All Forum Posts by: Arlen Chou

It is not what you say that maters. It's is what the other person hears you say that counts.

@Arnie Guida what ever you do, don't tie it officially to work that he has done, especially in writing.  You don't want to create a potential that he is "working for you".  If you exchange financial compensation for work done, it can be seen as payment for services. If you do this on a regular basis or even multiple times, there could be an argument made that he is in fact an employee and entitled to workers compensation.  From that point it is not a far reach to be potentially liable for any injuries he might get during the course of "working for you".

I would highly suggest that you get him a nice birthday or holiday gift in the near future and just thank him for being a "good tenant".

Good luck on what every you decide!

@Amit M.  once I took over the property and started doing inspections and such, it became obvious to the existing tenants that I was going to do repairs and raise rents. I gave many hints that rents would raise within 2 months of initial acquisition.  

1 tenant proactively left on his own and I started my renovations with that unit.  Once I started that unit, I went to the tenants in the next planned renovation unit and explained to them that I was planning to do long delinquent repairs in their unit once I was done with the first unit.  I gave them the option to either move into the unit I was currently working on, once it was completed at the new rate, or they could move out of their current unit during the repairs and re-apply for tenancy.   I used this process on subsequent units.  Even though actual work on the units took less than 2 months, I gave each tenant 60 days notice so they could prepare and also look around for other apartments.  During the down time, I focused on my day job and also acquiring materials for the next job.

I set up my new rental rates below the existing market rents, with plans to raise them after the new 1 year lease period.  The tenants had plenty of time to look around and discover for themselves how far below market rates they had been.  This made justifying the changes/upgrades much easier and it also made my new rents more palatable for them.

I am done with 6 out of the 8 units at this point. 1 tenant has accepted my new rental rates without upgrades, so I won't be touching that unit for a year.  The final unit is in fair shape so changes/upgrades should not take long, unless I uncover something in the walls.

I have already refinanced both properties, so much of my cash is back out.  Hence my original post looking for information about the different Cities.  I hope to have my area research done over the next few months and get into buying mode by December or January.  

Thanks again,

Arlen

Hello Guys thanks for the great input.

@David C.I appreciate the positive comments.  I still have many things to learn and I know that this is a great place to expand my knowledge base.  I like small MF properties right now exactly for you the reasons you pointed out; economies of scale.  Also all of my tenant issues are focused in a single physical location.  If I get a call for a problem from one tenant, I can also easily see what is happening with my other units.  I also like the fact that when I am doing renovations, I am learning about the building as a whole. 

@J. Martin thank you for details regarding your "backyard".  This is exactly what I want to better understand.  I know that I need to spend some time there and walk/drive the streets of the areas the areas I am considering.  However, commitments at home have me tied down right now and I really cannot explore all of the areas that interest me at this point.  But your information definitely makes me more interested in Oakland and I think I need to make the time to drive across the bay.

@Manch Hon  thank you for giving me some real life appreciation numbers.  I agree with you that this rise cannot continue forever, but it sure feels like it has been going on for a long time in the BA.  Hopefully we have some more time to pull in appreciation.

@Amit M. I totally agree with you that this is more of an intellectual question than a practical question.  My view is that each of these markets have a potentially strategy to be used.  Mountain View has been great for buy and hold and cash flow but it is way too expensive for me now.

The properties I purchased last year were held by an older brother/sister team from over seas, Philippines to be exact.  They filled their units with Filipino nationals and treated them more like family than customers.  Needless to say the tenants were long term, one family has been there for 20 years.  Their children are grown adults now and still live in the same 1 bed 1 bath unit with the parents.  All 4 units of each 4 plex are 1 bed 1 bath with the same layout, in single story buildings.  The previous owner deferred maintenance for what looks like decades.  The roof in 1 building had a hole the size of a watermelon. Needless to say, this was a case of the owners cash-cowing the property to the point where they just wanted to get their decades of equity and move back to their home country before the buildings collapsed.

Rents at the time of purchase ranged from $850 to $950 per month.  Here again was a classic case of the owner not wanting to raise the rents because they were afraid they would have to do repairs, and the tenants not complaining about the property because they knew the rents were very low.  

Each building was purchased for $840k.  I did a full cash purchase with the plan to refi my cash out after 1 year and completion of renovations.  Because all of my cash was in the buildings, I had very little working capital for the renovations.  Therefore, 100% of my rent on a monthly basis became my working capital for the renovation work. 

Due to the tight nature of my budget, my only option was to do the work myself, while I was also working a day job.  This included: full demo and rebuild of kitchens, demo/rebuild of bathrooms except tubs, replacing sheet rock on ceilings from water damage, new flooring or refinishing flooring dependent upon the condition of existing floors, light fixtures, plumbing, correctly installed GFI outlets into bathrooms and kitchens, painted the interior of all units and replaced all interior doors.  The only things I had subcontractors handle were the new roofs, termite fumigation, rodent abatement and lead testing. First unit took nearly 2 months to complete, but the last unit took 3 weeks.  For those who are wondering, I did get the appropriate permits from the city for my work.

I have not done any landscaping at this point, nor have I painted the exterior of the building. My rents now average $1575 and the plan is to get them all to $1700 within the next 2 quarters. I have not had an appraisal done on them at this point. However, I have not seen any small MF's in Mountain View south of $1M. My total rehab for both buildings total is well south of $100k, this includes new appliance for each unit. I believe that at a conservative ARV of $1m per building today, minus the rehab costs, my sweat equity is over $200k total.

To answer your final question, I am actually trying to get out of my comfort zone. I feel that it is important to explore other markets and diversify my holdings in-case my local economy goes bad.  I have been in the Mountain View/Palo Alto/Los Altos area for a long time, but finding a deal here is impossible now.  So the intent of my post is get a further feel for the different micro RE economies so that I can start to focus my time on a new area to discover.

Sorry for the really long post. I appreciate all of the comments.

Thanks again!

Hello Everybody,

I have replied to a few question, but this is my first question to BP.  My back ground is in house hacking and most recently into buy/holding a few small MF on the SF peninsula, specifically Mountain View.  I am now ready to purchase my next property and I am looking for some comparisons between Oakland, San Jose and SF.  All three markets have rent control and they have "feeder" economies that bring renters into these areas. Specifically I am looking for some first hand insight regarding "real appreciation" vs. what they say in the news and also what current rents are for 2/1 and 3/1 units.  Also any comments about the planning/permitting departments in these cities would be appreciated.  

Thanks much!

hello @Jeffrey Bailey , there have been some good advice given.  However, I want to take it one step further and be a little more blunt about the decision you need to make.  If I understand correctly you have not purchased the property yet.  Therefore, you first analysis should be to base your purchase decision on existing rents and not on "potential" rents.  As @Ryan Dossey suggested earlier, you should use the existing cash flow to negotiate with the seller.  The seller is going to try to get you to focus on the "potential" of the property, but you job as the buyer is focus on what you have in front of you. As @Joel Owens pointed out, this is not about what could be if "XYZ happens".  Keep in mind that the current owner did no raise the rent either, so it should indicate that the seller is either lazy or is also concerned about the tenants ability to pay and does not want to deal with it.  Therefore, I think your decision should be based upon the current numbers, and if they make sense to make the offer or walk away.  

If there is nothing else in your buying area, then the decision is less cut and dry.  I am in the SF Bay Area and clean/easy deals are scarce.  My last properties had 8 units that were all long term and way under market.  In 1 unit I had a family of 4 living in a 1 bedroom!  The kids were born and grew up there.  Therefore, I had 4 adults living in 500 sqft.  The sales price reflected the "potential" rent, and I had to decide if I wanted to walk away or deal with the under market rents.  In my case I purchased the properties because I knew I could not get a cheaper property with greater "potential".  I bit the bullet, rehabbed, raised rents and I have not regretted it.

Hope this helps!  Good luck and let us know what you decide.

Hey @Huy N. , is that a patch of dirt area under the stairs?  I have never seen anything like that before.  What are planning on doing with that? 

Huy Nguyen I think your renovation budget is low. Is this a town house? What is going on with the ceiling in the garage? Is that hole in the ceiling from water damage and if so has that been handled? With your ARV and budget where they are I don't think that you can do any major changes to the floor plan. Also if this is a town house there might be a HOA that gets in your way of any major changes. You might be better off doing a quick clean/polish and turn the property. Good luck with this one and keep us posted!

Its a ton of work to move a building.  I did some volunteer work many decades ago to move a historic building and it is really not as easy as it may seem.  You will not only have the moving costs, but the reno work after moving, plus making the foundation on the new site.  This is truly not work for the faint of heart.  Also, I don't know about the financing of a project like this. The building we moved was "historic" and the city covered the costs. 

Hello J,

This is not an easy task. It can be done.  BUT there is a TON of logistics that is required in doing this.  Other than the obvious things about unhooking the building and jacking the building up onto a transport, somebody basically need to calculate the dimensions of the streets and turns all the way to the new location.  One wrong measurement you could be parking in the middle of an intersection for a really long time with costs mounting by the minute.  I am not even sure if Oakland will allow you to shut down roads to move this things.  Unless there is some historical value or the building is extremely good condition AND the new property is nearby and easily accessible I would say the "play" on this is to push away from the table.

On a completely separate note, when I put in the @ mark to tag you, I don't get the normal name list popping up.  Not sure why but I thought I would throw that out as an FYI.

Good luck on your decision!