All Forum Posts by: Amit M.

@Carlos Ptriawan in my specific cases all the properties are in San Francisco, which has a San Francisco only program to legalize existing inlaw units. They are not referred to as ADUs. I wouldn’t extrapolate that to other counties in CA, which are mostly relying on the state law allowing ADUs. 

@Dan H. and @Justin R. since I have not sold or refinanced, I cannot say with certainty. But I suspect my properties will be treated in a similar manner Justin described. I also think it is very dependent on the zoning in the area, and also if similar properties already exist. Plus I'm sure it county dependent, and San Francisco is in a world of its own: I'm my cases I didn't technically add an ADU. We have a program that allows owners to legalize pre existing inlaw units, which is what I did, as they waive most city fees, and are generally more lenient with planning and bldg requirements than adding ADU's. Also the way the city records work, when you pull a 3R report, it updates any work you have done on the property, and the unit count changes when adding a unit. Most appraisers go off the 3R, so if you get that to reflect 3 (instead of 2) units, I think you're looking good. All of this is still new territory!

I agree the ADU phenomena is not always what's it's cracked up to be- especially for most people who are trying this with SFH's. The main issue is the appraised value of the ADU not being close to covering construction costs, especially in CA. And I don't know if this will easily change in the future, because once a precedent has set it's hard to transition the ADU value from current $20-50k to $200-400k, which is where it needs to be.

I've been fortunate as I've done these projects on duplexes. And when I eventually sell the city records will reflect a triplex. So I believe I will reap full unit value. But this is for San Francisco, where SFH's and 2-4 unit buildings frequently sit next to each other cheek by jowl. But when you have a suburb of SFH's, all of a sudden a SFH+ADU is lookin' like a white elephant. And white elephants are never good at getting top appraisals (unless you can radically alter the project into something easily understood from a bank and appraisers perspective.)

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my2c

@Justin Thorpe and @Joe Bertolino I agree with both of you. Of course there is a balance to everything, but there is no doubt in my mind that the news and media is disproportionate hyping up one side of the equation.

Joe- interesting anecdote about the Sacramento apartment sellers seeking SF properties. Right now it's largely detente between apartment building buyers and sellers in SF; most owners won't sell at fire sale prices, so buildings are lingering on market or being removed from listings. I'm sure a few will sell at the right compromise for both parties, but not a lot of transactions. So only if the vaccines are a big bust, and we are in the same position 1-2 years from now may prices drop significantly. But if we expect the vaccines to take hold in 2021 then we will start correcting fast enough whereby SF sellers can hold out for better selling prices. I know that SFH's are holding their prices well (sub $2mil, larger homes are selling for a discount.) This also happened in 2009-10, so if you're looking for a higher end home or condo (and I know people who are) 2021 is a time they plan to strike.

As I’ve mentioned before, SF is a very small market, and never has a lot of listings at any given moment. So it doesn’t take much inertia to change the market dynamics. Same thing with rentals. With so many units locked in at below market rents due to rent control, it doesn’t take much to swing the dynamics back to the landlords favor. 

Of course there are several key unknowns regarding overcoming covid. And yes Corp culture has changed due to forced WFH, which will continue in the future more so than prior to covid. But SF is a small city, so it doesn’t take a lot of new people coming back here to change the rental market dynamics, for the reasons I discussed before. Bumpy next 1-2 years, sure. But given all conditions discussed I don’t think that prime cities like SF will be on a long term trajectory of decline.

^ for SF, most renters have rent control and pay a fraction of market rent. People who pay market rents make way more than the median. as for Sacramento, prop 21 (oppressive statewide rent control, sponsored by a nut) just got flushed down the toilet by CA voters.  

Just saw this report on new leases being way up in Manhattan, for the reasons I discussed ^. I bet we’ll see a similar report on SF by summertime :)  https://www.millersamuel.com/f...

@Annie Shao I own a few residential properties in S.F. and also entertained 1031 into NNN or DSTs, but decided against it for several reasons. NNN isn't as secure as you'd think (look at all the major formerly solid retailers that are going banckrupt), and the secure ones have pretty low rate of returns. DSTs have significant fees, and you're not in control of the investments. When I get tired of managing my properties, I'll just pass them over to a property manager, so they'll be mostly hands off. Long term appreciation is still great in prime Bay Area IMO, so I should see better returns and cash flow than the above options too.
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my2c

Yeah, there are a lot of bogus click bait type articles claiming 30-35% drop in San Francisco rents. (Oh! The horrors!) 

That is only true for specific properties (mostly high rise condos) in specific neighborhoods (soma, downtown areas), and a couple tech heavy hipstery neighborhoods have also fallen a lot (the mission.) I can tell you for a fact that many other neighborhoods dropped almost nothing to 10%. And if you’re holding for the long run, which is most SF investors, who cares?

There is also tremendous hype with the sudden infatuation of work from home. Remember, work from home existed as an option way before covid. It’s not like companies were extolling its amazing benefits back when they had a choice. I believe there will be a strong reaction against work from home once vaccines dominate. People are quickly tiring of: families having to work and deal with kids/family members 24/7 at home; lack of work-home separation; singles feeling very alienated, especially young singles; companies loosing their corp culture due to lifeless and generic zoom interactions, etc. etc.

I think especially a vibrant city like SF, once the people who bailed realize that sitting on zoom 8 hours a day in some boring *** town, with crappy weather and nothing to do, really sucks! You’ll see, things will start to improve later this coming summer, and 1-2 years it’ll be business as usual in SF. Smart peeps are already starting to plot their returns, to secure a good apartment at relatively good rents, including those who have dreamed of living in SF but couldn’t previously afford to, those that were compelled to the East bay, etc., are paying attention. 1-2 years it’ll be like, S.F. landlord- we’re back bitches!

For all you guys hoping to BRRR-R*, one major hurdle is that (unfortunately) appraisers are giving laughable value's to ADU's. They see it as a "bonus", like a second garage, pool, or extra large yard. So that will effect your ability to carry out the last refi *R, as you're not gaining a lot of after rehab value, yet spending significant $$ on the ADU.

If you're able to buy duplexes or triplexes, you may have an easier time having the ADU count as a full extra unit, a duplex > triplex, etc. This will allow you to leverage the added value for your cash out refi. You may need to have your city update the property records to reflect the added unit. Although I haven't pursued this fully yet, I believe the way San Francisco building dept records work, once you update the records (usually for a new sale, but you can do it without selling too), the added unit is reflected in the unit count for multi family properties.

Food for thought...

@Lawrence Leung interesting comment on compass. From your perspective as a realtor/broker, what do you dislike about compass?