Offer accepted for run down house in Los Gatos Mountains @450k
Hi,
Offer accepted for run down house 1bed/1bath in Los Gatos Mountains @450k.
Lot is 0.26acres, most of the lot has steep downhill slope. Lots of trees and house has septic tank.
Do you think it is a good deal? This is our first flipper home so would love to get pointers and thoughts.
We are planning to fix it and put it on long term rent or make it short term rental like airbnb.
If it was your home what would you do?
Thanks for your help and insights!
Not a lot of info to go off of. Have you run comps to see the ARV? I would get a few bids to see where the scope is. Most people want to be all in of the ARV 70-85%. On the AirBnB side of things, have you peaked at any resources to get an idea of the average nightly rate? I don't know the area but I typically assume 60-70% then times the average nightly rate to get an estimate on the income. Again yours could be higher or lower so do some digging. I also look on AirBnB to see what others are getting and what does well around there. If you are going to have someone manage I would do that during due diligence(if you have one) and learn from them on how this would perform. This is exciting just make sure you have your ducks in a row.
Definitely a good long term appreciation play. My only concerns would be the potential amount of work needed and how far you are from town.
If you go STR, make sure there is at least part of the lot that gets some sunshine. Being stuck deep in the forest gets weird after a short while.
It has been in escrow twice. Do you have an insurance quote? Ask listing agent to give you prior inspection, they need to disclose.
Quote from @Caleb Brown:
Not a lot of info to go off of. Have you run comps to see the ARV? I would get a few bids to see where the scope is. Most people want to be all in of the ARV 70-85%. On the AirBnB side of things, have you peaked at any resources to get an idea of the average nightly rate? I don't know the area but I typically assume 60-70% then times the average nightly rate to get an estimate on the income. Again yours could be higher or lower so do some digging. I also look on AirBnB to see what others are getting and what does well around there. If you are going to have someone manage I would do that during due diligence(if you have one) and learn from them on how this would perform. This is exciting just make sure you have your ducks in a row.
Comps are really good. Similar sized and well built homes goes for twice the price. This house has some violations that we need to get resolved with the county.
Flow of the house is not so great so we would have to add/modify some square footage to make the flow of house more desirable. Yes did some research on Airbnb and long term rental. Both has potential and positive cash flow. I just don't know if I am missing anything.
Quote from @Jon Martin:
Definitely a good long term appreciation play. My only concerns would be the potential amount of work needed and how far you are from town.
If you go STR, make sure there is at least part of the lot that gets some sunshine. Being stuck deep in the forest gets weird after a short while.
Thanks Jonathan for motivation! yes some parts of the house gets good sunshine. We plan to trim the trees to improve it further. We are 20mins away from the property so managing ourselves may not be that bad.My biggest worry is the amount of work needed and working with the city to resolve the violations.
Quote from @Caroline Gerardo:
It has been in escrow twice. Do you have an insurance quote? Ask listing agent to give you prior inspection, they need to disclose.
Yes we have insurance quote and they gave us full disclosures. We are financing it ourselves so no lender involved. House is in 7 days contingency period. We have few more days to make up our mind.
Hi Preeti,
Be sure to check the age of the leaching field and that it's not more than 30 years old, in which case a new one will have to be made.If the property is near a water source, then building a new one will have some unique challenges since the city will likely have specific requirements on building new ones close to something like a river. This is based on what I've been learned in working with contractors down here in Santa Cruz County in researching potential STRs in mountain settings.
The problem I see with many of these properties is they are almost always 85+ years old and have big ticket repairs such as new roof, septic tank issues, siding replacement, and outdated floor plan.
Have you guys already determined the estimated cost of repairs for this property?
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Real Estate Agent California (#02091482)
- 831-402-8981
What are comparable sales for a 1bd/1ba house with similar square footage in the same neighborhood that are in good/great condition? This will give you an idea of what the ARV (After Repair Value) of the property is.
Approximate how much cash you'll need to put into the property to make it turnkey so that you can get top of the market rents for a 1bd/1ba house. With it being only 1bd/1ba, it'll probably perform better as a short-term rental.
Not very familiar with this market but your ARV and Comps for something like this should be north of $600k.
More info and details would help a lot. Have your agent show you the comps, get bids from contractors, negotiate so that the numbers will work for you after all cost and repairs.
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Real Estate Agent OH (#2020004900)
- 614-698-1227
- https://www.reafcorealestate.com/
I am a Santa Cruz area investor and Broker.
If it is on the Santa Cruz County side of the hill you may have some challenges with Septic & Leach Field and Insurance (if not a perimeter foundation). State Farm is the only insurance company not using the California Fair Plan option for fire insurance. See my previous comment about a perimeter foundation though. We had a fire two years back and fire victims get first-in-line status for any permits for rebuilding, remodeling, etc. Not to say you can't get a permit.
Lastly, $450K may not be a good deal if you are only buying a 1 or 2 bedroom cabin in need of work. More info needed.
Those are the two main gotcha's to watch out for.
From the pictures, it doesn't seem like any major work needs to be done. I'm not sure what you meant by fixing it. You guys can just rent it as it is.
The violations part though can be tricky though. Also have you checked with Los Gatos officials about AirBNB rules?
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Lender California (#1957514)
- The One Brokerage
- 408-832-8200
- [email protected]
Quote from @Lance Hulsey:
I am a Santa Cruz area investor and Broker.
If it is on the Santa Cruz County side of the hill you may have some challenges with Septic & Leach Field and Insurance (if not a perimeter foundation). State Farm is the only insurance company not using the California Fair Plan option for fire insurance. See my previous comment about a perimeter foundation though. We had a fire two years back and fire victims get first-in-line status for any permits for rebuilding, remodeling, etc. Not to say you can't get a permit.
Lastly, $450K may not be a good deal if you are only buying a 1 or 2 bedroom cabin in need of work. More info needed.
Those are the two main gotcha's to watch out for.
Are you able to talk on the phone with me? I would love to learn about your thought process.
Quote from @Jay S.:House doesn't have much flow to it. Master bath is on 1st floor next to the kitchen. Master Bed room is in the basement with just powder room. I think there are some issues with the septic tank. Haven't spoken to Los Gatos Officials for Airbnb rules yet. Will talk to them. Thanks for the tip!
From the pictures, it doesn't seem like any major work needs to be done. I'm not sure what you meant by fixing it. You guys can just rent it as it is.
The violations part though can be tricky though. Also have you checked with Los Gatos officials about AirBNB rules?
Quote from @Scott Allen:
What are comparable sales for a 1bd/1ba house with similar square footage in the same neighborhood that are in good/great condition? This will give you an idea of what the ARV (After Repair Value) of the property is.
Approximate how much cash you'll need to put into the property to make it turnkey so that you can get top of the market rents for a 1bd/1ba house. With it being only 1bd/1ba, it'll probably perform better as a short-term rental.
Not very familiar with this market but your ARV and Comps for something like this should be north of $600k.
More info and details would help a lot. Have your agent show you the comps, get bids from contractors, negotiate so that the numbers will work for you after all cost and repairs.
We got appointment from the county for Thursday. My architect/contractor wouldn't give us a quote yet unless we meet the county and review the violations. I am expecting quotes to be around 150k-250k just to legalize the extension, fix violations and unit layout issues.
Here is property link: https://www.redfin.com/CA/Los-...
Even though listing says 1,135 sq foot, it's not legally build. I think the original plan is 650sq foot.
Hey @Preeti Tibrewala!
I would check the comparable sales in the area just to make sure that you aren't getting yourself into trouble on this one if you look to flip it. Otherwise, what are your guys goals for this property? Are you looking to gain appreciation, cash flow, etc? Once you figure out what you guys want to get out of this investment then you will easily be able to make a decision on your next move.
Otherwise, I'm not too sure how your area would perform for an STR since I'm not involved in the market there but I would run analytics on the potential to rent it out short-term/long-term just to make sure this is a viable option for you guys.
If you guys need any help figuring out if renting it out is a viable option don't hesitate to reach out!
All the best,
Josh
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Real Estate Agent Pennsylvania (#RS364365 )
- 484-986-5012
- [email protected]
Quote from @Jay S.:
From the pictures, it doesn't seem like any major work needs to be done. I'm not sure what you meant by fixing it. You guys can just rent it as it is.
The violations part though can be tricky though. Also have you checked with Los Gatos officials about AirBNB rules?
Just checked Los Gatos site and looks like I can't do STR in a property unless it is my primary residence. So Airbnb is not an option for this property as we don't intend to live here.
Quote from @Preeti Tibrewala:
Quote from @Jay S.:
From the pictures, it doesn't seem like any major work needs to be done. I'm not sure what you meant by fixing it. You guys can just rent it as it is.
The violations part though can be tricky though. Also have you checked with Los Gatos officials about AirBNB rules?
Just checked Los Gatos site and looks like I can't do STR in a property unless it is my primary residence. So Airbnb is not an option for this property as we don't intend to live here.
Are you in the city limits?
EDIT: Looks to me that you are not, so you should be able to run an STR as long as there are no County wide restrictions.
Quote from @Jon Martin:
Quote from @Preeti Tibrewala:
Quote from @Jay S.:
From the pictures, it doesn't seem like any major work needs to be done. I'm not sure what you meant by fixing it. You guys can just rent it as it is.
The violations part though can be tricky though. Also have you checked with Los Gatos officials about AirBNB rules?
Just checked Los Gatos site and looks like I can't do STR in a property unless it is my primary residence. So Airbnb is not an option for this property as we don't intend to live here.
Are you in the city limits?
EDIT: Looks to me that you are not, so you should be able to run an STR as long as there are no County wide restrictions.
@Jon Martin I couldn't find relevant rule on the Los Gatos website stating that we can do short term rental if the property isn't in the city limit. Can you please send me the link that spells out this?
@Preeti Tibrewala I don't have a link, however I am going off of experience with government jobs that I've had in the past. Where this house is appears to be in the area of Los Gatos, but not within the actual city. City laws only apply to what goes on within their jurisdiction, ie the city limits. Outside of city limits it defaults to County ordinances, which STRs have generally been safe from until recently, where some counties in California are starting to issue county wide ordinances. Which is why your next call or google search should be to Santa Clara County.
Also, I agree with the comments above that this place does not need much interior work. You already have an open concept and a decent layout. Maybe some cosmetic updates here and there, but nothing that should be a huge expense.
Hi All! We finally didn't buy the property. We spoke to the county and it was next to impossible to get permits for the house. Also, they mentioned if we end up buying the property they will enforce us to make the additions legal otherwise we will have to pay daily penalty. Because of the wildfires in california, city is discouraging folks to buy properties in mountains where firetrucks are unable to reach.
Quote from @Preeti Tibrewala:
Hi,
Offer accepted for run down house 1bed/1bath in Los Gatos Mountains @450k.
Lot is 0.26acres, most of the lot has steep downhill slope. Lots of trees and house has septic tank.
Do you think it is a good deal? This is our first flipper home so would love to get pointers and thoughts.
We are planning to fix it and put it on long term rent or make it short term rental like airbnb.
If it was your home what would you do?
Thanks for your help and insights!
Preeti,
Just saw this post, glad you did not buy. I specialize with investment deals here in the Bay Area, over 90% of my business are investment transactions - fix & flips, rentals & commercial. Just some notes for you to keep in mind moving forward if you want to fix and flip, especially here in the Bay Area :
1) Los Gatos Mountains or any rural areas - are not ideal for flipping. You are going to have a very small pool of buyers. For flipping, focus on neighborhoods with good schools and close or easy commutes to major companies here in the Bay Area. Stay away from East SJ & SouthEast SF.
2) Without any detail, I can already tell you this LG deal was not going to worth the time. The ARV on that home wouldn't have been more than $600k.
3) A deal like LG, would be ok if you wish to hold the house for at least 10 years. Definitely not to flip.
4) Looks like you discovered the extra liability that comes with owning property in rural areas such as the Santa Cruz Mountains. Just avoid that type of landscape all together.
As a new flipper - focus on homes with flat lots, on concrete slabs that were built no earlier than 1960. You will have less surprises to deal with in terms of structure. Find the cosmetic fixers, where the bones are good. Develop relations with contractors and hard money lenders - figure out the processes through these easier types of deals.
I know it's exciting to find something under $500k in the Bay Area - but there are obvious reasons why that house is under $500k. Secluded, small, steep slope (most likely unbuildable land) & environmental liability.
There's a lot of fixer opportunities now than I have seen in a while. It's a good time while majority are sitting on the sidelines. I work with multiple investors and they have stacked their purchases beyond their normal monthly quotas because deals are easier to secure right now.
If you need assistance, reach out, since just beginning 2021 I've closed over $30,000,000 worth of investment deals to put in perspective.