All Forum Posts by: Dan H.

My opinion is anyone that has to ask where/how to find off-market (underground) properties is better served by purchasing off the MLS.

It is a rare off-market property that does not involve work and/or have risk items. Typically they are not eligible for traditional financing which implies other funding sources (HML, private Monet, self funded, etc).

Someone that has to ask the question will typically be best served by having an agent represent them and hold their hand.   Granted it is unlikely to result in a home run, but it also is less likely to fail big and negatively affect prospects for years. 

A base hit with virtually no risk is a fine place to start.  After a few base hits, you are better prepare to go for home runs.  

Good luck

Quote from @Jonathan Greene:

Quote from @Mitchell Gunlock:

Quote from @Jonathan Greene:

It probably sounds easier than it will be in practice. It's technically not an ADU if it's the only property on land as it's an accessory dwelling unit to a main unit. You are talking more about a cottage cluster. You would want to check local zoning to make sure you could build more than one as a lot goes into that beyond just being close to plumbing, electric, and gas.

When you mention "a lot goes into that beyond just being close to plumbing, electric, and gas," what are the top things people tend to overlook when preparing to build ADUs?

Access roads and if multiple are needed for each unit.

City regulations and zoning.

Impervious cover requirements or percentage across the whole lot.

Drainage per units built.

 In some jurisdictions, off street parking can be a requirement.   I knew a developer before the exception for being near mass transit planned to build 4 units but was only able to build 3 units.   It heavily effected his under writing results.   If he was building it today, the parking would likely not be an issue.   In my market they keep reducing parking requirements while removing public parking.   This has mostly been for bike lanes but the most recent is a statewide prohibition on parking near cross walks.   The city is eliminating a significant amount of parking near the cross walks.   In many areas there is already not enough parking.   It is not uncommon to have to park blocks away from your residence.  At isle vista, my son skate boarded to his parked car because he sometimes was blocks from his residence.  

The ADU hurdles are jurisdiction specific.

Good luck

Quote from @Larry Nielsen:

Hello Fellow Investors,

I am looking to acquire more long-term rental properties. I would like to ask the following:

1. Which markets (Cities, States, Counties) are producing the highest cash flow while keeping purchase prices under 100K? Considering a DSCR loan with around 20% down. (I know there are many variables but generally).

2. What are the typical monthly net cash flows you are seeing in these scenarios? Is $300 per month net post tax cash flow considered decent? (Again, I know it's preference and variables but generally and in your personal opinion with your experience).T

Thank you in advance for your input here.

 Under $100k places you below the median price point in every large city that I am aware of.   This is a risk item.   In general you want to be above the mid price point to avoid the lower tier tenants that require more effort, have higher delinquency rates, higher eviction rates, and often higher tenant flip costs.  

Especially out of state I suggest you come in no lower than the mid price point.   You do not want to open the cheap $hit.

Good luck

I think what concerns you is more common than you seem to believe.   I do not believe I have mineral rights on any of the properties I own, but I share in mineral rights on property that I do not own and have active extraction and receive 2 monthly checks (different operators).   The extraction is on large land plots, not sure of exact size but likely at least 100 times bigger than your 3 acres.  In addition, the extracts minimize impact to the land owners meaning they are not near the home on the farm and can barely be seen from the home on the farm.

I think it is prudent you do your due diligence, but I suspect you will find that there is little risk from not owning the mineral rights and that the mineral rights come with surface rights.

Good luck

Have you considered an accountability group?  I suggest female focused like InvestHer or Woman In Real Estate (WIRE) if they would accept you (they have expectations of contribution that they mostly base on current level of success).  Disclosure, my wife is in InvestHer but has no ownership, profit share, etc.  

Note these are not cheap, but they bring a lot of resources with many sources for mentorship.  

I know 2 people who belong to accountability groups that cost at least $50k/year and have net worth requirement of $20m (I suspect it is the same accountability group but one paid $5k more than the other).  Imagine the power of those contacts.   Have virtually any issue and there is a good chance someone will know someone that can assist.  I am not referring to this for your consideration but as an extreme case of what one can get from such a group.  InvestHer costs significantly less than $50k/year.  

Good luck

Not sure where you got belief that there were no STRs before 1998.  We have operated STRs since 1999 and they had been around long before then (STEs have existed for many decades).   Airbnb increased the popularity of STRs, but did not introduce STRs (VRBO started in 1995).   It is to your advantage that STRs have existed since before 1998 and were not explicitly cited in the CC&Rs.  

I disagree with most of what @Michael Baum posted.  

When I internet search "residential definition" the first definition is "designed for people to live in". This matches my perceived definition of residential. STRs meet that definition of residential. It would be difficult for anyone to claim an STR is not residential with that definition.

The difference between STR and MTR or LTR is the length of stay. I see nothing that makes one more a business than the other if no breakfast or guest services are provided. To put it differently if MTR (30+ days) is allowed, then is 29 days more a business?

I would consult a lawyer and listen to his advice but where I would try to direct this is the lawyer write letter to HOA that they do not agree with the HOA interpretation that the current CC&R does not allow STRs. I would then proceed with the STR and let the HOA initiate a law suit.

Note I am not bothered by conflict; maybe even thrive with conflict.  If it will stress you out, maybe another path is prudent.  I recently settled a multi year law suit that mostly went my way (not as much as I had hoped as the other party was scum).   We recently initiated another law suit.  Maybe 3 months between settling last lawsuit and initiating new lawsuit.  

Good luck

My market is southern CA.

I typically purchase off market at a discount.   If the purchase is off market, the jurisdiction places their own appraisal to place value.  This is bogus if buyer and seller are independent parties (if the parties are associated then I understand setting true value) as there is usually a reason for the discount purchase (risk items like unpermitted work, crazy low rents in rent controlled area, hoarder, heavy need of rehab, etc).  Most off market purchases cannot easily be comped with mls properties that comparatively have no risk and are in much better condition).

so …

Pay for a fixed fee mls listing with the property already under contract.   It is less likely to be flagged for a jurisdiction appraisal if it was on mls.   Jurisdiction may still flag it, but it is easy for a jurisdiction to flag transfers that were not on the mls.

Good luck

Quote from @Nicholas L.:

@Jared Khan

not satire and genuinely trying to help.  if you run the numbers on a sub 150K property and use realistic expenses as @Kevin Sobilo pointed out you will see what we mean.  

and buying a property is actually very expensive.  it typically takes a few years just to recover the closing costs. 

those are the types of things that get sugarcoated / ignored and they shouldn't be.

3 separate recent sources show that it is cheaper to rent than buy at high LTV in virtually every market.  Note being a LL has costs that OO does not have.  In particular, OO does not have vacancy or PM and typically has cheaper maintenance/cap ex than the landlord would experience.

https://www.realtor.com/news/trends/its-now-officially-cheap...

if you use realistic expenses, purchase at retail (off MLS) without a value add, you will have negative cash flow on virtually any purchase.   High rent growth areas are likely to achieve positive cash flow quicker than low rent growth areas.  

5 years for cash flow seems reasonable in many markets.  

I suggest you understand the 50% rule.   If your ponder writing reflect significantly better cash flow than the 50% rule, be sure you can explain the discrepancy.

good luck

Build to rent (BTR) is being performed by various developers in various markets.   It can work in some markets.   

ADUs implies there is a residential building to be an accessory to, but inn my market the accessories can be overwhelming to the primary structure.   In my market you can get an additional unit for each affordable rent unit.  

The following land belonged to my initial protege.  I told him I was glad I did not live on that street.  I do not blame the developers.   I blame the politicians that create rules that allow this.   https://www.cbs8.com/article/news/local/working-for-you/new-...

Good luck

Quote from @Henry Rodriguez:

Happy Sunday! I’m seeking advice on where to invest my money next.

I currently own two properties in California, and at 21 years old, my goal is to continue purchasing properties and eventually pay them off to achieve financial freedom.

I’m considering two options:

1. Converting my garage into a studio: The conversion would cost approximately $20,000, and I could potentially earn $1,400 per month in rent.

2. Investing in a fix & flip or BRRRR strategy: I have about $75,000 in my bank account that I could use to acquire and renovate another property, which could help me build more capital.

Which option would you recommend for maximizing my investment potential? Thank you!

I suspect a legal, permitted garage conversion ADU will cost ~6 times your estimate if hands off and probably at least 4 times your estimate if you do the finishes yourself.   Even if you did entire build yourself, I think you are looking at 2.5 times your estimate and a lot of work and time.

I suggest you go to some meet ups with an emphasis on understanding the value added by ADUs.  In general ADUs added in single family zoned areas are typically receiving valuations of less than 50% of the hands off cost of an ADU addition.  This is only one of the challenges of adding ADUs.  

 Here is a list of what adding ADUs in my CA market is typically a poor RE investment:
1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search the BP for ADU appraisals to encounter numerous examples. This creates a negative initial position. This negative position can consume years of cash flow to recover. Make sure you know the value the ADU will add to the property before building the ADU.
2) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged by the ADU (HELOC, cash out refi, etc). Leverage magnifies return.
3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
4) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
7) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
8) Related to number 1, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?
9) adding multiple ADUs or adding an ADU to a quad looses F/F conventional financing. This reduces exit options and affects the value.
10) Small number of small units is the most expensive residential development there is. This implies residential units can be built at lower costs and provide better return.
11) adding an ADU to SFH can make the SFH fall under rent control. In CA currently only MF properties are rent controlled. If the house is older than 15 years old and an ADU is added, the original house can become rent controlled. Rent control laws are market specific. Make sure you know the impact that adding an ADU will have on any rent control.
12) investors seldom include the land value in the overall ADU costs. The reality is the land has value.

 
good luck