All Forum Posts by: Will Barnard

Those posted rehab numbers are certainly not accurate in today's market here in So Cal. A heavy gut job rehab of 1500sf for $50k is just not possible, even if the GC worked for free!

Your 1640sf rehab with your specs - $170k seems like it is somewhere in the ballpark but knowing you need new roof, permits, panel upgrade, etc, you can expect this to be in excess of $200k easy. I also don't see any mention of drywall work, stucco, HVAC system, etc. If you replace the panel and do new windows (nail fin and not retro fits), you will have a lot of drywall work and stucco patch to do.

"Utilities--ADU needs own hot water heater, other than that you can tap into the main house, usually. You can separately meter though it is not required"

Not quite accurate. You are required to have a direct sewer line to ADU, you can NOT tap into main house sewer line. You also need a direct gas line from meter to ADU as well.

As to the main poster's question, the benefits are endless if your plan is to hold for a good amount of years. As someone else mentioned, the appraisal values of ADU's are not typically coming in at full value since we simply do not have enough like-kind comps but that could certainly change down the road. The idea here is to build and rent, not flip. While you can flip the property after adding an ADU (I have done so), it typically will not pencil out as a gain due to appraisal issues.

"Second, you can double dip your commissions while giving the seller a "deal" by waiving your commission because you're going to get a minimum fee from the buyer of 10% or $10K whichever is more. Don't settle for less because your worth it."

Claiming you are giving the seller a "deal" by waiving your commission is ridiculous. In order for a wholesaler to make a profit, they need to negotiate a purchase price well under market value, waive the commission all you claim, but your 70% of market value offer is eating away that "deal" to the seller. More accurately, many wholesalers take advantage of the seller who is unaware of the true market value and wholesalers have zero fiduciary responsibility to the seller, they represent their own interests. As to getting a minimum fee of 10% of the sales price, this too is predatory. Why on earth should anyone pay a wholesaler more than a licensed agent would receive for representing both sides (4-5% here in CA and up to 6% for lower priced areas)?

As to the legalities, I think it is important for the original poster and all readers to understand that "wholesaling" real estate is NOT illegal, but there are a ton of ways and a ton of people who perform the transaction illegally. Saying that most people say wholesaling is illegal when it is not is not an accurate statement as it is taken out of context. I see wholesalers locking properties and sending them off to potential buyers in email blasts, facebook posts, etc and then colleting their wholesale fee. This violates real estate licensing laws in almost all states. Of course there are several ways and means to legally wholesale too!

With all that said, why not just get licensed, locate investor cash buyers, and then locate properties that meet their needs and collect your 4-6% legal commission and then likely another commission from your buyer client upon resale effectively triple ending the deal! I still cant figure out why most do not go down this legal and ethical road.

Calling all attorneys.

My daughter signed on 6-21-21 (as did her two room mates) a lease move in date with agreed lease rate per month and $200 deposit for an apartment in the Los Angeles area (the actual full lease agreement was not yet signed but this agreement was binding). Her move in date is 1 week away now and she already gave the required 30 day notice to her current PM company of her move out. She now has to be out of her current apartment and the new location PM company sent her an email stating an apology but they have to move her move in date back 6 weeks! With all the tenant favored laws in CA, I find it hard to believe a landlord/property management company on behalf of landlord can change a move in date without explanation and without compensation. All of my research trying to find the answer or the specific law that addresses such an issue comes up with early lease terminations and the like. I can not find anything regarding a lease that has not yet started technically but the move in date is changed causing irreparable harm to the lessee.

Any advice out there from an attorney who has dealt with such an issue?

Assuming you pan to hold and not flip, then durability/life span should weigh in heavily. That said, laminate is a much better option than carpet as Mike pointed out, stay away from carpet. For the wet areas like bathrooms and laundry, use tile.

As for counter tops, it depends on your area and the market. Quartz is the most durable for tenants (as is granite) which will give you the longest life span and ease of maintenance.

Since it was built in 1997, the laws were different then, otherwise, your newly built ADU would come with a new address. I suggest going to building and safety with your permits from 1997 and ask about the steps needed to get a separate address for it.

This will/should come down to the numbers and remove any and all emotions from the equation. That said, I am quite positive that it would be difficult to find better numbers investing out of state (as far as total return on investment is concerned) than building an ADU. As others stated, you already own the dirt so your only cost is the construction. CA rents are high and in high demand as their is a huge housing shortage that will not be going away anytime in the foreseeable future.

Aside from the numbers, you then need to consider time (which of course time is also money). How much time it takes you to build a team outside your backyard and the efforts to do so. There is a huge advantage to investing in your backyard - logistics!

As a builder of ADU's in So Cal, I can attest to the numbers and the advantages. As an investor out of state, I can attest to the trials and tribulations of managing those assets and keeping a solid team in place - its not easy.

One of the advantages mentioned by others is the ability to manage yourself. I would like to point out that while one can consider that an advantage as you have that option (and having options is always great), managing rentals is a JOB (not investing and managing yourself requires the time to do so. Any savings you think you get is only your hourly pay for doing said tasks. I have seen investors completely take out management costs in their analysis simply because they stated they were going to self manage. This should never be done. You have to realize that another owner (in the event of your sale) may not want to self manage and management is part of operating expenses. You can't ignore it simply because you self manage, it creates a false NOI (net operating income).

I concur as well, get a new realtor. As explained, these are items that could easily have been identified to you PRIOR to you paying for any inspection or even locking up the deal!

Jennie,

Most states, including IL has real estate licensing laws. Not verbatim, but basically they state that if you negotiate and contract a purchase price for real estate, then market that RE publicly, locate a buyer and bring buyer to the table, and receive a fee for that, you are "brokering without a license". This is precisely how a vast majority of wholesalers do business by getting a contract with an assignment clause in it and then bring the buyer for a wholesale fee. Any such transaction violates the law and that is what Jonathan suggested the poster do. So I reiterate, "not a good business practice" to suggest to others to violate the law. Additionally, even if it was not illegal, these numbers provided by the original poster do not show enough spread to allow for a middle man to make a profit and therefore it would likely lead to the wholesaler having to use some type of contingency clause to back out of the contract when they cant find the buyer at a price that delivers them a fee. This leaves the seller high and dry and having to start over again. That too is not a good business practice as I for one would want to be known as a closer and a person who follows through with my purchase commitments.

"I'd say there is only one way to find out ;-) I would go ahead and lock the property up under contract and blast it out to see what sticks."

I think this is not good advice. Lock it, blast it, and hope is not a good business practice and this advice likely violates RE licensing laws in the state.

To be a successful wholesaler or to successfully wholesale a deal, one must add value and one must perform the transaction legally. Locking it up, blasting it out and assigning the contract for a fee likely violates the law. Advising someone to violate laws is never a good idea.