All Forum Posts by: Arlen Chou

@Daniel RamirezI currently have a full time W2 job, married with 2 kids and do my own rehabs.  It is no way easy to do, but it can be done and it is really rewarding both financially and personally.

My kids are 13 and 11 and I do homework with them and help them prep for tests.  This takes planning, but can be done.  Their homework load is not that bad at this point.  

My W2 work runs a minimum of 40 hours per week, but much of my work can be done via email and smart phone.  

The rehab work is done on nights that kids homework/test schedule will allow.  As a matter of fact I will be heading to one of my properties tonight to put in a few hours of work installing kitchen cabinets. I pull my kids in on some weekends to help me with demo or painting.  I think getting kids out from behind screens and making things is important in this age of Youtube and Netflix.  

I do not watch TV, even during dinner... I have no idea what is going with the Walking Dead or Game of Thrones.  

Rehab time on a calendar timeline takes much longer, so holding costs are higher.  However, trying to find good, consistent and honest contractors that are affordable is not easy in the SF Bay Area economy.  So I forecast a budget using licensed contractors and back out potential extended holding costs of doing the work myself and compare overall potential dollars spent and decide if it makes sense to do the work myself.  I buy my materials during my lunch breaks so I am ready for a night or weekends worth of work.

During my drive to the site and back, I drive for dollars looking at neighborhoods around my property.  I don't have tons of cash to buy multiple buildings at one time, so learning neighborhoods is free and it does not take that much more time then driving directly home.

Many people would say I am crazy for doing work that I could pay somebody $15/hour to do.  However, the reality in my market is that if I get a contractor it is much more than $15/hour.  The guy I could pay this low of a rate is either undocumented or some retired guy who does not move very quickly.  In both of these situations you run the risk of workers comp lawsuit or worse.  I would much rather stay safe and pull the permits myself and do the work.  

Am I missing out on anything in life in exchange for this crazy schedule?  I still took my daughter to her Halloween dance last Friday and took my 11 year old son out for a 18 hole round of golf on Sunday.  I had breakfast and dinner with the family every day and I still had time to level a kitchen floor, install wainscot in the kitchen, install 2 lower cabinets in the kitchen and cut back some bushes.

It can totally be done, but you have to plan and stay focused!

Good luck!

-Arlen

@Luke MccandlessWest Oakland is a great place if you are going to house hack.  I have property North of 580 in the Santa Fe neighborhood.  

You are not under rent control if you are buying a property that is 3 units and under AND living in it.  BUT check the existing leases and make sure that none of the existing tenants are under "protected" status that may change things for you.  

Once you move out of the property, it will fall back under rent control, so time your renovations and rent adjustments accordingly.  Go and apply for a "landlord exemption certificate" at RAP.  They will tell you that you don't need one but insist you want one.  However, the process is free and will give you the piece of mind of being able to physically show potential tenants that the property is not under rent control.

Good luck to you!

-Arlen

@Benjamin Aaker What you, and many people out there, are doing is mixing opportunity costs with real costs.  They are not the same...  The real cost you would have seen would have been $15/hour you paid somebody to paint the walls.  You did save that cost because you did the work yourself.  As @Jeff B. points out, the IRS does not allow you to deduct your time spent on your own property. Therefore, you are essentially not allowed to pay yourself for your own work.  If that is the case, then the number you can plug into your calculator for your labor is a big fat goose egg...and your profit calculation should reflect that.

Therefore, what you are actually trying to add into the equation is an arbitrary number for "opportunity costs".  In many cases, this is a valid point and people who have large potential to make more money doing something else, besides working on their own properties, will hire somebody else to do the grunt work.  However, as your wife points out your opportunity cost lost in doing the work yourself is the time watching TV and not $8000...  Basically your wife is nicely trying to say your time watching TV or doing other stuff is not worth $8000.

I would side with the IRS and the wife on this one.

Good luck!

-Arlen

@Meredyth M. your agent should ask for this and the seller should provide this PRIOR to closing.  It is the best way to protect yourself from any misunderstandings with legacy tenants.

Good luck,

Arlen

@Account Closed I will be flying in from a business trip so I might be a little late, but I will be there. It will be good to see everyone!

Hopefully the OP is still following this thread.  One of the best books to ready about a similar personal journey was written by John Wood, the founder of Room to Read.  Leaving Microsoft to Change the World, is about his personal transformation and finding his purpose in life.  Its an interesting read because it blends tech success, start-up mentality, fund raising, finding good partners and also successfully helping to change the world.

-Arlen

@Account Closed I am with @Abhay K. on this one, get cash out and ride the wave.  

I literally know half a dozen people who thought they could "time the market" and sold their primary homes before/during the past downturn.  They had planned to park their money and rent for a while until the market "hit bottom" and then buy again.  Guess what, ALL of them are still renting... Some ended up investing the proceeds from the sale of their homes because they did not want to leave the money sitting.  Then they started to worry about paying short term cap gain taxes so they became indecisive and then got priced out.  Others, slowly spent their money thinking they had time to make it back and then got priced out.

Basically, once they got out of their property they could not get back into a home!  The market either shot past their entry point or they did not have the access to capital they had planned to have.  Also many people found that they were now competing against cash buyers, so the fat deposits they were planning to use were of no use.

The BA is a different beast all together so plan your strategy accordingly.

-Arlen

@John Anderson one additional point to all of the advice you have received, I would HIGHLY suggest you go talk to the tax assessors office before you do any changing of title. One of the major benefits of CA REI is prop 13. I believe that if you transfer title you might trigger a re-assessment of your property. I realize that you just bought the place this year, so it might not be a big deal, but I thought I would throw it out there for you to consider.

@Ricky Staffordfor the person who is just entering REI, finding deals that fit the 50% or 1% targets, right from the start, is pretty hard to find. EVERYBODY is looking for deals like this and not all sellers are going to be desperate enough to sell at the prices needed to get to these targets. I am not sure where you are looking for your deals, but if you are going through the MLS, then your probability of finding a deal are pretty slim. Most of the guys who reach these targets are doing much more aggressive marketing/search and getting off market deals. With that being said, doing yellow letters or driving for dollars might not be your thing. That is not a problem, but you have to adjust your expectations. Look for deals that you can turn into 1% deals with "value add".  Basically find deals where the rents are low, but market rents are higher.  You do the renovations to get the rents up and you reach your target numbers.  You obviously need to work in your renovation and holding costs into your acquisition calculations.  I am in a high appreciation area, so this strategy works for me.  The renovation/turn over period puts some short term pressure on finances.  However, once I get rents up to market and refi the initial money out, the numbers have blown the doors off the 1% or 50% targets.

Good luck!

Arlen

@Jasmine Bu congratulations on your move to Japan. Where in Kansai did you settle?  I lived in the Kanto region, specifically Jiyugaoka in Tokyo, for a few years as an expat.  

We bought a small condo in Daikanyama a few years ago for personal reasons.  It was an older tired unit that sat on market for awhile.  But it is in a nice building with a great location.  We bought it and fully updated the unit for our own needs.  The renovation/updating of the unit was a lot of fun and the workers attention to details was amazing.  I wish I could find contractors like that here in the SF Bay Area.

Good luck on your REI adventures in Japan!

-Arlen