All Forum Posts by: Dan H.

 My last 2 refinanced originally had pathetic appraisals (both from the same appraiser).  I appealed them both and got a $60k increase on one then the appraiser disappeared so there was never any processing on the second appraisal appeal (so it refinanced with the 2nd worse appraisal I have ever seen).  

The one with the $60k increase probably ended up ~$20k low.  The other probably was ~$60k low.  

I do a modified BRRR in that if inherited tenant is desirable I do the rehab upon tenant turn over which implies I owned the RE longer before refi than a traditional BRRR so I ended up getting more than my initial investment out of both those properties. Honestly with the second appraisal if it were not for market appreciation I am not sure I would have gotten anything out of it as the refi was at 70% LTV but initial purchase was at 75% LTV. I would like to think I got a pathetic appraiser but it is not the first time I have had a poor appraiser so there seems to be many out there. I really believe he derived his price by simply applying market appreciation to my purchase price and made the comps work to those numbers (which in this case was really bad because my appraisal at purchase showed I was purchasing $40k below value).

I think the poor appraiser is a real risk with BRRR and it appears especially high risk in San Diego.

So consider this risk in any REI plans.

As for zip codes where cash flow provides best opportunity is working class (blue collar) areas.  I Avoid welfare areas but my tenant's for the most part have occupations like truck driver, handyman, tow truck driver, butcher, etc.  they likely will never be able to purchase their own home in San Diego.  

Good luck

I see properties regularly (at least virtually every month) in San Diego that have positive cash flow with realistic cap expense numbers (I.e high and conservative). I think you need to spend time to know market rents, PITI costs (interest rates have big impact on PITI) local markets where cash flow is doable, etc.

there is also off market properties (I get slightly regular off market opportunities that cash flow including 3 the last full month that I was home (may)).    

Profitable BRRR is definitely doable in San Diego county but I will say local appraisers stink at fully valuing rehabs for the refinance (actually my view is most appraisers are lazy and not very good at setting values compared to active RE investors).

So my view is those who cannot find cash flow properties may need to do more research and that it is not that difficult.  I realize I have been doing this a while and it takes time/effort to figure things out.  

Also initial cash flow in San Diego will not be as high as lower appreciation areas like Ohio, Memphis, KC, etc.

Good luck

swanny and I have communicated via IM.  This I believe

- he believes his RE method is optimal

- he has nothing to sell and is not intentionally deceiving anyone

However we have different investing beliefs (which he also knows)

In the last 5 years the lowest appreciation year for San Diego was 8% and the best was over 20%. The property swanny sold in 2015 if he had 75% LTV (my own goal for my LTV on my properties) he would have had at least 64% return on his initial 2015 equity on his San Diego properties without any effort.

Second after he has made the efficiency improvements and raised the rents to obtain his forced appreciation on his Ohio RE he now has a property in a historically lower appreciation area than San Diego.   To continue to achieve such appreciation he likely needs to keep exchanging properties to properties that have forced appreciation opportunities (efficiencies and/or below market rents).  Versus the San Diego properties have historical long term appreciation that is near the top in the nation whether you use 20 years to more than 50 years.  The rent appreciation typically is related to the RE appreciation.  So the San Diego return did not require finding efficiency improvements or having initial below market rents. 

So the San Diego investment is passive in comparison.  

Note as @David Faulkner points out Swanny obtained much of his investment capital from his San Diego RE appreciation 

My post is not intended to imply that Swanny cannot be successful following his path but to also point out how easy it can be to be successful investing in San Diego.  

Swanny believes his  RE investment choices are optimal while I believe my RE investment choices are correct for my goals.  Maybe we are both correct.  

I agree with @Anthony Ciulla that getting proper permits after completing construction is typically not easy as inspecting things to verify after completion is difficult.  I also agree that you need to ensure a safe living space.  

As for enforcement of codes and permits I find it varies significantly from community to community in San Diego county.  Poway is real strict; did you know there is rules to size of firewood stacks?   City Heights and Escondido are lenient.  I suspect that most duplex to quad in City Heights are not proper and this is common knowledge amount RE investors in city Heights.  Escondido seems to be less risk to proceed without permit than getting one as they enforce rules with a permit but seldom do any construction enforcement.  

Realize that if you go without permit you are taking on some risk.  I know quite a few investors that take this risk.  Also in your case the financial risk is low because the cost to make it an extra bedroom is low.  

So if I were you I would determine the cost to do it to all codes but suspect it will be more than you desire.  Assuming cost is greater than desired I would then determine extent of city enforcement (in poway I would suggest only smallest projects without proper permits).  If in an area like City Heights or escondido due to the fairly low risk (low cost) I would convert to a BR without doing it to permit if cost to doing it via permit was high.  I would make sure it is a safe bedroom though (good egress, good electrical, good structure). 

By the way I have a unit in Escondido that is a 2 BR with a fairly large extra room.  It cannot be easily made into a BR because you go through the room to enter a BR.  The tenant's treat the extra room as a BR and when I last rented it I set the price at the low end of the 3 BR units.  Our typical lease is max occupancy is 2*num BR +1.  So a 2 BR has max occupancy of 5.  For this unit max occupancy is set at 7 (I.e same as if it were a 3br).  My point is depending on the location of the unit the extra room may be used as a BR without you doing anything and may rent for virtually the same as if it were a BR.  This approach may also reduce your level of responsibility because you would not be renting that room as a BR (but you have moral obligation to make sure it is safe to use as a BR (I.e make sure it has good egress, safe electrical, CO detector, etc)).  

Good luck

 My family and I have quite a few duplex to quads that in recent years have been refinanced a lot.  The appraisals I believe always have included a value based on the rents and a value based on comps but the value used for the property is the one from the comps.  I think they do it both ways in hopes that both valuations are consistent.  The rent valuations is not used in setting the property value.  

If anyone has an appraisal for duplex to quad that did use the rent based value I would be interested in hearing about it. 

 I hope it is clear to all that you have no Balt RE which is an indication of what you really think of an outside investor investing in Balt.  

 All my San Diego properties cash flow but my point is that it is my belief that you own no Balt properties.  However, I will present you an opportunity to show your great Balt investment in an area that Balt should compare well.  You post your best cast flow property (we could even use current value versus purchased price) and I will post my best San Diego cash flow property.  I will even provide link showing it rents for the price I claim.  You could use Zillow for current value for my RE but last I checked Zillow was low by quite a bit so we can add to the zillow value and still compare.  

So here is your opportunity to show that you believe what you indicated about Balt being a good place for outsiders to invest enough to have found and purchased a good cash flowing property.  If you are not invested in Balt then it indicates what you really believe of the Balt RE opportunity. 

I suspect, like my other offers for you to post info on your Balt RE, there will not be a post of your Balt REI.

 My fear is the troll might convince some new coastal cal investor that Balt presents the better opportunity.  So this troll could adversely affect someone's finances which happens but in this case I truely believe the OP does not believe what he posts and has no Balt RE.  If he believes it is such a good market then he should be invested there.  

 Not sure what you mean but I suspect this means you have no Balt RE.  

But if I am mistaken I offer to post my family's San Diego property info (purchase amount, down, initial payment, initial rent, refinance cash out, current rents, current value) to compare with your posted Balt RE purchases.  I think it would be enlightening to those seriously considering Balt (I exclude those that live in Balt area as I suggest all investors start self managed local).  

 I would not have worded it as harshly but not everyone can afford to live in Coastal So Cal.  The income to house price is poor.  This is sometimes called the Sunshine tax.  If you are not willing to pay the sunshine tax maybe you would be better off living elsewhere.