All Forum Posts by: Jonathan Pflueger

If you can AFFORD to hold the property for the next 5-10 years accounting for a 10-20% drop in rents (never know what the market will do and it's best to plan for the worst), hold it! Real wealth, generational wealth is generated through appreciation - period, dot, end of sentence. With that said, taking advantage of the capital gains tax exclusion is an incredibly valuable tool and never a bad option. 

Talk to a CPA and weigh your options carefully. 

@Account Closed

This is the worst suggestion possible. The last thing we want to do is sensor free speech of any kind. I am neither for or against using the term "war zones," but I am very against censoring anything just because it makes people uncomfortable. First Amendment Much. This community and forum is meant for a free exchange of ideas, emphasis on the word free. 

With that said, words have power and how we use them is important. If people want to stop using the term "war zone" then good for them - but it is not for me (or anyone else) to decide who gets to and when. 

**obviously there are exclusions to this, for instance hate speech and the like. 

I am having trouble getting an appraisal completed for a 4-plex I just finished renovating. Two appraisers have taken up the appraisal and then later declined to complete the appraisal due to a lack of comparables in the area. The last 4-plex to have sold was in JAN 2018 and it was similar but significantly different than mine.

To be fair, the property consists of four separate cabins on 1.5 acres in the San Lorenzo Valley and is considered unique due to its unconventional characteristics. The best comparables have been a few tri-plexes that sold last year, but they are located a few towns over, and according to the bank they will not allow a 4-plex to be comped against anything other than a 4-plex.

The last appraiser recommended asking the bank if they will allow a “narrative appraisal” to be completed by a general appraiser in order to utilize an income approach to value.

Does anyone have any thoughts or similar experiences, I am at a loss as to what to do at this point?

@Eric Mayer

I do not have another 4-plex I can throw on the MLS, what would that do? I have not had the appraisal yet, I am just trying to learn as much as I can before it happens.

@Chris Mason

Thanks Chris, uncertainly makes me anxious but that's the name of the game a lot of the time. Will update on what happens. 

I am refinancing a 4-plex, in a small town, right outside of the San Francisco, Bay Area. The nearest comparable is within 3 miles but it last sold in 2018. The next closest comparable is 8 miles away and in a very different demographic/price range of properties (properties are significantly more expensive). 

When there are few comparables, are their other methods an appraiser will use when estimating value? Would they use an income approach?

Thanks!

@Isamar Ochoa

Owner financing is completely negotiable and an excellent option under the right terms and conditions. There are a few things to keep in mind as you evaluate this deal: 

1. Always negotiate the terms of the note with your exit strategy in mind. For instance, a 3 year note vs. a 20 year note will affect how you structure your deal. Will you do interest only for 3 years and then refinance or ask for an amortized loan stretched over 30 years with a 20 year balloon. These are just two options in a a endless sea of options, but tailoring your offer to your exit strategy is imperative. Even better is tailoring your offer as to allow for multiple exits in case of the unexpected (interest rates may be at 8% in 3 years - who knows?).

2. Do you have to use a realtor for this transaction? If you can save the owner the 5-6% realtor fee and pay a lawyer a set fee this may be a good way to get the price lower or negotiate a lower interest rate. With that said and depending on your experience level, a good realtor can be worth their weight in gold in terms of liability protection and experience. Just depends on the situation. 

3. Why is the owner wanting to owner-finance to you? It is important that you understand his/her motivations, not only will this help you tailor your deal but it may also help you avoid buying a dud. Motivation is key - it will dictate terms of the deal in more ways than one. 

4. Everything is negotiable - do not forget this!

Best of luck!

@Nathan Shankles

@Glidden Rivera could not have said it better - pure gold. Follow this advice to a T and you will do great things. It is exactly what I do and it has been huge for me - so much so, it has allowed me to compete in Bay Area markets and score great deals. 

As investors, 90% of our success will hinge on our preparedness. People attribute a lot of what we do to luck, being in the right place at the time, or just happenstance - this is because they fail to see the hours and hours of studying, exploring, and experience that has brought us to our successes.

As Branch Rickey once said "luck is the residue of design." 

@Brad Stein

Everything is negotiable (percentage amounts, up-front costs, lease-up fees, etc.) - do not forget that. With that said, the lowest price is not always the best deal - a good property manager is worth their weight in gold. 

In my area, the going rate is between 6-10% based on the type (multi or single), condition (older or newer), area, and so on. I just recently finished a multi-unit renovation; due to the like-new condition I was able to negotiate zero lease-up costs with a 1 year PM contract. After year one, I will reevaluate. 

@Matt Mainini

I am a big fan of @Scott Mac 's approach. Sometimes, kindness and understanding will shame people out of their bad attitudes and behavior. As my mom tells me constantly "heap burning coals of kindness on their heads."

This approach sounds odd, but it is really hard for "normal" people to be mad at someone when that person goes out of their way to help them or be kind. Obviously, do not take this approach too far - make sure you are calibrated in what you offer or do. Too often, we as landlords, forget the human aspect of our business. 

With all that said, some people will still not respond positively even after you are kind - these types of people will generally always be difficult to work with and lease to; which just points to the importance of a solid lease agreement. 

I also agree that quarterly inspections are a bit much. I inspect my units bi-annually but I do not usually call them inspections. For instance, I am replacing a heater filter today in one of mine - when I do this I will also conduct a visual inspection of all plumbing and electrical as a courtesy to my tenant. When I play it out like this to the tenant I usually leave with them thanking me. 

You got this, hang in there! 

@Robert DuBois

It does not sound like a bad deal for this area, but there are a lot of factors at play here and any one of those factors could make this a bad deal. The city of Santa Cruz is relaxing the the requirements surrounding ADU's - see the article linked below:

https://patch.com/california/santacruz/city-santa-cruz-updates-accessory-dwelling-unit-ordinance

I am an active investor in this area, feel free to DM me if you would like to chat sometime.