex, total potential ADR is $572 for both units (~$14,242/month), with significant upside in the summer and holidays.

What is the best strategy for cash out re-financing here?

Some background:

For the purchase loan, we had to get a no-ratio program, 30 yr fixed interest only, 1% discount rate, with a 1 year prepayment penalty for this property as it was way under rented.

My W2 income (for loan qualification purposes) will significantly increase in July (due to stock awards), thus potentially opening more doors to other products/strategies.

I believe it will be worth paying the 2.5% (~$15,750) prepayment penalty to get the cash out in year one, but open to thoughts on this.

Thanks in advance for your help!! The BP community is amazing!!

Hi All!

I'm about to close on my first deal on 5/30 in San Diego, CA!!!!

It's a currently occupied duplex, that is rented waaay below market: $1,700/mo, $2000/mo respectively. Other units in the same neighborhood, same model, are renting at $3,395/mo each. 

One tenant is currently month to month, and the other's lease is up in August. 

We want to renovate ASAP! The same model home, upgraded, just one block over, sold in April for $1.32M.

We purchased ours for $1.05M and can get it up to same/similar condition as the $1.32M property with minor investment (~$50k).

As soon as we renovate, we plan to turn into a STR and cash out refinance ASAP to Repeat.

I'm looking for advice/strategies for how to get the tenants to vacate as soon as possible, while also showing empathy for their situation. Both tenants are great and have been there for a very long time. They've cared for the property, as it is in great condition. How can I create a win win for all?

Also, I know San Diego have some tenant/eviction laws, that were put in place during the pandemic that I need to maneuver around. But not clear on the specifics. Any help would be appreciated!