Oceanside, CA · Member since 2016 · 13 posts · 2 votes
Hello BPers!
I need some advice. I'm about to relocate to Orange County, CA and start my real estate investing career. My Father-In-Law is a General Contractor for fairly high end renovation and private development. He's built up his business over the last 30+ years but is still on the low volume, high quality end of the spectrum.
I am hoping you can all help me think creatively how to best leverage his knowledge, skills, and expertise. (I'll deal with getting him onboard at all). At the very least, I'll be learning everything I can from him.
If you were in my shoes, what approach would you take to building your real estate empire?
there is lack of housing affordable housing . Use his skill set to find value add properties in areas that are in good school districts. Have you thought about manafactured/ modular?
there is lack of housing affordable housing . Use his skill set to find value add properties in areas that are in good school districts. Have you thought about manafactured/ modular?
It sounds like you're going to be able to leverage his team for higher end renovations, so I'd play to that strength. So find units that need renovations and are priced under market value due to needing extensive rehab and have him renovate to a very high standard. If you're able to do this in areas that are currently gentrifying with his high end touches you might be able able to pull in renters that can afford to pay a lot more per month for nice units. Around here 200k a year is a low income renter, might even be able to get Section 8 ;) I think all your units should have nice stainless steal appliances, rock countertops, real hardwood floors, and a pride in ownership with nice crisp painting. The kind of place that someone walks into and even though it costs 400 more a month than a place down the block they think, I could live here. Since commercial real estate is based on the income it brings in, those nice rentals are going to really bump the value of your place up, then you can refi and do it all again. Now, if you're in the higher end market and you want to look into converting apartments or hotels into condos you could really do well with those nice finishes. I think anything you can sell under 400k that's nice (no mater the size) will sell like hotcakes. If you're able to get into a larger complex you won't have as much competition and you might be able to show case your father's former projects to investors who will see the demand for what he's doing on higher end rentals. I happen to be a fan of the BRRR method and it sounds like you could do that on the higher end. My two cents.
@Jo-Ann Lapin, I haven't thought about manufactured/modular. Don't really know anything about how they work. Could you point me in a good direction there so I can get my feet wet? I agree with adding to affordable housing stock for personal and strategic reasons. I'd love to hear your two cents on how you think that might work?
@Lee Ripma, If you were to name a few places that are up and coming, what would be at the top of your list?
Also, what do both of you think about lease options? Might be a good way to allow lower income buyers into the market and demand slightly higher rent? Thoughts?
For up and coming areas I know the LA and San Diego areas but I don't know OC. I like Long Beach especially in Signal Hill (technically it's own City surrounded by Long Beach). I have RealtyTrak and I've seen some larger commercial properties I thought might have residential conversion opportunities in that area, but that was more of a passing fantasy, something like that is too large of a project for me right now (in terms of both time and capital). I'm no pro on how one does that. There are definitely small multi's that need work in the Signal Hill area, I'd go for those to try your high end finishes appeal. But my thing is small multi's so I'm biased. If I were buying in LA I would buy in Signal Hill or right by the two metro stations. Lookup Long Beach memorial Center and Willow Station. There is another station at Wardlow. I think these areas good to target.
I've heard San Pedro by the water but I don't know it well enough to agree or disagree.
Folks like to say that Oceanside is really turning around and is one of the last affordable places in CA. I don't love it and I don't think that you could do high end stuff there.
I really like the Barrio Logan area and neighborhoods south of SD. I was looking at plot where I could put in two modular homes there and I think you could do well there. The whole area is turning but you can still get fixers in the low 400s even high 300s.
There are still vacant parcels in Mt Washington area, so you could go modular on there. Search for land on the MLS and you'll see what I mean. For raw land development you just need to budget for a whole lot of soft costs before you get going, I actually help with the biological/environmental phases of raw land development, so I can you that it's tough to develop raw land. But the reward is there certainly there.
I think a great area of growth in LA are the hills of east LA by Mt Washington, Highland Park, and Eagle Rock. There is still potential for high end flips in these areas.
Modular townhouses recently put in Atwater. Living homes makes great stuff but it's not cheap. Still, they are making a good margin on these!
Oh and lease options. It's not that common in CA but I don't think there is anything wrong with it. My guess is that it's not common because CA is such a boom and bust market that you don't want to hold a property for a long time. I'm not really sure exactly what the reason is, perhaps others know. If I found a lease option in SoCal I might go for it depending on the terms. I'm renting here and hopefully going to lock up some multi-families in Kansas City, MO. So I have bailed on the SoCal market entirely for myself but I still keep an eye on all the stuff to look for the right opportunity at home.
Hi @Mickey Powell. What type of "Real Estate Empire" are you interested in building? Are you interested in low end rentals, high end rentals, flipping, commercial rehab and development? There are so many options available in which you could use your Father-In-Laws expertise to build your empire.
@Kiersten Vance Thank you for calling me out on that! I was kind of hoping someone would. I have some longer term goals that aren't $$$ specific but require I figure this all out to accomplish them.
Long term, I don't want to work a 9-5 job and neither does my wife. My parents will most likely need help with retirement and I want to be able to help them do so. My wife and I want to have a family in SoCal. Given all that, I would say we need quite a bit of income (to be defined) from real estate, which leads me to think high end residential/commercial rentals (though I am new, so can absolutely be wrong).
Since his focus has always been on quality, low-end doesn't seem to make sense. Am I off-base here?
@Lee Ripma Maybe someone with more experience will (hopefully) correct me, but it feels like you might be able to get slightly higher cashflow with lease options while mitigating market decline? (understanding that cashflow is extremely hard to come by in general)
@Mickey Powell I think lease options are usually done for lower end folks who don't have any money for down payments but I'm just not really sure about it. It's the business model of many, you get to keep the asset and get higher "rent" without the hassle of fixing every little thing. So it totally might work for you. I guess you'll just have to see what your niche ends up being!
Mickey Powell Based from experience, it is not good to mix family with business. You can hire him but if I were you, I would not; I would never put a family member on a production based transaction. You will learn more if you form your own and hire him to be a consultant in case of "oops" happened. Money is a great faction creator, and if oops happen, and you lack knowledge in understanding the construction lingo/standards, then you and your father-in-law is talking different wavelengths, and that eventually turns into a misunderstanding. Also, if you don't play his level (high end residential), then it might be too expensive for you to hire his guys/sub. High end residential means it will take 2-3 times the time a flip, and time means money, they also have different types of materials, a 2x4 from a decent/specialty lumber yard will cost 15-20% more than home depot but they are more quality. Before you transact with him, imagine all the things that could go wrong, and assume it does, THEN decide if it's worth the risk.
@Mickey Powell - It seems like your father in law has a lot of experience working with luxury homeowners.
1. Do you want your relationship to be intertwined, such that problems with your father in law might affect your relationship with your wife? How do your personalities get along?
2. Have you considered offering yourself as part of his crew to learn high quality craftsmanship?
After you've experienced the day-to-day operations, you could offer yourself on a commission/salary basis to help grow his business by being a salesman for his company. (High-End Remodels). You could lead crews and help his company be able to handle multiple properties simultaneously. When you learn to do this, you'll know how to supervise / GC your own crew.
Save up your earnings, buy primary residences, improve them, and sell them every 2 years with the free up-to 500k IRS capital gains tax waiver. Buy, fix up and hold rental properties where you can generate positive cash flow and 6-10%+ ROI.
3. Have you considered getting your real estate license and using cross-using your connections to benefit each other? Bring his company high-end renovation work and use his client list to help bring you luxury listings?
Most Flippers I know are not doing slow, highest quality remodels. They are doing everything in <30 days. They are buying the most expensive-looking, inexpensive materials they can find. Craftsmen could be upset by the flip it fast mentality. Craftsmen are more likely to want to over improve a property.
@Manolo D. You're absolutely right. I've actually been pondering this for 2 years. I wanted to make 100% sure that I understood who he is, who I am, and how that might go together. I appreciate you pointing this out as I'm sure many people don't and it ends horribly.
@Natalie Schanne Similar to Manolo's question/point, I've been considering this for a long while (and will continue to).
I am going to offer up some free labor to learn under him for as much as he'll let me. If he is open to it, I might make the offer you suggested and try to grow his business with him via sales. In addition, his brother is a realtor so there's another easy connection. In the long run, I'll absolutely get my license for all the intrinsic and tangible benefits that come with it. In the long run, I'll want to be able to monitor a crew even if my F-I-L isn't the GC or isn't around at the time.
I love the idea of the IRS $500K waiver. I'll definitely be doing that for a primary residence. Do you feel that high-end "craftsmen" types can't be profitable? Or is it just a mentality?