All Forum Posts by: Kevin Keith Beck

Milad / All,

California has made some lofty energy and environmental goals for itself for the future. These goals, according to the California Public Utilities Commission (CPUC) are as follows:

As spelled out in the California Energy Efficiency Strategic Plan, the state has ambitious goals for the development of zero net energy buildings. These include:

-All new residential construction will be zero net energy (ZNE) by 2020.

-All new commercial construction will be ZNE by 2030

-50% of commercial buildings will be retrofit to ZNE by 2030

-50% of new major renovations of state buildings will be ZNE by 2025.

In this effort, ALL of California's cities and communities have had to adopt, follow, and or create energy goals to align with these targets. Part of that effort was a push from the State to ease up on rules concerning Auxiliary Dwelling Units (ADUs).

As of January 1, 2018:

"New laws effective January 1, 2018

Recent state legislation provides clarification and fee assistance for the creation of ADUs. Governor Brown signed two separate bills on October 8, 2017: SB 229 (Wieckowski) and AB 494 (Bloom).

These bills, effective January 1, 2018, clarify and improve various provisions of the law to promote the development of ADUs, including allowing ADUs to be built concurrently with a single-family home, opening areas where ADUs can be built to include all zoning districts that allow single-family uses, modifying fees from utilities, such as special districts and water corporations, and reducing parking requirements. Please see the HCD Technical Assistance Memorandum: Accessory Dwelling Unit Legislation (SB 229 & AB 494) (PDF), dated May 29, 2018, for further information."

Because of these efforts by the state, legalizing existing ADUs (typically these used to be "shadow income" from non-conforming units), and building brand new ones should be a lot easier. I have heard of many communities that are foregoing permit fees to encourage homeowners to have their "granny units" legalized. Sure, this is to increase tax revenue, but it's also a way for us REIs to increase equity in our properties that may not have been possible before.

Milad, the BIG question I would be asking VERY quickly before devoting a lot of time in figuring out how to get them shipped here is, "how will these units pass California's strict building and energy codes?" Even though there may not be permit fees involved, California will still require these ADUs to comply with our code.

I have, as an Energy Inspector for the State, inspected modular homes in a factory within California that were being built and shipped inside the state. They had to pass a QII (quality insulation installation) test mandated by the state for this particular application. They did NOT pass and ultimately failed three more times. Now, I as the HERS Inspector, was paid by the factory three separate times for driving out there and failing them three times. If they didn’t pass their insulation quality tests, they couldn't finish building the modular home (close-up the walls)! How would these inspections be accomplished in China?  Are you flying the Inspector there? By the way, QII has been a “credit” elected by some California builders but may become MANDATORY in the near future as California strives to reach its energy goals. As an inspector and retired building contractor I can tell you, the building industry is NOT ready for this requirement.

Just so you know, I love your idea and support ADU inclusion as a BP strategy, but I caution you about passing codes and other inspections, especially something built out of the country. I'm sure IKEA will be struggling with this as well within California.

There is a great origami-type modular builder up in the bay area who has mastered production line modular structure building and erection. Their units are built in an old submarine factory and shipped via truck to sites where they are unfolded and erected in a matter of days. Check them out here: https://www.bluhomes.com/. Their units are designed as an option to typical site-built homes, not necessarily ADUs. However, the “methodology” is the same; build off-site under controlled conditions and take advantage of assembly-line building practices. Then ship and erect in minimal time. The cost is about the same ironically, but the environmental impact is huge. Think about all the gas saved from all those trucks that never had to drive to the job site. These modular homes are erected on site by factory installers in a matter of days.

This is something to keep in mind for ALL BPers. A lot, not all, of ADU enthusiasts will be somewhat environmentally friendly-types. They care about how and with what their homes are built. They trust our laws concerning building products and applications. They are less comfortable buying goods from countries who don't have our strict laws about how and with what products are made. This is where I see the Achilles heel of your idea. These "environmental" buyers are savvy and will not favor a product being shipped from elsewhere. They're more apt to buy from local vendors.

Other homeowner and investors, of course, will focus on the income potential and or savings. Money in pocket. They are right too. It is simply easier to build anything under a factory roof. Home construction is the last industry that has failed to accomplish this transition. When a product can be assembled without concern for outside weather conditions, they are typically built faster and more efficiently than conventional site built. Craning in these ADUs is not impossible for most sites as long as the modules are not too heavy.

In any event, I wish you much success. Let me know if I can help.

Sincerely,

Kevin Beck

Enyi,

I'm glad you're still considering a possible partnership with a GC. As I'm sure you've heard on a lot of BP podcasts, the Contractor (if you're rehabbing) will be a key player on your flipping team. Hopefully, you'll become so successful that you'll have to partner with multiple contractors to expand you're reach. The sky is the limit! It comes down to relationships.

For clarity, I’m using the term, “partner” here as a role more so than a financial benefactor. As I’ve shared before, hiring-out or bringing-in a contractor is totally up to one’s comfort level and business acumen. Remember too, it works great both ways. I’ve worked for very large commercial contractors who don’t get their respective “hands dirty” at all. They’re “paper contractors” that hire-out all the work. There were also competition companies who had all the specialty trades “in-house”. This business decision will be up to you and it may change over time, which is fine. Incidentally, I thought I heard Brandon say on a Podcast I was listening to recently that he had “brought in a contractor full time”. I think this goes to show how beneficial this role is to your success as a flipper. When in doubt, see what others are doing.

Also, please remember that as with any profession, in contracting there are ‘the good’, ‘the bad’, and ‘the ugly’. The good news is, contractors (if they're not flying below the radar) are easy to research before you start "dating". Whether you know them ahead of time or not, any potential partner should be thoroughly researched before "sealing the deal". Check references, code violations, awards, memberships, presence in the community, cleanliness of trucks and staff, BBB status, Yelp reviews, etc. Contractors as a trade are under a lot of scrutiny and for good reason. The work they do goes beyond the aesthetic and includes health and safety as well. Most states require contractors to be liable for their work many years (10+) after-the-fact. Therefore, some of them choose to “fly under the radar” and not include this extra liability or the expense of required inspections, etc. I always recommend licensed professionals with appropriate permits when necessary, even when flipping. I’ve seen flipper’s get burned after the fact for not hiring licensed professionals and must spend thousands of dollars later because they chose to be “the contractor” and the work failed, wasn’t inspected, or failed to meet code. Having a good contractor (on the team or not) is essential to avoid this.

I’m not sure about your State, but you should be clear about general contracting rules and regulations, length of liability, license and permit requirements, etc. before you start flipping OR make sure these responsibilities are included in the list of responsibilities of your contractor.

If you're going to partner with a contractor financially (equity share) and you both create an LLC, I'm not an insurance expert nor lawyer, but I would be clear (signed/notarized documents) about who is doing what within the Partnership Agreement. You will probably BOTH now be liable as LLC "partners" should anything go awry in your flips. Again, please consult a lawyer before proceeding and do your due diligence when selecting your team. If you chose to keep the contracting "at arm's length" and avoid any future liabilities, then verify/hire your contractors and don't bring them in-house and be clear about their roles and responsibilities beyond the Scope of Work.

I think it’s also important to know for all of us here at BP that the word “contractor” carries a lot of weight and means very different things to different people, none of them incorrect. As an investor, it becomes important to be clear what you mean and what others mean when they use the word, “contractor”. Do you mean a talented carpenter who can do anything, or do you mean a legitimate, State-sanctioned, insured licensed General Contractor? Perhaps you just need someone who may/may not have specific skills but rather acts like more of a Project Manager? There are also specialty tradespeople who have skills in specific tasks like plumbers and electricians. These men/women are also referred to as “contractors” occasionally and rightfully so. They are experienced and skilled in their craft/business. General Contractors typically (not always) have started as carpenters and have gained experiences and skills (on the job or in trade schools) on how to erect homes and buildings. They then interact with the Specialty Tradespeople or what I refer to as, “Specialty Contractors” and guide the construction/remodeling team to the end of the project. Thus, they’re “Generals” for leading the troops. They may/may not know the slightest things about plumbing or electrical, but they do know how those trades interact within the process. I say all this, so that you can start thinking about what you and your “contractor” need to get clear on. As someone new to the biz, you may want to keep some of the rehab liability off your shoulders until you’ve done a few projects? It’s totally a comfort/control thing and I know saving money is on your mind but that also includes risk.

You also mentioned you’d be responsible for “the materials”? I assume this also means you’re going to go to the various supply stores, shop for everything and get it to the job site? Is that the best uses of your time? Again, think about the endgame. Your talents (unless you’re a skilled contractor) are probably better spent improving and refining “the business” and searching for good deals. You could specify and be crystal clear about what items/materials you want where but let the acquisition and purchase fall on the contractor. They have the contacts with suppliers, they have a history and reputation that you may not, they can come up with cost-effective optional products that you may not have considered. The list goes on and on. I’ve seen some investors carry towel bars and an occasional door knob onto a job site now and then, but they typically just agree that a kitchen will cost “$X” and a bathroom will cost “$Y” and anything beyond those parameters must be discussed by all parties before purchase, etc. Keep it simple but clear. I know, easy to say….

It's pretty easy to see by these posts who has worked with General Contractors successfully and those who have not.

When folks condemn a whole profession because they've been "burned" at some point in the past, it just shows how ignorant they are.

Of course you need to research whomever you are considering working with and General Contractors are very easy to assess once you know what to look for.

Instead of complaining after the fact, get better at conducting your own due diligence.

Contractors, like ANY profession has some bad players, BUT it's your fault if you haven't done the proper research.

Just a thought.

Enyi,

Respectfully, I disagree with J Scott. He may have been jilted by a “bad” contractor in the past and has thus concluded that all contractors have the same traits.

I’m now a retired GC with over 40 years in the trenches building and remodeling homes and buildings. I have also had the pleasure of teaching, coaching, educating, and inspiring other contractors to build better and be cognizant of their value and necessity when helping others realize their dreams. Most contractors are good men and women who are true craftspeople and care about their clients. Why wouldn’t they? They depend mostly on word of mouth referrals for future business.

I few “bad apples” have infected the basket and when I see a blanket judgment on a whole group I care deeply about, I must share my thoughts.

I used to help investors flip multi-million-dollar homes in Marin County California, one of the most affluent pack of zip codes in the country. On my first project with these flippers, they acted not only as the designers/architects, but they also pulled permits as “Owner/Builder”. This, to them, was to shave costs and increase profits. My company was hired to provide all the carpentry services (foundation form work, framing, cabinetry, trim work, etc.). They hired other subs for the other trades and “managed” them themselves. Although their theory was “sound” it didn’t work. They were so stressed out by wearing all the hats on the job that they almost threw in the towel. They were NOT contractors and they finally realized that half way through the project. Mind you, their Investor would stop by the project every now and then and when he saw chaos and disorganization, he started having doubts about future flips together.

On projects 2-6, the flippers and my company did an equity split. What that split is for any of you will depend upon: roles & responsibilities, skin in the game, skill sets, etc. These were successful projects. The Investors were quite happy with their returns, the flippers could concentrate on what they did best (finding and making deals), and the contractor/partner (me) could concentrate on bringing the project in on time and within budget. As an “equity partner” I would be stupid not to. The more I can help the project the higher my paycheck at the end of the tunnel.

In the end, each of us will have to have a certain comfort level with whomever we hire whether it be our receptionist, our CPA, our lawyers, our lenders, our Realtors, and yes even our mentors. I believe it’s essential to have a great contractor on your team as real estate investors. Whether you bring them on board or not is up to you and I would tread lightly until you get through a project or two. 

The point is, these folks are professionals and should be considered as such. Sure, you can watch a YouTube video on how to change out a water heater yourself but should you? I used to tell my homeowner students, “If you touch it, you own it.” Essentially that means should anything happen because you touched it last, you’d be responsible for any damage it may cause.

As a retired contractor who still knows his stuff, I can tell you young and old investors out there, there are a lot of guys and gals out there like me who are looking for “new” careers too. A “partnership” with these seasoned, experienced, skilled people might be a smart move??

Here to help,

Kevin Beck 

Love to help Tom.

I'm new to this but have 40 years construction experience.

I'm in San Diego.

Thanks,

Kevin

Hello All,

I’m an old newbie.

I have bought and sold various homes throughout my life and, as a general contractor, have remodeled hundreds for others.

I am new to my area (San Diego) and currently help local estate owners deal with subcontractors, manage major rehab projects, and locate and execute capital improvements that make sense. While the work is rewarding, it is not increasing my own portfolio.

I’m 58 years old, have terrible credit and besides my consulting business, am not employed. Not seeking pity here, just explaining honestly my situation.

I am retired now and have no interest in putting my tool belt back on, but what I do know is how to build, maintain, remodel, manage, improve, and take care of homes and buildings.

I realize my market (San Diego) is too “rich” to make Cash-Flow deals work but I do see a lot of high-end flips, especially along the coast. While I may be able to provide “value” to these rehabbers, I am also interested in partnering with out of state BP members to allow me to invest my own funds to stack and grow my own portfolio.

I am reaching out to you all to get your feedback. Any assistance would be greatly appreciated.

Thank you,

Kevin Beck

Hi Colleen,

A couple of questions to get a sense of your goals.

1. Are you looking to buy and hold?

2. Do tenants pay both gas and electricity?

3. How "green-minded" are you?

Ironically, as a building consultant, i would probably provide the same answer regardless of how you answered 1-3 above.  I just state them so other Landlords may consider these points.

You are correct, the units MUST have their own (controllable) heat source by California code.  It sounds as if this may have all been one house at one time?  If so, the present HVAC system was hopefully sized to accommodate the total square footage.  It may be possible to preserve the existing system for one of the floors and adding a new system to the other floor?  The downside to this strategy is now the old system will be over-sized for the given square footage its being used for.

If it were I, and I wanted new, energy efficient systems I would go with mini-split through-the-wall units and or hreat-pump furnaces.  Theses technologies use electricity rather than gas (less carbon emissions) which you could ultimately offset with PV on the roof and get FREE heating.  My second choice would be sealed-combustion natural gas furnaces sized appropriately.  Both technologies are slightly higher in upfront costs but durability, safety, and future PV offset could mean a wise choice.

Hope this helps,

Kevin Beck

Hey Jeremy,

Are there pics?

Thanks, 

Kevin Beck

My first question would be why build when there are tons of potential properties already built and available?

I'm a retired Green Builder and the first question I would ask a potential "green" client was "Why build new?"  

If your plan is to build a super-energy-efficient building where its important to get the wall assemblies right, it makes sense to build new.  If you are simply looking to fill the building/home with renters I'm still confused why a "new" structure would be more beneficial?

Are there any Habitat for Humanity chapters in your area?  They typically have "Restores" to sell unused or recyclable building materials and supplies.

If not, perhaps Green Building Groups, Tiny House builders, Community Colleges, Churches might be interested??