All Forum Posts by: Sebastian Marroquin

Quote from @David Matthew:

Good stuff to think about, thank you Sebastian.

It's cool to see extra replies from time to time on this post as I continue with the ideas.

It's interesting, I looked into different DSTs and had conversations but just didn't feel comfortable with what I felt was a lack of control or ability to really know the operators and properties.

I also kept running the numbers and just couldn't make 1031s into other properties make sense with the new interest rates compared to what I have now. 

Ultimately I just raised rents and got better with outsourcing the maintenance in a cost effective way (wasn't doing that very well before). I keep thinking about this though, revisiting it and thinking if there is a better path forward.

You should come to some of our meetups and ‘home crawls' where we walk some of our current projects with clients in LA. That will give you an idea of what we can help with and what other investors in similar situations are doing. Keep in mind that you don't have to do everything at once. Look 1 property (probably one that is not performing as well as the others), and see: #1 how can you infuse value into it (ADU, More sq ft, higher rents etc)- take it to its best and highest use for more value and then see what you could buy instead. If what you buy next gives you either: more cash flow or more equity or both, then it's a no brainer (even with higher interest rates). Example: we had a condo rental in Azusa, CA : bought it for $290k worth $450k in 2018. We had a 2.8% interest rate. And we were getting a net $300 per month cash flow- pretty passively. We had $180k sitting in the property. Most friends in the industry were telling me to keep it bc of the interest rate… so I sold it. We took the same amount of money and transferred it to a different investment. Now, instead of $300 per month, we are making : $2k from an ADU rental and $2,500 per month from another investment (with $150k invested ).

Next year: we are likely buying another single fam. Home on a corner lot. Making the front of the property : Main home + ADU and taking the back of the lot and will put 1 or 2 units (top and bottom) : depending on how much capital i have to work with. So we will go from 1 unit to 4 units, with a combination of personal funds and construction loans. My cost to build is pretty low, so it makes sense. Full construction costs will be around $300k with $50k for purchase and closing costs. On a $700k purchase. Just including the numbers on here to give you an idea.

Quote from @David Matthew:

Thank you for the replies and different opinions! It's nice to consider different viewpoints. Excellent point on the IRR, I haven't built my spreadsheet out to accurately calculate that yet but I know it's pretty high for the SoCal properties. The appreciation has been no joke!

I’ll add some details to the mountain houses which will shed some light.

The houses are aging and I’m doing a lot of wood, siding and deck component repairs plus they need staining quite often. There is a lack of good management options up there so I manage myself. There is a lack of handymen as well so I do a good amount of the work myself or using helpers. The biggest issue is that eventually those decks will need replacement (I’m keeping them alive as long as I can). Replacement costs are 35-45,000+ EACH! Ridiculous. The other issue is forest fire risk plus insurers are dropping policies and most insurers won’t write policies there anymore. These factors cause a bit of anxiety and have led to this whole re-evaluation. On a second look, one of the houses I could probably get up to 5% ROE, the other 4% max, not sure it’s worth it though.

The other rental down the hill is a different story. Stucco, no decks, I’m renting individual rooms, 10min away from my house, easy maintenance. If I’m being honest with myself, I just haven’t been keeping the rooms up at market rate. I used to live there myself and know them somewhat personally (one pretty well) so I’ve been soft on price increases (when someone rarely moves out that room goes to market rate though). If I put on my business hat I realize I could really increase cash flow from ~900 to 1400-1700. That could get that house to ROE 6% plus the benefit enhanced appreciation. I just need to give them the tough news about how much I need to increase prices and deal with potentially some leaving. So the performance here is really on me.

Based on the opinions and realization I’m now leaning towards a middle of the road approach - keeping the SoCal room rental house, get that to market rates (~6% ROE) and 1031 the mountain houses. Thoughts?

Along with the IRR comment above, I would ask you to compare current cash flow to opportunity costs here in CA? If you sell the homes, what investment could you buy and what would your cash flow and quality of life be after? 
Also, now you have a good chunk of change in equity that could give you a huge boost in wealth if you now use the money actively. I’ve had investors that initially bought SFRs in CA and accumulated about $400k - then sold the properties and now are actively buying fixers, small homes and value add properties where they use the $300k to purchase and improve and make between $200k to $300k per year in gross profits when selling a renovated or improved property. You may choose to keep a really good property you fixed where the equity grew by 30% to 40% in year 1. 
The great thing about CA is that the price per sq ft is very high. So many people are buying for $700k improving with $300k and now that property is worth about $1.5 
You could also buy a duplex and turn it into a 4 Plex with ADUs : increase value/ equity and also cash flow. 
I would guess that your current rents and net profit from rents are no where near $150k to $200k per year? 
But the main question would be for you to ask yourself: 
Are you growing and building ? Or are you maintaining and cruising ?  if you are growing and building wealth, then the strategies described above could work. Reach out if you need resources out here? Deal finding, contractors, architects etc 
good luck 

Quote from @Ryan Bittner:

Hello All!

I am currently a builder of ADU's throughout San Diego as well has high-end remodeling of custom homes and commercial projects. I'm looking to do our first 2000+ sq ft ground up residential build in the near future. In the meantime, I want to start putting my own deals together.

I have some potential partners willing to invest, and I am starting to understand what a good deal can look like. I'm writing today to see if there is anybody out there that has intimate knowledge of the entire process from sourcing the deal to closing it and rolling profits into the next deal and ideally avoiding taxes through the expenses of the next deal. I'm looking for somebody that has done this first hand multiple times and would like to mentor or partner with me in a hands-off situation for at least 1 deal. 

Don't want to rant on, so I will leave it at that for now.

All the best,

Ryan

Hello Ryan, 
have you thought of doing residential additions, ADUs and new construction? I would think that would be your next best and easiest move. 
I help investors do that and they are very profitable. Get a home under 1000 sq ft in SD or LA with lot size over 6k 
Increase size of home by 500 to 1000 sq ft (depending on comparable sales) and make the profit. 
You should be able to build for about $100 to $150 per sq ft (since you are a contractor) and sell for about $600 to $800 per sq ft. 
DM me if you like. We can discuss this further 

Quote from @Jonathan Minerick:

Independent studies (1, 2) and basic logic show you will make more selling it yourself. Do a flat fee MLS listing (costs $100-200) and offer a market rate commission to buyer agents. Get a transaction coordinator to help you with the paperwork (~$450).

FSBO and Flat Fee MLS are different things, it's useful to understand the difference.

 100% wrong. The only people that could actually do this would be people that were Realtors in the past and have sold probably more than 10 homes as a Realtor. The problem is that people will never know that they sold their home for $30k to $50k lower than what they could have gotten. 

I would say the only people that could sell their property for market value or higher are people that have cookie cutter homes (ie Condos, town homes or homes in HOA communities and where homes are renovated). And even then… i have seen home owners get less bc they lack stamina, negotiation skills, they lose money when negotiating for repairs… or they don't know how to quantify a repair. For example… Home needs paint, flooring, has rusted plumbing in the bathroom and has termite damage. A buyer may ask for $20k in credits. Is that a good number? Is it fair? Will that buyer walk away if you don't agree… can you repair the items for a lower price or do you have contractors that will charge you $30k so you now think that $20k credit is fair… ? This is where experience, resources, negotiations skills and understanding the market to know if you have leverage to negotiate will come into play… people that want to sell by themselves are usually people that only sell a home every 5 to 10 years and are the very people that should not be selling on their own… :) but hey…. You are saving a 2% commission right! and forgoing $50k or more. Good luck

Hello Everyone! My name is Sebastian Marroquin and I am excited for another Meet-up in the city of Upland, CA.

This event will be mainly to talk about how ADUs are helping single family Rental investors and flipping investors in this market as of Oct. 2024 and into 2025! 

Agenda: 

6:30pm to 7pm : Sign in and network 

7pm to 730pm : formal talk about ADUs , flips, and rental property with some case studies 

7:30pm to 8pm : Finish with networking (rem to bring your business cards). 

Looking forward to meeting you there! 

Send me a DM if you have any questions. 

Sebastian : Realtor and Investor of 13 years. 

Currently helping 12 families build ADUs in their properties for rental purposes. 

More important question now is: How much equity does each home have now? Depending on how many years you have own each property, maybe it is time to assess them: their individual performance, ROI, what type of tenant do each attract? and what is your ROE (return on equity?).

For recent purchases: less than 3 years, you probably have to grow with them and think about how can you maximize returns: maybe ADUs, or Coin-laundry or e-pay, renting space on the property for storage, air b and b or mid term rentals, splitting the lots, Tic sales etc... or value add to increase appreciation faster!! 

For properties you have owned for more than 3 to 5 years + 

Take a look at what is performing and 1031 the problem children... :) 

For some, I imagine you will have more than $200k sitting in them as "potential equity" 

you could sell 2, 3 or more of them and now trade them for a 6 or 10 + unit property. Increase your cash flow and wealth and reduce overhead and management time. 

Many of my my investors started with 2 or 3 homes, used a value add strategy , and renovated or added adus or sq footage, and now 1031 into a 6 unit property with the same amount of money, but now going from about $1,500 cash flow from 3 properties to a 6 unit property that now gives him $3,500 gross profit. 

Now he re-started buying single fam. homes which are less costly to buy with 5% down owner primary loans. Buy, live in it for 1 to 2 years and then rent it out to buy the next one! 

Good luck! 

Cancelled. 

This may not be a big deal like many people are saying… but this is a huge purchase for you so why not do as much due diligence as possible. 

I would get a structural engineer to the property. Most would charge about 800 to $1k to do the observation. It has been many years since it happened… so you should be fine… but doesn't hurt to check. 

Also think about future for the property? Will you keep it forever? or will your rent it out or sell it in the future. 

The next buyer will also inspect it and will also have a problem with evidence of previous fire… 

So it will help to have an engineer look at it and say it is safe to live there. 

It's all about you feeling safe in it. If you feel this would help, simply do it! Same for the foundation, roof, electrical and plumbing systems. 

Good luck 

Quote from @Dan H.:

Quote from @Sebastian Marroquin:

Total PITI : $2,800 p/m

ADU: Rents : $1900 p/m

Home : would rent for $3k per month 

Potential Gross cash flow: $2,100 per month 

Purchase: $500k 

Current ARV: $900k

Can these numbers be achieved today with high interest rates and high prices ? 

That's the question of the hour. 

Our neighborhood is selling homes without the ADU for $800k to $850k deepening on the condition.

Would you buy a home here for $800k for this strategy? 

There are many homes in areas outside of Claremont that are selling for $500k to $650k 

Many of the people we know are buying homes like this one with a construction loan for the ADU ($100k) and buying a home for $700k + $100k : $800k total at 5% down payment and ending with a total payment (PITI) of $6k minus $2k rents from ADU

Total new payment of $4k which is easier to make and once interest come down some, they will refinance to drop their payment to $3k to $3,500 per month. 

They add $100k to $150k of value to the property in year 1 and build equity at a 5% rate per year. 

What do you think? Is this a good idea in today's climate? 

Cash flow is negative, but virtually all MLS purchases in non-desert heat southern CA are cash flow negative and this has less negative cash flow than virtually all non-desert heat MLS southern CA properties.

Hands off ADU addition will cost significantly more than $100k. Even a garage conversion will be significantly more than $100k.

ADUs in single family zoned areas are rarely getting appraisals over $100k.  Appraisals of $50k to $100k are common.

The reality is most So CA RE does not pencil out well. The best investments currently are large value adds. One of my last purchases is valued over $540k more than purchase and rehab cost. The ADU addition is typically not a good value add for various reasons but the big one is cost versus value added. I do not take on a value add unless it adds a value of at least 2x the cost of the value add. This is because value adds require work and have risk. in addition these value adds are typically on a different timeline than an ADU addition garage conversion (my last rehab was my most expensive ever and took 2 months and one week from guest move out to guest move in). So assuming I can do a nice garage conversion at $140k, I would need it to add over (to account for the extra time required) $280k of value. Never will happen.

Adding a single ADU in SF zoned areas does not meet my profit expectation.

Best wishes.  

The answer is yes. If you see comps in the $800k to $850k for the home (no adu) then once you renovate the home - by itself it will be valued like other homes like it that are renovated (likely around $900k ish) Be careful with numbers mentioned and do your own homework of course. 

Also be careful with the ADU, bc they may be calling it one but it may not have permits. (I would question it since the main home is not renovated) what are the chances that they did everything right on the ADU but didn't have the funds to do the home… hmmmm doubtful

Make sure they have the permits (call the city and see if they have permits on file). 

You could also instead: get a construction loan and buy a fixer home with no ADU and you build it yourself.

usually - I see people buying a home like this for $650k to $700k and then adding the ADU for $100k where you end at $750k to $800k with a well renovated home!

Let me know if you need help! good luck