All Forum Posts by: Arlen Chou

@Tim G. the address really puts things more into perspective.  This type of property is way outside of my wheelhouse.  I am normally a buy/hold/refi type of guy.  However, in this case I can understand you considering getting out of that property.  To give any decent advice I would need to better understand the economics of that area.  But based on my ancient memory of the greater SD area, I cannot imagine that you are pulling any tech job related tenants or even military out of Miramar.  Is your tenant base mostly retail employed folks spilling over from Poway?  How did the area do after the last crash and how long did it take to recover?

With my personal strategy, I would seriously consider doing some deep dive homework into areas in the path of growth, or areas that are very stable, and move into a different tenant type. Staying in state or going out of state is really more of a personal preference.

Good luck to you on this and let us know what you decide to do!

-Arlen

@Tim G. Where is your property?  I use to live near UTC on Eastgate Mall.  $360k for a 4plex in San Diego could mean lots of different things based on the location.  Is your "appraised" number from an actual appraiser or just from an agent?  What is the make up of the units?  Something seems wrong if your CF is only $100/month/door on a property that has doubled in appraised value.  It feels like your rents are low... are you at market rates?  I only ask because based upon my own limited experiences, when my appraised value doubled, my rents had also doubled and cash flow was great.

-Arlen

@Nancy Wang depending on the size of the space, I would go with off shelf cabinets a nice counter top and put some shelves in.  You will have a nice "dry" bar or a bookshelf with storage.

Let us know what you decide!

-Arlen

@Enrique Saucedo, I did a substantial amount of remodeling on all of the units.

The first 7 units, in Mountain View had essentially the same level of work: New flooring, new oak kitchen cabinets, new granite counter tops, new appliances, new toilets, new tile, grounding of electrical outlets, sheet rock, paint, new fixtures. I did most of the work on my own, with demo help from my (at the time) 10 year old son and 12 year old daughter.  Never seen my kids happier when I handed them baseball bats and told them to go to town on the old cabinets!  Most of the work was done after I finished my work at my W2 job and on weekends.  I had no background in any of this work, youtube was my best friend, but I did pull permits and learned the skills as I went a long.  

The first unit took 3 months of part time work.  However, the final unit took 3 weeks of part time work.  It really showed me the power of planning and the benefits of having the right tools.  I think that if I had put my W2 on hold I could have pushed out the units in 7 of long hours.  It also showed me how much contractors pad their schedules and their budgets!

The units in MV are 1B/1B units and I used everything off of the shelf from various local suppliers.  Average price per unit was substantially less then $5k.  This includes all materials, dump fees, and permits.  It does not include any labor as I did the work in my spare time and continued my W2.  There is a fairly large debate about paying yourself for work that you do in the final computation.  @J. Martin and I have had several discussions about this topic.  My personal view is as follows: 

1. I am not a professional, so I don't deserve to be paid
2. I am learning new skills that will/have allowed me to better negotiate with professionals
3. It was a great teaching opportunity with my kids.  I was able to teach them everything from using a compound miter saw, to proper safety gear, to applying hands on knowledge when negotiating with subs.  I still spent quality time with my kids, albeit in a different way.  But I think it was a better use of time then playing video games, watching a movie or shopping with the family.  
4. Working with my hands, which is very different then my W2 work, has a certain "honest work" quality that I enjoy.
5. If I paid somebody else to do the work, REAL cash would be flowing out of my pockets not just fictional numbers on a spread sheet.

I subcontracted more on the Oakland projects.  This has more to do with the fact that the properties are physically farther from my base of operations then anything else.  However, my renovation budget for these units have been less $8k.  Along with the standard work I do on projects, these units included replacing all galvanized water lines to copper, upgrading the electrical infrastructure and installing instant water heaters.

I hope that this helps!

-Arlen

@Chris May I have been asking for and receiving fairly large discounts on the properties I have purchased in Oakland.  The property in North Oakland was purchased with $100k discount, seller did the sewer lateral and some additional demo/cleaning of the property.  I also got seller financing.  The East Oakland property also came with a nice discount and the seller did the sewer lateral.  The key is to have a solid plan to get to break even as quickly as possible by raising rents and creative financing at the time of purchase

@DG A. I go through different strategies based upon the tenants.  I have done an eviction, I am going through a pretty deep legal challenge in another instance, and tenants have just left on their own.  I have not done "cash for keys" as this feels like extortion to me.  However, I might try it to see how that avenue works.

@Sam Shueh thanks for your feed back. I am with @J. Martin in that I don't see so much of a delta between Oakland and the South Bay. 

I have 8 doors in Mountain View that cost me $210k each back in 2013 (2 four plexes). Full renovation of each unit and raising rents to market got me to $2100 per month. I own 11 doors in Oakland: 5 in North Oakland and 6 in East Oakland. I just bought the East Oakland property so re-positioning has not started. However, purchase price per door was around $125k and rents "as is" is around $1100. The North Oakland properties were purchase at $120k each in 2015. The units that have been re-positioned are at $1350 per month.  Value in both sets of doors in city have risen approximately 60% as of today.

Based upon my small sample size, rents and appreciation have actually increased at faster rate in my Oakland properties.

I agree that the work to get the properties up to market rates is not as easy in Oakland, but it is possible with some effort.  In MV, I basically just needed to renovate and stick an ad on Craigslist. 

However, the benefit of markets like Oakland is that the financial barrier to entry is substantially lower.  I would say that somebody who has less financial resources, but more intestinal fortitude could make a good amount of money in markets like Oakland or Richmond. 

Based upon my limited exposure to both markets I personally think they are just different, and are suited for different types of strategies. Both markets have opportunities if you look hard enough and apply the right plan.

Just my 2 cents.

J, as for Richmond, I have always thought it is a good market.  But it is just physically to far away from my base of operations for my current business style.  Maybe once I change my business plan that market will be some place that I look more seriously at!

-Arlen

@J. Martin you are wise beyond your years!

@Brett Hearn I am not sure how the MLO helps the seller with the offloading equity.  If the guy does not need the cash, but just wants the transaction on the books maybe you should approach him to give you seller financing.  You could record the transaction, and he could make some extra income on the interest until you refi the property out.  Just seems like a cleaner option to me.

Good luck to you,

Arlen

@Sam Shueh just out of curiosity why would you avoid Richmond and Downtown Oakland?

@Ramsey Howard I totally understand where you are coming from.  Let me tell you a short story about 2 bulls on a hill... There are 2 bulls, one young one and one old one. They look down the hill and see a large group of cows and the young one says to the old bull "let's run down there and dance with a couple of cows". The old bull turns to the young bull and says "why don't we walk down there and dance with them all". I take the old bull approach and believe that in a buy and hold strategy there is no need to rush into anything.

Good luck to you,

Arlen