All Forum Posts by: Brad S.

First off, Congratulations on your investment. Those are some amazing #’s in that short period of time. You didn’t mention the property or deal specifics, but for many deals in the recent years, there have been amazing and unusual gains due to multiple unnatural circumstances. So, my first caution is it would be healthy not to expect similar results on certain real property investments/deals in the current and near future cycles.

That said, there are multiple considerations and clarity needed, before I would act on any investments with your equity. Just saying I have a lot of equity and want to make money with it, is not enough to make prudent decisions. Some considerations (in no particular order) are:

What return on your equity are you currently getting?

What would the cost of the equity be to you? Mortgage, HELOC costs and terms, etc. Including monthly obligations and who will pay them, etc. Remember, you don't have $965 of cash to invest, you have equity, which will cost you money to access. Example: If you take out a loan for 7% you would want to make more than 7% to make it worth it, and probably significantly more. And if you are doing a short-term deal (flipping, etc.) what is your appetite for risk? What happens if you lose on it, you now have an additional liability, not just a loss of money.

Are you planning on keeping the current property or exchanging it (1031) into something else? What is the current return you are getting and what are the projected returns or plans with it, etc?

What is your real estate experience (generally and specifically)? Do you have experience “flipping” or managing rehabs, or hands-on? Are you proficient on market research and analysis? Etc, etc, etc.

What are your goals; near, mid and longterm? Are you trying to build up to some monthly cashflow # (i.e. $10k month net) or an equity # (i.e. $10 million equity), etc. Are you wanting to replace your job and do REI fulltime or just part time investing, or? Also, there's much to delve into on of those scenarios, like what type of cashflow or investment do you want, etc. residential, multi-res, small multi-res, commercial, industrial, etc.

There seems to be fewer deals around these days and this typically benefits the more experienced and skilled investors but there are always multiple investors that get “tripped-up” in these markets due to them relying on recent “fortunate” market circumstances only to realize the markets cycle and they weren’t prepared or didn’t underwrite properly to account for unforeseen potential.

There are more considerations, but this is a start. OF course, you may have all this stuff figured out, but the original post was vague.

Looks like you got a great deal!  Good job!

And as you found out, you get 0% of hits that you never swing at! In other words, you have to ask for what you want. 

While it is important to take the seller into consideration, you need to make sure it fits within your parameters first. I look at it like: How much is it worth for you to take on someone else's problems/issues. 

Regarding if this is legit. Maybe, but It is most likely just a fishing post from an inexperienced investor, to add to their list of deal suppliers. Maybe they learned of this CL technique in an investing program or something. This is not how most reputable, experienced investors do it though. They already have the connections or reach out directly to agents to make connections. They also know how to source deals themselves. Your best source of connections in the real estate investing world are right here on BP, through other realtor referrals, and from meetups and investment groups. 

As a newbie, it is easy, and common, to head down multiple paths chasing shiny bright objects, with many of those paths just leading to time wasting and increased experience in learning what you don't want to do. Best advice is to keep exploring aspects of the RE investing world and decide which feels right and best for what you want to pursue. Then focus on those aspects and learn as much as you can about those. And do your best not to let the lack of resources dictate your focus or goals. I have done many deals with my experience alone and little or none of my own cash. "If you find it, they will come." Meaning, the most important part of a deal, is the deal itself, if you have a deal, the money will appear. I know that's simplistic, but it is true.

By, the way, that CL post was from an Anchor Loans deal in Sherman Oaks back in 2017. It is very unlikely it has anything to do with the person who posted in CL. Very easily found with a Google Image search.  https://www.instagram.com/p/B-xDg-Kj8T6/

Basically, I agree with most of the responses, Bottomline, it's best if the repairs were done with all required permits, inspections, plans and engineering, etc. And all that should be verified and verifiable to future buyers. Photos before and after are always helpful also. 

It also depends on the extent of the foundation damage and repairs, I have done minimal slab crack repairs on flips and disclosed to buyers, without any issues, and I have also done more extensive slab repairs with plans, permits and inspections, and also disclosed to buyers, without any issues. 

Actually, damage discovered and properly repaired and disclosed can show the house is in better condition than similar houses, which may have undisclosed or undiscovered issues. One of my last flips was one of the latter. I had the foundation cracks repaired and tied together with engineering plans and permits, and also had to completely redo the pool and fix the cracks, and recompact the entire rear yard with geological engineering and inspections. Along with the complete remodel, those verified repairs ended up selling the house in about a week. The buyers had just cancelled escrow on another local house which had previously undiscovered potential foundation/yard slippage issues, which were found out during inspections. While my house had all those issues addressed, repaired, documented, and disclosed. This contributed additional appeal and incentive to the buyers.

Also, it is always a good idea to talk with local experts. Seek out some of the top active Realtors in the Subject's market area and ask them. They know better than anyone.

......Oh, and you can also get some of the better deals when buying those properties, as long as you have a good idea of the potential extent and cost of the repairs and plug that (with a healthy contingency) into your proforma.  Many people, including investors, won't want to deal with those properties.

What Bill said and:

First thing to do is to evaluate the appraised value. Do you think it is a reasonable and reliable appraisal. If not, do you have actual factual data to use for an appeal. In other words, did the appraiser not include any relevant comparables and/or data/facts, that would be better support for the Subject in the market. Unfortunately, If there are no other verifiable facts to support a better value, than it is usually futile to appeal based on opinion and/or interpretable characteristics alone (i.e. the Subject is in superior condition to this comp and therefore, it should be valued higher, etc.). But, it is possible the appraiser missed some better data.

What it sounds like you are asking is, how to get above average returns in today's RE market. And as Robert Kiyosaki once said when asked how to get above returns ... "Don't be average."

The average investor is probably looking at the past 4-5 or even 10 years and thinking that is how the market works and why isn't it still working the same way. The experienced investor sees the cycles and how, especially the past 5 years, was an unnatural anomaly semi-manufactured by the powers that be, which has altered those current cycles somewhat. The good investors learn to pivot and see where the opportunities are in current markets, or decide to sit-out or be patient, while preparing for their preferred market conditions.

Some of the strategies which are still working today seem to be: value-adds - finding a way to add value to properties (rehabbing, additions, repositioning it in the market, etc). Building/new construction - learning how to build reasonably and source properties which can be razed or find empty buildable lots for a reasonable price. That's a start and I am sure there are others.  

I personally have a couple of buildable lots in a very competitive market, that pencil out to good cashflow after completion, even if I am able to pull all my money out, and also have the potential or good profit to exchange into a better cashflow market, if I choose.

That's exactly my first reaction reading similar posts. My guess is you (the OP) really don't mean 50 units, but are after more of a cashflow goal, etc. Owning 50 bad units, will probably not get you to your goals. I have had multiple units in the past that dragged my down a lot more than propelled me forward, and I was happy to dump those. I suppose it could be more of a semantic thing, but seasoned RE investors understand it isn't all about the unit #'s, especially when it comes to section 8.

Well, I can't say specifically for RR, but I changed my Austin condo unit to str a couple of years ago. I was hoping it was going to perform well, since it is in a lakefront project, just South of downtown. I also rehabbed it prior to going str. It didn't do that well, about 70%-75% of ltr. I did check airdna, mashvisor, str mgt company estimates, etc, prior to going str and I think I was pretty realistic. I did have it managed by a company that only does str mgt and thoroughly checked them out prior to signing with them. I do think they did a good job, but I did find out that at the time, Austin was overrun with 1,000's of unlicensed str's which drastically added to the available str inventory. So, I am thinking that had something to do with my unit under performing. I ended up going back to ltr.

But, maybe RR is different. Good luck.

Ok, so, if I understand correctly, the property is currently a triplex and you want to add/convert 2 adu's to make it a 5-plex and also add/convert a jadu. Firstly, that will probably cause the appraiser's head to spin.  :P 

As an appraiser myself, I would probably charge a very high fee for this assignment, since it is pretty unique and complex. Anyway, here's my thinking. In CA what you are talking about, is now legally possible, due to the adu laws, which supercede zoning. So, the property would essentially be a commercial property now (5+ units) and would essentially have the same use and rights as a traditional 5-unit commercially zoned property. I am assuming the Subject property is not currently zoned commercial and cannot legally have 5 units, except for the adu laws? If that is the case and other 5-unit comps used are on traditionally commercially zoned properties, there might be a value difference for that, since the highest and best use may differ. Since it may be possible, the commercially zoned property may legally have more units than the Subject, etc.

So, my guess is the newly created 5-unit property would be valued as such and comped to similar 5-unit properties, as well as utilizing cap rates and income, etc. 

The jadu would most likely have minimal value or be discounted since of it's owner occupied requirement and therefore, not having the same rights as a traditional 6-unit property.

As to the lending part - I am not sure how lenders are going to look at this, since it does now fall under the commercial definition.

As to your specific question: 
It might increase the property value. My guess is that it should. Remember, the value is just what a buyer would be willing to pay for it and technically, there is no way of knowing that for any property, unless it is for sale on the market. But, if you want to get an idea, you should find similar 5-unit sales and derive a cap rate for the market, estimate your projected NOI, and derive your estimated value range. Or, you can pay me a lot of money to do it. :)

It is these kind of situations that create opportunity and value since many people don't have the resources or knowledge to see the potential and take advantage of it. But, that is also why it is not straight forward and sometimes a little bit of a crapshoot. But, it sounds like there is a lot of potential.  Good luck!

@Micheal Robinson

What you describe is a mixed use property - retail on the bottom and residential above. Is that what it is? That would be a commercial property. Is it a commercial property or just illegally used as commercial?

That’s the first thing you need to clarify, in order to choose comps.