All Forum Posts by: Justin R.

Just keep in mind that in some markets (like the one for the OP) monthly loan amortization could easily be $500/m on a triplex ... if the negative cashflow is $300/m, he's not actually negative.  That doesn't necessarily make it a *good* investment relative to others, but it's still a profitable one independent of market-based apprecation.

"Fixer" is generally understood to mean that the house is functionally outdated and/or has been abused or neglected.  Most of the flippable housing stock around SD is 50's to 70's vintage stuff ... unless someone has been caring for it along the way, it'll be both functionally obsolete AND neglected.  In either of those cases, $20k is likely 1/3 of what it will cost to get it done. If you're doing work yourself, of course, your actual cash would be lower ... but the value of the rehab is the same.

For the first couple projects you do, it's typical to look at a house and think about the finishes that need attention.  But, it's very very likely you'll have to deal with one or multiple of:

• Drainage issues that have caused undiscovered damage
• Age and material of sewer lines and water supply
• Settlement or expansive soils causing problems
• Central systems (not having sufficient or central heating / AC

Just some examples.  I'm rooting for you, and I generally applaud optimism ... but your description sounds alarm bells.

Also, remember that seeing something that could be a deal and actually having the opportunity to acquire it are TOTALLY different.  Don't get excited about anything until you actually have the exclusive opportunity to get it.

@Brandon Sturgill @Marc Rice Do you expect (or see) the growth there to happen through densification or through horizontal growth?  A market growing by building more housing on raw land is such a different investment game than a market growing via infill development.  It's like the difference between playing baseball and basketball -- they both use a ball, but understanding or being good at one says nothing about being good at (or enjoying) the other.

Beyond saying "Both", I wonder what you local folks expect to see happen.
   

This question very nicely highlights the difference between those with a job mindset and those with an entrepreneur mindset.  People with a job mindset have "a number" and view their work as a means to an end.  With an entrepreneur mindset, their daily work IS the end goal and so there is no logical time to stop.  Entrepreneurs find something they are passionate about, then find a way to get paid for it so they can keep doing what they want to be doing.  This fusion of what they *want* to do and what they *have* to do is the reason there's no target number... why stop doing what you want to be doing?

The discussion on BP around *growth* and *striving* is because that's what entrepreneurs do.  Entrepreneurs get their jollies by creating and building things, so of course they want to create more.

FOR SURE there's lots of different mindsets here and OF COURSE some people are just attracted to the potential of getting shiny things. But, compared to other groups, I'd say BP has a high percentage of people who have built wealth not for the sake of wealth, but as a result of their interest in the REI game. So, why stop?

To answer your specific question: Yes, I do recommend you sell. No, personally, I don't recommend you purchase OOS. That $200k can drive much higher and more balanced returns (read: free annual cashflow AND earned or unearned appreciation) by being reinvested in something with more units rather than staying stuck in an SFR.

Remember that the concept behind BRRing is to add value to a property, then convert that value to cash that can be used for another property.  Couple ways that happens:

1. Improve the property, immediately refinance.

2. Improve the property, let market and inflation forces work, then refinance.

3. Do nothing, let market and inflation forces work, then refinance.

These are all shades of gray.  The time to refinance could be 6 months or 5 years -- you're still BRRing.  The amount of capital you get back could be 25%, 100%, or 200% of the capital put in -- you're still BRRing.  You may have to choose between getting 40% of your capital back in 6 months or 100% of your capital back in 18 months -- you're still BRRing.  

At the end of the day, you own an asset with certain characteristics (location, quality, level of effort, number of people to interact with, ease of liquidation).  You need to think about what you want that asset portfolio to look like.  People value different assets differently for a reason - don't fall into the trap of thinking you're right and everyone else just doesn't get it.

Point being, your options aren't binary.  Think in shades of gray.  But, almost assuredly, don't settle for keeping SFRs as LTRs here locally if your goal is to grow your portfolio anytime soon.

@Vincent Salazar Some random thoughts I wish I knew before I formed my first partnership:

1. Agree on everything you each feel is important before involving a law professional.  Getting a template form on the web and then discussing it between you two is a great way to know what you need to think about.  Aim for more of a memo format than worrying about legal language.  Talk about it in terms of responsibilities, not actions.

2. Let the law pro use whatever form they want.  Give them your memo, but let them use it as an attachment to the actual agreement.  It's faster, easier, and cheaper.  Whoever is helping with your agreement is better equipped to help you if they start with a template they're familiar with.

3. Review what the law pro came up with.  There are almost always problems with what lawyers or paralegals draft because they are using templates and are used to things being a certain way ... which may not be what you're expecting.

4. Separate money contributions from effort contributions.  This is the single best advice I would give, though you'll probably ignore it.  In the partnership, carve out a certain share of profits to "the money partners" and a certain share to the "the effort partners".  Divide the profits to the money partners based on who contributed how much.  Separately discuss how to divide the profits to the effort partners based on how much time each person contributes and the value of that time.  Keep them separate.  The why on this is a longer discussion.  So important.

4. Don't assume there will be profits.  Make sure it's obvious what happens if there's a loss.  Are the money partners and effort partners both paying that case?  Just the money partners?  

After you've got all that agreed, decide who will be money and effort and in what percentages.  You know your agreement is fair if you don't have an opinion either way -- that means the profits and percentages accurately reflect what you perceive the risk and reward to be.  Aim for this.

Good to hear you're thinking long term.  Your likelihood of success is, I think, higher that way.  GL.

I'd say $100/sf for a gut rehab, including new electrical and plumbing and roofing, some wall moving, maybe 50% new drywall throughout, new mechanicals, and all surfaces was a good estimate in 2018/19 for a 1950/60 era in San Diego IF you're GCing yourself and using licensed guys for the key trades.  If you're hiring a retail GC to do the project for you (and relying on their license), add 20-25% on top of those field labor+material costs.

At the moment, it's so hard to generalize because the data is changing so fast locally.  I recently (July 2021) completed a 1200sf gut rehab for $95k with a legit licensed Contractor who self-performed all trades other than plumbing ... but seeing numbers from paper Contractors (all sub labor) with prices in the $165/sf for 60's ranch.  So, it's all over the place.

Point being (and yes, this is a huge generalization that my GC friends may take issue with) I think of three general types of GCs:

1. Paper GCs.  Their job is managing a business and they want to make a margin off of other people's labor.

2. Field GCs.  Their job is similar to a site superintendent - they oversee work by people they know and jump in when needed to finish things.  They pay themselves in line with well-paid superintendents.

3. Working GCs.  Their job is to actually build things, doing all or most trades themselves.  They would rather work for themselves so they can make their own decisions but otherwise think of their pay in terms of daily / weekly income, just like people in the trades do.

There's pluses and minus working with each of these.  Too long to go into those details.  For purposes of this thread, #3 is going to give you the lowest build cost, but if that actually makes you the most money (when considering timing, in particular) is primarily up to the individual GC and your luck.  In general, #1 types are easy to find.  #2 is more difficult.  #3 only comes through referrals and, in this market, only if they want to work with you.

Fun to read this thread and see how things have turned out in the 12m timeframe.  The predictions can always be true ... it's just the timeframe they happen in that's hard to nail down.

Not sure why no one else has mentioned it, but Wells Fargo also has federal limits that prevent them from increasing their balance sheet (as punishment for the scandals of the past couple years).  They have to pick and choose which products to offer since they're capped -- I find that a more logical explanation for why they're removing certain product lines (so they can focus on others) than assuming they have unique insight to upcoming catastrophe.

For the same reasons that physicians are licensed.  And CPAs.  And lawyers.  And organic food certifiers.  And special inspectors.  And contractors.  It's because these people work in fields selling services that, if done wrong, can cause lasting physical or financial or legal pain for customers.  Society (collectively) wants to raise the service bar in these industries, so we incent people to learn and then continue learning, and to protect their reputation.  Also, because we don't want scammers to take advantage of people in ways that cause big pain.  That's why we have licensure and continuing education systems.  It's a way of establishing legitimacy in a field of practice.

Sure, I have a personal right to have my uncle do my taxes.  Or to go to a shaman for medical help.  But, that shaman doesn't have a right to advertise medical services.

It IS (primarily) about consumer protection.