All Forum Posts by: Bob Ritner

Yes, Nathan, I agree with you that a large percentage will be also be rentals in single family neighborhoods, but I am hoping to jump on that band wagon if if prices come down a bit from their current levels! It has yet to be seen if this will happen on a large enough scale to be noticed or have an impact positively or negatively.

As an architect and REI investor in California for almost 30 years this is a subject that is near and dear to my heart. My view is that California is FINALLY in deregulation mode, albeit selective deregulation with all of these newer housing laws and I think this is a very good thig. Many folks in this country and on this site, including me, are "free market, less regulation" types. However, when it comes to land use many of these same folks follow a contradictory "more government regulation is better" NIMBYism philosophy. Most of the cities and towns throughout the US and Europe that people really enjoy living in, and visiting were substantially developed before there was even a concept of zoning regulations. The development of cities was organic and new projects filled needs as the needs grew and changed. If a corner grocery store was needed, some enterprising individual built one and both the neighborhood and the business were rewarded. If someone built something that was not needed it was a financial failure and abandoned or repurposed. The market determined all of this, not the Zoning Code. When people think that they can successfully "Plan" a city you need look no further than the planned cities of Phoenix, Post WWII Los Angeles, Dallas/Ft Worth and many others as an example of what this over-regulation accomplishes. Who has ever visited the endless suburbs of LA or Phoenix and thought "wow, this is my forever home!". It is inconvenient, resource and land inefficient, and you need to get in a car to do almost anything except go to the bathroom. Riding a bike can be suicide. I am not advocating no zoning; for instance, we would not want a battery factory or porn shop next to a preschool, but we are far over regulated when it comes to land use. Real world examples of my observations of these inefficiencies and the problems with over zoning follow:

1. LA county has many, many areas that were developed post WWII with small 1100 sf 3 bedroom houses on huge (for LA) pieces of land... think 10k to 12k square foot lots in neighborhoods where the population has aged and the schools are CLOSING. Roads are wide, and sewer, water and power are in place. Yet zoning regulations were preventing anything but building a BIGGER single family house! New laws finally allow lot sub-dividing, ADUs, JADUs etc. on these properties and maybe the existing infrastructure will be more efficiently utilized and more supply will reduce housing cost.

2. As an Architect, I have seen firsthand zoning and environmental laws used by project opponents to discriminate economically, religiously and racially or to try to squash business competition or eliminate labor competition more times than I can count.

3. I have been involved in multiple projects where it really made sense to add housing as a component of a large commercial project but it was not allowed by the city. Case in point; we designed two projects in downtown Pasadena 10 years ago; a full block hospitality development and a full block commercial project. It made strong economic sense (because of an unfulfilled need) to incorporate housing into both of these projects but it was denied. Even 10-12 years ago we could see the demise of office space coming (the trend started long before COVID) through reduced demand but the city wanted to protect it's antiquated idea of a "Financial Office District" against the scourge housing.

4. When I sold my business, I moved to the back unit of a duplex in the beach community of San Clemente that I have owned for 20 years. It was single story inefficient, and the land very expensive, but the zoning laws prevented me from doing anything. Along comes the California ADU law and voila, I added a 3rd unit on a new second story with an ocean view, my daughter was able to rent the back unit from us and I have a tenant in the other unit. Yes, we use incrementally more utilities, but the street could handle 10 or 15 more of these without any quality of life degradation.

5. Yes, this next level of deregulation will require infrastructure to be upgraded and more efficient public transportation and some people will not be happy but it is ultimately necessary to let the market forces play out a bit to solve the self-made supply and demand problem that we have. The state is encouraging the highest density development along existing and anticipated public transport corridors so under utilized single story strip malls can be replaced with multi-story mixed use projects. This is a bold de-regulation effort by the state that will better utilize our limited land, water and power resources, allow many people to live closer to their jobs if they choose to do so. Without a doubt, it will make certain areas more densely populated but  if people really want "rural", then they are free to move from LA to Ojai and if they want endless seas of single family tract houses on 7,000 square foot lots they are free to move to Phoenix.

6. I have a couple of friends whose parents or in-laws were aging and would possibly have had to go to some sort of low level assisted living facility because living in the same house was not ideal. The ADU laws allowed them to build a back yard apartment that gave everyone a little space for the sake of spousal relations. It was a very affordable option that gave a better quality of life to the family, in no way degraded the neighborhood. It is ridiculous that city zoning did not permit these prior to the state stepping in and de-regulating. All of the ADU projects I have seen have been generally well done and do not degrade neighborhoods and I am surprised that more are not being constructed.

These are but a few firsthand experiences over the course of my career that helped form my view on this subject. I wish that these new laws were even less limiting and that the residential construction on commercial lots could be market driven instead of regulated, zoned, low income housing but at least it is a step in the market driven direction, as I believe that the market is generally the best long term planner. 

Both the stat of CA and the city of Santa Ana have rent control. You did not state the city in OC, but if it is in Santa Ana, they have a fairly extreme rent control that passed this year so i would not buy multi-family there unless your are happy with the return without any meaningful rent increases. California's is not that bad and has a base rate, inflation rate and cap. This year ca would allow you a max 10% increase.

Even in down in the flat land of Denver, the bottom of the new footing for the garage will, at a minimum, come within 12 to 18 vertical inches of the existing sewer pipe. The soil below the footing will need to be tamped and packed or over excavated and re-compacted to likely a 90% dry density so you are not being paranoid. The footing work will very likely destroy the pipe. Yes, you likely have an implied easement, but probably the best outcome with the path of least resistance and fewest dollars spent is for the other property owner's contractor to dig a new trench for your new pipe outside of the footprint of the new garage since they already will have the equipment on site. You pay to install the new ABS pipe and they pay to do the earthwork. If they will not play ball, then you have a right to stay the start of their construction with the county until the "easement issue" is resolved. Not sure about Colorado, but any jurisdiction I have worked in typically requires that easements be shown on order for plans and permits to be approved. If one is in dispute, then that is your leverage to get them to be a team player. If not, then their construction comes to a standstill. 

 Sorry to say, but you must not have not lived through 2009......all of the "idiots" had FOMO in 2005-7, over leveraged themselves and lost everything. The smart (or lucky) money stashed cash during the last few years of the bubble and bought all they could in 2009-12. We were viewed as idiots at that time for jumping in the water when the world all seemed to be crashing down.  As Buffet says, "Be fearful when others are greedy and greedy when others are fearful.

There is no negotiating with the bank. It either is or is not a legal duplex and this is determined by what occupancy the city last approved through the permitting process and that is what the appraiser and lender will go by. The city planning department and/or building department will have these records and can share them with you. If it is an illegal duplex and has code violations because it was not built to code, then conventional lenders may not finance it.

Funny you should mention that. I just had this situation, as I was sitting on 20k thinking what to do. Given where we may be in this market cycle, and given that where I invest in real estate (SoCal), I can't do anything with $20k. So...... I bought two $10k I-Bonds bearing 9.6%. One in my wife's name and 1 in mine since they have a $10k limit per person per year.

The notice is from the State Franchise Tax Board for income tax. Both in-state and out of state investors are required to file income tax for rental income generated in California. Go the the State Franchise Board website and call the number on the official California site if you want to talk to them. They probably calculated the amount due from 3 years of your rental income claimed on your federal returns. Income tax rate varies between 1% and 12.3% depending on your income. Before you pay anything, I would check with your accountant because I do not know if, for out of state residents, they look at total income or only rental income derived in the state of California to calculate the %. In any case the bill looks too large, even if you netted 9k each of the three years. Your accountant should figure out what assumptions the State may have made and they will need to generate the state returns for 3 years in order to calculate if the state is correct or not.

"Good" is a relative term that really depends on your location and personal goals. In my case and in my location (So Cal) condos worked really, really well. Here is the good and the bad:

Good:

1. 5 condos and a duplex allowed me to comfortably retire early (with no other source of income) once I had everything paid off. I appreciate that my maintenance is limited to interior repairs, which affords me more time to do things such as travel, without having to pay for a property manager.

2. The association does all of the interior common plumbing, electrical, termite repairs as well as exterior roofing, paint, site and landscape maintenance for the HOA fee I paid so I was able to better focus on my day job and make money while I was working.

3. I spread the risk to several condos instead of 1 or 2 houses so a vacancy had less impact on my bottom line.

4. Renovating when a tenant left meant only doing interior repairs / refresh; cutting time and costs.

5. In my market condos appreciated 3x in a time period when Single Family only doubled, so I think some of the other commenters are using a broad brush based only on their experience. The corollary to the up side applies in a downturn, though.

6. Condo associations do basic rule enforcement so I only need to get involved if the tenant does not heed the HOA warning, which is rare.

7. Condo tenants in my market generally to expect to live under a set of rules when they move into that type of environment but they also appreciate the condo amenities (pool, tennis, etc.), vs Single family renters who tend to want a more rule free lifestyle for better or worse. I also have a good pool of prospective tenants in a niche area. 

8. I fill a niche market. My condos are in an area with a very high percentage of 1st generation Mexican, Central and South American immigrants who are hard working, appreciate the opportunities afforded them in this country, appreciate the safe environment that the condos afford, are respectful of the property and pay on time. They also appreciate having ready access in this community to grocery and access to other amenities that they are familiar with from their country of origin.

9. Condos are smaller than SFRs and so there are fewer opportunities to have surprise room sub-letters, long term guests, etc. and are a lot less money to renovate when I have turnover.

10. In California and, I presume, many of the other states that have or are considering some form of rent control, condos and singe family homes are either not rent regulated or less rent regulated than multi-family.

Bad:

1. As others have said, the condo HOA fee eats into profit

2. Sometimes you need to do battle with the HOA to get them to pay for things that are their responsibility.

3. Success of condos as a rental are highly location/market dependent. If you invest in an area with high maintenance, low quality tenants then a condo would be a nightmare.

4. It is important that the HOA finances are in order and that there is not a high level of deferred maintenance that could result in unexpected special assessments or significant HOA dues increases.

In my case, I only bought cash flowing properties that also had some good appreciation potential and were in a niche market that I knew well. It took patience to find the right properties, but as the saying goes money is made when you buy a property. Yes, time will solve a lot of mistakes in real estate, but it is better to make money out of the gate then to buy wrong, have your money tied up, and wait 5 or 10 years for inflation to solve the problem.

Sean: I had a similar issue with a duplex I have in San Clemente California and tried two different solutions; one for the front 1-bedroom unit and one for the back 2 bedroom unit. In the front unit I installed through-wall air conditioners; one for the living room and one for the bedroom. Total cost was about $600 each for the air conditioners and another $500 each for the through-wall kit, bringing 220 v power to the unit and installing through the wall. Total cost $2,200. For the  2 bedroom unit I installed central air conditioning / heat and that total cost was about $5k. If I had to do it over again, I would have probably just installed through-wall air conditioners in the 2bedroom as well. It would have been about $1,800 less. The through wall install is much more secure and looks more permanent than a window install. The mini-split suggested by another member is an interesting idea, but I think the cost would probably be somewhere between the two methods I used.  In Indiana, the cost of any of these would probably be slightly less.