All Forum Posts by: Scott Stephens

Thanks for the message and great questions.

As far as improvements that I did myself, it is pretty much everything. I have a background in carpentry/construction. I hire a helper, apprentice but am on sight everyday laboring. The only thing I subbed out was sheetrock finishing. Luckily I didn’t have to do a new roof. 
I would like to get to a point where I’m not doing so much of the work but for now it is the only way I can afford to take on these projects and my body still allows it. Always a moment of feeling what did so get myself into? but rewarding when I get to the other side.

I use my local credit Union for my loans. I am looking at 6.25 % after paying 2.5 points.

Expecting to borrow 70% of appraised value which will be a loan of around $245,000. 30 year conventional will be a monthly payment of around $1500. Rents will bring in $3000 a month total. I am expecting roughly $500 a month in additional expenses for property taxes, insurance, water, sewer, garbage. I self manage and do most maintenance/repairs myself. Again it is a lot of time and work to pull off but it is way of employing myself. I love small multi family for the increased rental income potential even if it means more turnover. At least if you get one vacancy, there are still rents coming in.

Best of luck in your investing!

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $230,000
Cash invested: $55,000

Direct mail campaign lead to off market sale of small tri-plex. Worked to remove non paying tenants and then spent 6 months renovating property. Performed a majority of the work myself. Property has gone from being a bad apple to a clean and comfortable place to live. First property I have been able to purchase and renovate with all cash generated from cash out refinances on previous properties. Expect property to appraise between $350-$400k and cash flow $1,000 a month after securing a loan.

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

Stick to what you know. This is the type of investing I am familiar with and has worked for me. Every project get easier as I know what to expect.

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

Sent personal letters out to owners in this specific neighborhood. Targeting multifamily properties that are in need of maintenance.
Received response from owner and a price they would sell at. Didn't negotiate price just terms.

How did you finance this deal?

Purchased all cash that was generated from doing cash out refinances on two other properties I had previously purchased and rehabbed. Was able to take advantage of low interest rates and lock in favorable 30 year conventional loans. In addition I was able to take some of the cash out proceeds and pay off a third commercial property to own it free and clear.

How did you add value to the deal?

Full rehab, bringing units down to the studs. New plumbing, electrical, insulation, sheetrock, paint, finishes. Painted exterior.
It was a big project but straightforward as all the units were existing and separately metered. Project was made easier with the structure being single story and relatively small. Also access to the front and back of the property as well as the subarea and attic made renovations that much easier. Definitely things to consider when purchasing a property to renovate.

What was the outcome?

Overall a successful project with value added, improving the neighborhood and providing affordable housing. I am proud of how I was able to keep the project cost down without cutting corners.

Lessons learned? Challenges?

I am not sure paying all cash for the property and spending my savings on renovations was the best strategy to use. I don't feel over leveraged borrowing 70% of APV from my other properties that still have a healthy cashflow but just think there is always a better way if you can use other peoples money or owner financing. I think it worked for me as I only go one project at a time at this point. At a minimum it will be a 20% return which won't get all my money back out but close.

Hi Jacob,

I am familiar with this section of the Purchase Agreement but have not run into this exact scenario before. Are you representing yourself or do you have another brokerage representing you as the buyer? Is the sellers brokerage representing you as a duel agent? I ask this as a realtor/brokerage has access to a free legal advice hotline through the California Bureau of Real Estate. Strictly my opinion (not legal advice) is that this would fall under your loan contingency if you had or still have one in place. It would also come down to if you are still using the same loan product that you had originally made your offer with. The limit on interest rate would not be put in the purchase agreement if it wasn't enforceable. The seller had agreed to this term when they signed the purchase agreement. The close of escrow date and where you are in the transaction is irrelevant unless you have received a notice to perform from the seller. 

Hi Hannah, I do some BRRRR investing and remodel work in Eureka. My last project I converted an existing space into an ADU. If your working within Eureka city limits it is good to know that any project with a valuation over $50k requires the inspection and city sign off of the existing sewer lateral all the way from the house to the city main. Eureka has very old sewer lines and if your line is determined to be clay or damaged in anyway they will require you replace it. This can cost upwards of $20k to do so nice to avoid triggering the city inspection and keep your project valuation below $50k. Im always happy to check out projects and share my experiences so don't hesitate if I can be a resource to you. Sounds like you have a fun project ahead of you!

Hi Syman,

Thanks so much for providing an update on your project. I remember when you were in the planning stages and coming up with your rehab budget. Your timing has been excellent. Real Estate prices and demand have only gone up since you closed on this house. You invested in an excellent location and stayed within your budget. Also wasting no time in moving on to the next one. That has been my biggest challenge of late. Did the cash out refinance but haven't been able to find the next deal. Persistence will pay off.

I look forward to hearing about your next project in Arcata. Duplex conversions are such a good way to increase value. Don't forget as of Jan 2021 ADU's are allowed on multifamily properties. I found this helpful as I was looking to convert a building into a tri-plex. Going over 2 units would require fire sprinklers which would add a prohibitive cost to the project. What I did was convert the house to a duplex (no fire sprinklers required) and then add the third unit as an ADU (again no fire sprinklers required).

Thank you @Joe Black! I actually just finished a refinance on this property. Kind of an extended BRRRR. Property continues to be the best decision I've ever made and has really lead to great experience and further opportunity. Eureka as an area has so much potential. I grew up in the Bay Area and could never have imagined being able to purchase a home there. Eureka is still somewhat affordable when you compare it to the rest of coastal California. There are more people moving to this area than ever especially with remote work opportunities. It is a challenging market as is every where right now with just not enough houses available but the city has made large strides to promote higher density and more affordable housing. I am still looking for my last R in the acronym but know it is out there.

Hi Syman, congratulations on getting this property under contract. I have done similar sized re-models in the past and I think you'r repair cost estimate is within the ballpark if you are planning to do much of the work yourself. Hiring professional tradesmen in this area is expensive and they are in high demand.

Your realtor should be able to come up with comparables to give you an idea of the ARV and potential rent amount. This will be crucial in figuring out what size repair budget you are working with. The bigger pockets calculators are excellent for being able to run the numbers.

If you have an inspection period, you can hop on getting estimates from a roofing contractor, electrician, plumber, etc. Don't forget to look at the sewer lateral. Eureka is full of old sewer laterals and the city is moving towards a point of sale certification process. 

This project looks like fun! Keep us posted on your progress.

@Brenden Mitchum Thanks so much for your praises and positivity. It's funny how quickly you forget all the challenges and low points when your sitting on the other end. Stubbornness can be a good trait in pushing through. It has taken me a few projects now but what I've learned is, if I was to ever do a project where I could hire others to do the physical work I would need to get a much better deal. Adjusting my focus from doing renovations to sourcing the deal. Long term goals.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $175,000
Cash invested: $85,000

10 month re-hab and conversion of a single family residence into a three unit property.

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

Foreclosure sale. This property had gone through online Auction three separate times. I offered the same amount every time and it was accepted on the third one. I liked this property for its potential to be converted into a multi-family property. Zoning allows for 5 units. Large corner lot, MIL already in place.

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

Auction.com
Third times a charm.

How did you finance this deal?

Private Loan. All cash offer. Borrowed an additional $30k to finish renovations.

How did you add value to the deal?

Long hours doing all the work myself. Working through the permitting process to convert a single family residence into a duplex. Finding a way not to have to put in fire sprinklers. Taking advantage of 2020 ADU legislation which allows ADU's to be added to multi-family properties. Re-use and re-purpose as much material as possible.

What was the outcome?

1/1 Renting for $1050
2/1 Renting for $1350
Studio Renting for $750

Garage potential for future 4th unit. Extra electrical meter installed for future development

Lessons learned? Challenges?

For remodels,conversions staying under two units allows you to follow Residential Building Codes (much easier). Going to three units requires you follow regular building code which is more involved including the need for fire sprinklers. For my project it would have been an additional 30-40k to put in sprinklers and not feasible.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Do you have an ace rewards card? Wish I had a dollar for every time I heard that.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $175,000
Cash invested: $85,000

Bought my first foreclosure through Auction.com. Went for this deal as the home had sold less than two years prior for $75k more than what I purchased it for sight unseen. Had access to the interior photos from when it previously sold. Large single family home with un-permitted mother in law studio. Worked with existing "tenants/squatters" and had them pay rent until they found alternative housing. Spent approximately 10 months renovating home. Went through permitting process to convert home to a duplex. Gutted down to studs and re-did everything myself. Painted exterior. Great to have something to do during the Covid shutdown. Took advantage of new ADU legislation which now allows ADU's to be added to multi-family properties. Now have three units. Very proud of this 1894 Victorian and the transformation it has gone through. Next step is to do the re-finance.

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

This property had gone through online Auction three separate times. I offered the same amount every time and it was accepted on the third one. I liked this property for its potential to be converted into a multi-family property. Zoning allows for 5 units. Large corner lot, MIL already in place.

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

Auction.com
Third times a charm.

How did you finance this deal?

Private Loan. All cash offer. Borrowed an additional $30k to finish renovations.

How did you add value to the deal?

Long hours doing all the work myself. Working through the permitting process to convert a single family residence into a duplex. Finding a way not to have to put in fire sprinklers. Taking advantage of 2020 ADU legislation which allows ADU's to be added to multi-family properties. Re-use and re-purpose as much material as possible.

What was the outcome?

1/1 Renting for $1050
2/1 Renting for $1350
Studio Renting for $750

Garage potential for future 4th unit. Extra electrical meter installed for future development

Lessons learned? Challenges?

For remodels,conversions staying under two units allows you to follow Residential Building Codes (much easier). Going to three units requires you follow regular building code which is more involved including the need for fire sprinklers. For my project it would have been an additional 30-40k to put in sprinklers and not feasible.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Do you have an ace rewards card? Wish I had a dollar for every time I heard that.