1% with seller financing and no rent control in the Bay Area!!!

41 Replies

So to start off my first success story on BP I need to send a couple of key shout outs.  First I need to say thank you to Josh Dorkin and Brandon Turner of BP.  Without this community I would not have found this deal!  I also need to thank @Johnson H. for organizing the meet ups in San Jose.  Without those meet ups I would not have meet @J Martin, who got me excited about the Oakland market.  J graciously opened up his schedule on a few occasions to talk to me about Oakland and the various neighborhoods. Finally I need to send a big thank you to somebody that I have never met nor talked to, but was key in my strategy/success in getting this property @Michael Q (Michael Quarles).  I listened to pod cast 77 over 15 times in a row preparing for my eventual meeting with the owner of the property in question.  As recommended, I practiced several of the techniques on people in my circle of friends and I must say the Jedi mind control really does work!!!!  Michael if you read this and get to the Bay Area, I owe you a nice dinner and even nicer bottle of wine!

Now to the deal...  Over the Thanksgiving week, I went into contract on a building that WAS a 5 plex of studios that was LEGALLY converted to a 4 unit condominium complex.  The building is located in the north part of Oakland in an area called Santa Fe. The buildings is legally comprised of 3 studio condo's and a single 1 bedroom condo.  The one bedroom unit is actually 2 studio units with a pass through door in the shared wall.  It has 2 full kitchens and 2 full bathrooms.  As this was a conversion to condo's there are actually 6 electrical meters (1 master) and 5 gas and water meters.

At the rear of the property there are also 3 garages and a small storage closet.

The asking price was $252k for the 1 bedroom and $149k for each studio; total asking price was $699k. I found this deal sitting on the MLS. It has sat there for several months and intrigued me that this property did not sell for such a long period of time. After closer examination of the posted photos, I realized that there were 5 exterior doors, but the property was being marketed as 4 condominiums. I sensed that there was hidden value in the property and that there must have been a reason why the properties did not sell. These were literally the cheapest properties in this part of Oakland.

After speaking to the selling agent and the owner it became clear that financing of the entire building or even 1 of the condos was challenging and scaring off potential buyers. Basically, conventional lending does not work on this property for a single buyer as banks will not loan to a person if they own more that 50% of a HOA. Potentially a portfolio loan could be applied, but nobody had researched this potential solution. On the other side, the selling price of the condos were so low that many interested buyers could not get a loan on such a small amount. Therefore, the pool of potential buyers was narrowed down to people who could pay all cash, but were willing to live in a small studio. On top of this complexity, there was a HOA to deal with. Not too many people want to put the effort into keeping a small HOA viable.

Knowing that the seller was having a hard time finding a buyer for ALL 4 units, and the fact that we are into the traditionally slow season for real estate, I used techniques outlined by Michael in pod cast 77 to bring the seller down by $20k within the first 15 minutes of our meeting!  I subsequently let the seller talk his way down on his price and we eventually settled on $600k total with him financing nearly 50% of the deal at 4%!  

The units will be handed over to me fully vacant at the end of January.  The best part of the property is that as they are condominiums, they are EXEMPT from rent control!  I will soon own a little island of rent control free property in a rising neighborhood in Oakland.

Thanks again to BP, Johnson H, J Martin and Michael Quarles!

Who said there are no deals in the Bay Area???

-Arlen

@Arlen Chou , wow, that's amazing. Thanks for sharing! That also proves there are deals to be found on MLS even in hot market like oakland.

btw, which part of oakland is the property at?

congrats. Good job. Way to do your research. 

@Eric Z.   the property is in North Oakland toward Berkeley (NOBE), right off MLK and 55th St.

@George Lopez   thank you, nothing beats hustling and doing research.

man, that's near Temescal! Congrats on this super find, gonna learn more how you negotiated next time we meet :)

We missed you tonight in San Francisco. But we didn't miss your deal, J. M. and I had a h

We missed you tonight in San Francisco. But we didn't miss your deal, J. M. and I had a conversation about how there's no cashflowing deals in Oakland, and of course you came up.

@Troy Fisher I really wanted to get up to the SF meet up, but I just had too much stuff to do in the South Bay. I look forward to seeing you and J. Martin at the next meet up.

-Arlen

Nice job! I'd love to have a little complex like that. It definitely pays to read the MLS carefully, I recently found a duplex for a client here in Denver that had sat on the MLS for almost a month because it was listed under residential single family homes. Consequently while others were out bidding each other on new listings, we got it below asking.

@Arlen Chou  Great job on this purchase--I met up with J. M. a couple of days ago for lunch, and he bragged about your conquest.

I'm sorry that I didn't get a chance to meet you at last night's meet-up. It was a good time had by all and a great chance for me to meet some nice folks!

I'm looking forward to learning more about the possibilities in Oakland and beyond.

Steven

Congrats on your new deal Arlen! I am glad that the San Jose meetups helped you out in building your real estate. I hope to hear more about your future deals soon!

@Arlen Chou  so can you rent that "1 BR" as two separate studios by closing off the open wall?  I'm assuming you're keeping this as a rental and that could help max your income. Also, what do you think studios out there rent for?  Also, that looks like a 30-40's building. We're the original plumb and elect systems updated for the conversion?

One thing I don't understand...why in the world can't a studio be financed for $150k?!?  I know that's dirt cheap for Bay Area, but on the rest of the planet 150 is a respectable sum for housing, and actually expensive for a studio. Something there doesn't make sense. Prima facie it worked out in your favor, but your real upside (cash out refi's or end game sell offs) are four individual condos at retail value to end users. 

Congrats @Arlen Chou  ! Let us know how the stabilization process goes for you! 

@Amit M. the building has had some work done on it but there is much that should be done.  The electrical is one of the first things that I need to attack.  I am just worried about fire, so I will bite the bullet on this one. The plumbing has had some copper upgrades over the years, but it still has lots of galvanized pipping.  It is functional but will need to be addressed in the near future.  I plan to go with PEX and also go with instant on water heaters installed on the outside of the units. This will resolve a a potential safety issue and also free up some much need square footage.  The windows were all upgraded to double pane at some point, and the heaters in the units appear to be less than10 years old.

Yes, the building will effectively be 5 studio units to maximize rental potential.

I don't know what the details of the small loan issues were as it was not something that I was personally looking into... It was just what the seller and his agent told me. Even if this was not correct, it helped me to negotiate the price I needed so I just let the issue quietly fade away.

As for rents, I am targeting $1250 per month. Additionally, I plan to rent out each garage space for $150 per month.

@Brandon Turner Once escrow has closed and I start the renovation process I plan to post again so people can follow my pain/joy from renovation to fully rented units. 

Thank you everybody for the many words of encouragement!

-Arlen

Congrats!  Do you see there is a street call "Aileen St"  near by?  This building is your calling!

Look forward to seeing the future progress on this. Great find!

That's friggin awesome Arbel! There were over 10,000 seller financing deals last year in California. I was thinking desert properties maybe right...and then BAM there you go right smack in the middle of one of the top appreciation areas. Congrats!

@Arlen Chou  ,

CONGRATS again! I love this deal! Yes, @Eric Z.  can get on a conference call sometime and get the low-down on those numbers. I'm really curious to see myself. But yes, I will still be trying to snag something around here that's around 1% and looks promising. No 2+% in my area, but I like it anyways ;)

@Arlen Chou   ok. So I gather the units are also not newly renovated inside? And they are all vacant? I think that's why the owner couldn't easily sell them each off to an end user, as "condo" buyers usually want ready move in product. Reason I'm curious is so that you overcome whatever the issues were when you eventually sell, to get the max value. 

Did the owner record CCr's already? Sometimes the city splits the property off, but the owner doesn't have CCR's, so it's not officially condos. And if you paid partly cash and partly his private loan, you don't have to record CCR's. BUT when you want them to be true market ready condos you'll need CCRs. The bldg and units should also be renovated so it's an end user ready product. That's for when you want to sell, or refi cash out as individual units. Tricky stuff, nice and complex, like the deals I like!

Btw, what were your loan terms? Interesting deal with great condo upside, but immediate cash flow too. Also, how much renovation do you plan to put in before renting?

@Troy Fisher  - Let us know if you want to talk.... you have my contact info and I will set it up with Cliff and Mark

@Brie Schmidt  - I called Mark yesterday, and he was on a call then, I've got family in town this weekend, so I'll give everyone a call next week.  I am looking forward to talking to the three of you about Chicago.

@Amit M. the CCR's are already in place. The interior of the units have not been touched in many decades. The only real upgrade has been the double pane windows. I plan to do a full job on the units: new kitchen cabinets, granite counter tops, new appliances, new tile and laminate flooring, new bathroom vanity, new toilet, new interior doors and paint.

I am heavily considering instant water heaters to free up space and I am thinking of converting the bath tubs to large showers with frame-less glass walls.  I believe that both of these items will make the space feel bigger and more comfortable.

-Arlen

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