All Forum Posts by: Derek Daun

I think I can make it.

I assume it's 6:30pm, not 6:30am.

I live in Sacramento with both personal and investment properties. I don't have earthquake insurance on any of them, and neither does anyone I know. IMO the potential payout is too low verses the cost and actual risk. 

Flood insurance depends on the location. Do a Google search for Sacramento Flood Map. There are some locations considered risky, but not as risky to require the insurance. During the housing boom there were a bunch of properties built in high risk areas, but for dubious reasons, were categorized as lower risk not requiring insurance. I believe the Feds have addressed that now though.

$1100 a year for a duplex seems about right.

Back when I was a renter, someone stole all the trees of the house I rented.

There had been three Japanese Maples. One day when we got home there was just a trail of dirt from the hole where each tree had been. The trails each led to the same location on the curb. At first we assumed it was the landscaping company the landlord used, but after a couple of days we emailed and asked. The landlord new nothing about it.

I had a positive experience with William at Caldwell Construction this past winter. I think his pricing was reasonable, and he showed up right on time for every appointment. I'll at least get bids from him on my next projects.

I came across a two day class on managing home construction/remodel projects. I always have difficulties balancing between doing things myself, or contracting them out.

The website looks like it's right out of 1998, but a friend took the class a couple years back and thought it was useful.

http://www.ownerbuildercenter.com/classes.asp

I'm probably going to take the upcoming class in April; I will report back.

My understanding is that depending on the institution, the underwriters require a certain amount of accessible cash to approve the deal. This amount needs to cover the down payment, bank cost of the mortgage, prepayments (insurance, taxes, ect) and about 2 months of mortgage payments.

My mortgage broker is always nice to enough to calculate the number the underwriters will look for, so I don't have to gather all my account statements. For example, I'm doing a refinance right now, and he told me straight up I need to show two months of statements for an account(s) valued greater than $5000. I like using my 401k, because there won't be any unexpected withdrawals or deposits I'll need to explain.

Don't be afraid to ask how much money they need to see, it will make the process easier for everyone. Be straight forward if you don't have the amount, as there are other options available.

I'm in the same situation, with pretty similar numbers. I decided to do a cash out refinance, with hopes to purchase another property with the cash. The bigger mortgage on the original property pushes it into barely cash positive territory, and I double guess this decision daily, but here is my thought process:

• In general, greater leverage equals more money in the long run
• the extra 20k I hope to get in appreciation will be worth holding on to it for another year or so.
• The second property will bring in extra cash flow to make up for the loss on property one, and appreciation.

When I rented, I had more acceptance for small kitchens than when I bought properties to live in. I think it really depends on what the competition has. In older neighborhoods filled with small 2/1s, that's just what you get. If most of the neighborhoods have more modern kitchen's though, it might cause a drop in rent value.

I completed a similar project 6 months back, but in our case it was converting the basement/ground_level floor of a highwater bungalow into an inlaws quarters. So far, it has been a very positive experience.

Tips:

• Don't underestimate the cost of running electrical, gas, and plumbing which will probably be necessary for a new kitchen and bathroom. These trades cost a lot.
• Don't under estimate the cost of the kitchen and a bathroom overall.
• Make sure the cost of the two above things justify the extra income.
• Think about resale value. What might a future home buyer want? Can the apartment design also function as a game room? hobbie kitchen? man cave? Or will it be more of a resale liability?
• What are permits zoning your area?
• Do you want to deal with a tenant in your own 'home' per say. Will you be renting to strangers?
• For concrete floors, consider LVP.
• For heat/AC, if needed, look into ductless heat pumps
• For appliances, consider upgrading the main house, and moving the old appliances into the add on.

In our situation, we spent about 10k, doing a lot of the work ourselves, but rent is 1000/month with all utilities covered. The previous owner had already done a half hearted build out based on previous improvements. Lucky for us, he was too cheap to do it correctly, else the purchase price would have been much higher. It did have a functional bathroom (minus some new paint), and new ductless heat pumps. We had to install the floors (LVP), a full kitchen, (although it was plumbed already), closets, new lighting, and moving some walls and doors for a better layout.

We already had renters lined up before we purchased the place, as we had multiple friends who might be interested. We walked them through the house before signing the papers, to get a good sanity check that our vision matched our potential customer base. We put in a higher quality kitchen than a typical basement apartment would have, which costs more, but makes a big impact on appearance. We toured multiple places where the owners had attempted such conversions, and the kitchen was always where the corners were cut. Our final design made it such that the property can easily function as one large house with an entertaining or hobby kitchen downstairs, or as two separate units. We put a lot of thought into how we would want to use the space if it wasn't rented out. The biggest unexpected sticker shock was having to pay a plumber ~800 just to run the gas line 10 feet.

I'm looking for my next property in Sacramento. I'll be using conventional financing. Thanks!