San Diego, CA Duplex deal looking for partners

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San Diego, CA Duplex deal looking for partners

Kevin Yoo
San Diego, CA · Member since 2008 · 301 posts · 108 votes

2 Units on 4044 Cherokee Avenue in City Heights
This is a 2 unit property in City Heights that was approved for $350K. The first unit is 3 bed/1bath rented out at $1250 and the second unit is 2 bed/1 bath at $1100. The larger unit is a Craftsman home in the front that is in bad shape and needs a lot of rehab. The property is zoned for 3 units and it also sits on 2 parcels and could have up to 8 units. We need to close by July 11, 2013. We will need to raise about $360K to close the deal. At the time of the original brief listing on the MLS, there were 41 other offers besides ours with the highest being $450K. We are looking at 3 possible exit strategies in decreasing order of preferences.

1. Wholesale
a. As soon as we close, we will put it back on the market to find a buyer.
b. We should receive multiple offers quickly; anything above $420K will make us a profit.
c. This process should take 60 days if not sooner.
d. The fact the property is zoned for 3 units and has 2 parcels that can actually have 8 units makes this property attractive.
e. This is our most preferred and first option.

2. Fix and Flip
a. If we cannot get a buyer for the property at an acceptable price of over $420K within a month, we will refinance, rehab and sell the property.
b. BNF Enterprises who is a hard money lender in San Diego will fund 75% of the appraised value. Refinancing should take approximately 2 weeks.
c. Half of funds from the refinancing will be returned to the investors except for funds needed for the rehab.
d. This property will need about $100K and 4 months to fix and sell for retail price.
e. The sales price should be about $540K for owner occupant who rents out the other unit.
f. This is our plan B.

3. Buy and Hold as Rental
a. If the market turns and we cannot sell this property, we will raise the rent, rent out to current tenants or new tenants, and hold while we continuously try to sell it.
b. One of the principals of this company will refinance with conventional investor loan.
c. This is the least desirable and worst case scenario third option.
d. This is also the least likely scenario with the current market conditions.

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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    13y

    Kevin Yoo There are several investors on BP in the San Diego area. Maybe you can do a keyword alert on San Diego (though you are short on time), or do a search on San Diego; and contact some of the members that come up.

    I'd really like to see Marketplace revamped to be more like classifieds, where you can easily click on a tab for Real Estate for Sale, Loans wanted, Lenders, etc.

    0Reply
  • Kevin Yoo
    OP
    San Diego, CA · Member since 2008 · 301 posts · 108 votes
    13y

    Karen Margrave
    Thanks for the suggestion. When I did look up San Diego investors, I got a long list of Hello's from newbies and wholesalers. It appears to me that BP has become or really is a site for people that are new to real estate investing and many of them are wholesaler wannabees.

    I don't want to discourage anyone to be on BP because I too was once a newbie and BP serves a very important role in getting people started. But it is hard to navigate through BP to really get to some of the more advanced discussions. I am just complaining.

    I do agree with you that we can make the marketplace more like a marketplace. Wish Joshua and his group would consider improving it.

    0Reply
  • Rick Wheeler
    Orange, CA · Member since 2013 · 10 posts · 2 votes
    13y

    Hey Kevin,

    Wish I saw this post earlier, this might be something I'm interested in. Let me know how things are going, and if you are still looking for partnering/financing.

    0Reply
  • Kevin Yoo
    OP
    San Diego, CA · Member since 2008 · 301 posts · 108 votes
    13y

    I am still looking for a partner. Call me to discuss. 858-449-9847.

    0Reply
  • Kevin Yoo
    OP
    San Diego, CA · Member since 2008 · 301 posts · 108 votes
    13y

    Update on this project.

    We closed on 4044-4046 Cherokee Ave., San Diego, CA on 7/15/2013 for $350K by raising all the money from our investors.

    We put the property back on the market within a week. One week after that we had an offer for $450K. This buyer, however, quickly withdrew. Within a couple of weeks, we had another offer for $470K. We did a walk through couple of days ago, and the buyer agreed to open escrow and deposited $14K EM deposit that will go hard after 17 days. We are set to close escrow on 10/9/2013.

    We have received $1500 from one tenant and $1250 from another tenant. Our contractor is going out to the first unit to do some minor repairs tomorrow, but we have not put any money into the property so far.

    When we close, we will share the profits 50:50 with our investors. We had originally projected sales price of $420K and returns of 4% one time return and 23% annualized return. At $470K, we project the one time return to be 15% and annualized return to be 62%.

    0Reply
  • Mike Kimani
    Real Estate Agent · Los Angeles, CA · Member since 2013 · 42 posts · 0 votes
    13y

    Kevin,

    Congratulations on the acquisition, keep me updated with your future deals and we can possibly partner. Good luck on the close and will look for an update on Cherokee.

    0Reply
  • Byron K.
    Real Estate Investor · Phoenix, AZ · Member since 2011 · 36 posts · 2 votes
    13y

    Glad you found someone to partner up.

    I know you stated you are doing minor repairs and no money has been put into property yet but what type of rehab $$$ are you allocating to this or will the $470K price reflect no substantial improvements? Seems like a pretty high % to ARV unless I'm understanding incorrectly. Either way, still a good profit number at that price so great job!

    0Reply
  • Kevin Yoo
    OP
    San Diego, CA · Member since 2008 · 301 posts · 108 votes
    13y

    @Mike Kimani

    @Mike Kimani

    Byron,

    We are going to do some minor repairs. We believe it may require about $10K of minor repairs. Otherwise, we have no rehab allocated to it and the $470K reflects no substantial improvements. The profit numbers look very good because the market is that way. San Diego is absolutely crazy now. So, I don't deserve a "great job!" It is too easy to make money in this market and makes everyone look like a genius. All we did was buy and put it back on the market. Sometimes you do have to accept what the market is giving us. But the great job or I would consider myself very good at this would be if I developed this duplex into a 6 unit multiplex in this market and made good money. We have studied this property from thousand different angles and it just does not pencil out in this market.

    0Reply
  • Stephen Masek
    Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
    13y

    Watch our for lead-based paint and asbestos. San Diego is quite strict on the lead, and they have their own regulations on top of the state and federal regulations. Type "Charles Yi asbestos" into a search engine for a good example of what can happen.

    0Reply
  • Kevin Yoo
    OP
    San Diego, CA · Member since 2008 · 301 posts · 108 votes
    13y

    More update.

    Project:

    4044-4046 Cherokee Ave., San Diego, CA 92104

    Investment Date

    7/15/2013

    Expected End Date:

    10/9/2013

    Investment Terms:

    50% of profits from sale or operation of project

    Orig Projected Return:

    3.8%, 22.8% annualized

    Curr Projected Return:

    		Approx 7.2%, 31% annualized

    There has been a tremendous amount of activity on the Cherokee property in the past three weeks. Every time I have thought about writing an update, something changes! I will attempt to summarize the happenings below; although there is much detail I will leave out for the sake of brevity.

    As you know, we have been in escrow with a party offering $470K, which was far above our projected net price. However, as I also warned the buyers completed an inspection two weeks ago and as a result ended up requesting $55K in repairs. Furthermore, they added a condition of sale requiring us to remove the tenant of the main house prior to close, a process that could have taken between 60 and 120 days. They also requested additional time to remove their loan contingency. Needless to say, that combination did not work for us, as it pushed the payoff date far enough in the future where it resulted in a mediocre return for both our investors and for EAC. Thus, we rejected their request for repairs, thereby exiting escrow.

    Fortunately, prior to exiting escrow we received a much, much cleaner offer from a very experienced investor group. They offered $410K with a 21-day close, all cash, and only a 5-day inspection period. We countered at $420K and finally settled at $415K. Furthermore, they have seen the full inspection report and have walked the property already, so their only reason for the short inspection period is to confirm their plans for the property with City. Our agent has worked several times with this group and feels very confident they will follow through. We signed the acceptance today and escrow will open tomorrow.

    Further still, while in final negotiations with the above offer, we received yet another offer for $480K from a couple who would intend to occupy the front house. This offer included many contingencies that mirrored the one for $470K that we ultimately rejected. Although we certainly considered it, when put alongside the one for $415K, we decided that the quick, more secure return was the stronger of the two. Still, we have a solid back-up offer in case we need it.

    So as for how the numbers work out with the $415K quick sale, they will not be as spectacular as we had hoped, but they are still better than we had projected. If we close at Day 21 (Oct 9th), we will return about a 7.2% ROI, which equates to 31% annualized. While not a home run, as an investor myself on this project, I will come away happy.

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