All Forum Posts by: Judith Woerler

This is a great question Judith and I'm proud that instead of just letting it sit in your brain you came to a forum asking for help. Great job!

If you were one of my clients I would just ask you to write it all out. Start with option 1 and write down everything that would need to get done, the cost and the timeline. Don't skimp on a thing! Talk to contractors, talk to the city, talk with engineers. 

I don't want you to just take our advice because there isn't as much learning in that. When you go through all of the data collection, I do believe in this example the answer will be a lot more obvious to you if the risk is worth it in the end.

Does that all make sense?

I think taking on a major repair for your first investment property is a bad idea.

My recommendation is to start with a something turnkey, see how it goes and then try something a little more challenging.  I personally found with my current life situation (45-50hours/week W2+small kids); anything more than turnkey was too much for me.  And that's something you want to know before you try a major rehab project.  If you do want to go through, I would contact your local building inspector and tell him what you are wanting to do (bring someone else's uncoded work up to code) and see what the process entails.  That'll give you some idea on how easy/hard he is to work with.  So inspectors are thankfully that you are trying to do it right and will be easy to work with (for instance when I was bringing a basement up to code--it had an unpermitted bath and finished room) he didn't make much of a fuss (fix dangerous electrically and let everything that is there be) But I've heard a lot of horror stories, where the inspectors will come in and add tens of thousands of dollars to your project or be totally unresponsive.

You didn't talk much about total financial situation.  Goals, needed income. But real estate is hard to live off of initially in the current environment (generally see high price to rent ratio and higher interest rates).  It varies by cities but finding things with significant cash flow with 20 or 25% down is challenging in the current environment.   I suspect that is especially true in California.  Where I am in Rochester, NY (midwest), I found a good deal if I can get it to cash flow even (mortgage payment including taxes and insurance is 75% of rent).  The point being, is real estate is a long game, you'll invest in properties at 20-25% down and then start reaping the rewards in 5-7 years.

Keep beating the door on banks.  You don't have income, but many banks have investment packages that should work for you and many don't.  Again, find some local investors and talk to them.

Your current plan is to take the 500,000 buy the property for 400,000 plus closing and then spending 90k, which leaves you with no reserves.

Finally, California has very friendly tenant laws, which will vary by town, so you need to talk to some California investors and read up on local laws to figure out where you want to operate.

Good luck and best wishes

Leverage is the name of the game in real estate investment to yield the best returns.  I would take your $500k and buy as many units as possible.  Economies of scale will increase your cash flow and make you richer.  For example, with your $500k and 20% down, you could buy a $2M property.  Purchasing costs will change this number a bit but this is just an example.  You mention possibly not qualifying for a loan.  I would look at 5+ unit properties that would qualify for a commercial loan.  A commercial loan is more about the property than the individual borrower.  Contact as many banks and credit unions as possible and meet with loan officers to learn more about their loan products and how you could qualify for a loan.  Take this info and analyze as many deals as you can until something makes sense. It can take time, but don't give up!  Maybe even consider looking outside the Bay Area where numbers might make more sense.  Perhaps Redding, CA (~3 hours north of Oakland)?  

Keep at it!  Where there's a will, there's a way :)  Best of luck!

@Judith Woerler

Welcome to BP!

You're definitely not alone, and there's no such thing as a stupid question—what you’re doing is exactly how seasoned investors get started leveling up. You’ve got valuable experience, solid capital, and a unique opportunity on your hands. That said, a property with unpermitted units, deferred maintenance, and a possible zoning challenge needs to be approached with caution. If you can get the price down, verify permitting feasibility with the local planning department, and confirm rental comps, this could be a strong value-add play. But unpermitted units and required utility connections can be costly or even deal-breaking—due diligence is key.

Good luck!

Oh my gosh I know that feeling .. you see the potential and its borderline but you can just see how, with a little work, it could really be something good.  Don't do it.  First, a little work is usually not. Second, you don't want to get your personal assets mixed up in a construction project. 

One of the other comments brought up the potential for a commercial loan (I ended up getting a construction loan for one of my projects) and I suggest that you follow this line of investigation.  For a commercial loan, you will (I had to, anyway) provide a 5 year proforma financials for the investment (like funding any business) and your lender (find a lender you can talk to and build a relationship with) will tell you if it's a sound investment based on an appraisal of the value of the asset, the "proposed" asset, and the proposed cash flow over the next 5 years.  Having a second set of eyes on those proformas is always good.

Running the 5 year proforma financials is a great exercise (if you haven't already done so) and at the end of the day, the financials will tell you what to do ... and you have to listen to them, even if you don't like the answer you get after you put in all the escalators and worse case scenarios (I hate it when the numbers don't work out and I like the property). 

Anyway - I am with most of your other commentators here ... this sounds messy and borderline, even if you could get the property at 300K. I'm not a financial advisor, but my gut says seek out a slightly more expensive investment that carries less risk for you.

And best of luck hunting!!  You are on the right track, and you will find the right one, even if it takes time!

Doesn't seem particularly attractive on the surface. If you were stealing it then fine but $4,700 on 400k + 90k immediate CapEx sounds like a lot of work for a tough upside.

Hi and welcome! Too many moving parts for my taste. Significant repairs-sewer reconnect, possibly unpermitted dwelling, add ADU in what I'm assuming is a VHCOLA area? If $500,000 is the extent of your nest egg I personally would aim more modestly to start and find a nice duplex that is in decent shape.