All Forum Posts by: Matt Sanford

@Teri Feeney Styers  I like the approach you are suggesting.

@Moshe H.   I would have a property manager, so I would be in there capable hands.

@Sherman Ragland  I totally agree.  I was actually thinking of buying one C+ and one in a B neighborhood and then deciding from there.  I'll be visiting Cleveland soon to investigate further.  I might head to Birmingham next.

Thanks for all your inputs!

Hi Investors...

April 26, 2017....I have a hypothetical money flow and finance question, what if someone had a HELOC of approximately $350K that was available to them.

And they wanted to buy some rental properties and do the buy and hold, like a rent ready turnkey property. (No BRRR at this time)

Some properties are only $45K and cash flow $400/month after expenses, but more of C+ neighborhoods.

Other properties are $65-$100K and cash flow $200/month after expenses but are more like B neighborhoods.

Does the wise investor, use the HELOC to pay the down payment on the B properties (approximately 20%) and let the banks finance the rest? With $350K you can get a lot of properties with only 20% down. FHA limit of 10 per spouse, so maybe almost 20 in this situation. (The cash flow would be put towards paying down the properties, and then another B property would be bought as soon as enough funding was available)

Or buy the cheaper C+ properties and then try to pick up more C+ properties as the first ones are paid down in the Snowball model? (Put the cash flow from the properties towards paying down the HELOC until enough money is available to buy another C+ property)

GOAL of this example/investor is to create a large passive income in the 5-10 time frame, but leveraging the equity available in the HELOC.

Assumes most things are equal in each property (like vacancy, cap ex, property management, etc.) and that both properties are "snowballing" for the next 5-10 years.

---------------------------PROS/CONS List--------------------------

C+ Property Pros List:

• better cash flow per month ($400 better than $250)
• very little closing costs
• faster acquisition, don't need to wait for 30 days.
• less hassle of getting bank approvals
• other?

C+ Property Cons List:

• Can only get about 7 properties to start.
• Might take about 1.5 years to get the 8th property depending on how much money can be contributed to the 8th purchase.
• C+ neighborhoods can be more problematic?
• other?

B Property Pros List:

• Only paying for 20% of value, leveraging the rest--good thing
• Acquiring more properties sooner
• B neighborhood should be less Jerry Springer factor
• maybe has more potential for appreciation?
• Once paid off completely, will have a higher rent price.
• Other?

B Property Cons List:

• Low cash flow at $200 month
• 30 years to "pay off" , but could be sooner with snowball factor
• Takes longer to get to the big monthly cash flow (?)
• $3K in closing costs each property
• Other?

So basically, if you all were standing at a fork in the road  and one said C+  or B properties, which way would you head considering these PROS/CONS for each?

For some reason, I thought buying the C+ properties, and then refinancing them into some sort of large loan to pull equity out would be good, but I don't know if that is possible.  Anyone know?

I am sure I missed some of the assumptions and goals, so please ask if it isn't clear.

@Harman N. I may have mis understood your existing building. But I thought you had two separate units over the garage...?? If so, you can convert those to "condos" and then they can be sold as separate units, and/or financed as separate units. THEN.... I was referring to adding a 3rd unit in the rear of the garage level, for the ADU work.

If you own the whole building, you may not want to condo convert.  Most residential San Francisco architects can navigate the requirements set forth by the SF Planning department.  I'd figure out the game plan first and then jump in.  It may take a year or two at least to get this all done to the point where you can rent it out... And then you will be enjoying the rental income! 

@Harman N. yes, I have done about 10 of these as a contractor. A lot of these technical details have been solved by myself and other contractors. The architect gives us a "design" and gets us a permit. Then they hand it over to me to do the actual work. Now is a good time to get ADU approvals with the planning department.

Here are your steps to getting the ADU:

1. Apply for condo conversion of the existing property.  Could take about 3-6 months to get permission and schedule an inspection from the city.  The city will create a list of "items" that need to be addressed before condo conversion.  Hire a contractor to address the "items" from the condo conversion report.
2. Hire architect and finalize a design for the garage ADU. (which I would suggest you start the same time as item #1) Technical details like plumbing, electrical and sound proofing are all part of the design typically.
3. Hire a contractor to do the garage ADU conversion.
4. Put completed ADU on the market and start collecting rent.

Let me know if you have more questions.  These steps are the "big strokes".   Many details need to be solved, but that usually falls on the shoulders of the contractor and sometimes the architect.

You are sitting on a gold mine!    I encourage you to proceed, it will be a great investment.

Hi Sean,

I am a general contractor in San Francisco.

If I buy a property and need a basic "permit set of drawings", could you provide that?  I do most of the material selection, scope of work and big picture stuff myself.  I am looking for a quick turnaround  with a stamp and a drawings on my "flip" projects.  Does that fit your services?

And what do you mean by feasibility study.....what areas?  Can you give us an example.  

Also, I work in the upper peninsula area...do you cover cities in the upper peninsula?

Thanks.

Question for this thread:

What are the top 3 exit strategies for OOS turnkey properties.  

For example, lets say a "coastal" investor buys a place in a lower priced mid-west market.  And in two years the stuff "hits the fan" and the economy turns (higher vacancies, lower jobs, loan rates go up, other bad turns?)....how would an investor exit that? 

What about a turnkey rental property in the mid-west?  Seems like they cash flow and after 10 years (depending on price) you would own it and would have cash flow at that time?  You could get a few of those if you wanted.

Nice job Caleb.

Just out of curiosity, did you consider a BRRRR on this one, or others like it? Now that you have the rehab part down, seems like you could hold it and make some rental income, ya?

Anyone have success with BRRRR in the more expensive areas? Starter homes in the bay area are typically $600K and up and don't really cash flow at that price.

Harman, can you give us some more info. Most lots in the inner sunset don't have space for an ADU, but does yours? If not, I am guessing you will be converting part of the garage to an ADU. I have done a bunch of these in SF. Its a great neighborhood to have additional rent coming in!!