All Forum Posts by: Sebastian Marroquin

 Thank you for the response : you bring up great points! I will be the listing agent on this property and gathering all the info you describe above. I will be adding the 10% vacancy and CAPX and Managment fees. I forgot to account for a re-assessment. But It is in my list of items to include and to assess for in underwriting the deal. I know the seller well (wife’s family member) and why I know the upgrade bids will be fairly accurate (although, we will have a formal inspection and contractor to get more accurate numbers). Tenants are paying on time and have leases and deposits in place : rents will either go up gradually or buyer will offer cash for keys as the rental market in that area or most of LA is very positive and filling in the units would not be a problem at all. 

The financing portion of it is a bit foreign to me as this time and will be talking to lenders I use for the residential side. The potential buyer will be all cash and no contingencies at this point at $2 million dollars. He is a contractor and knows exactly what he is buying. 

Thanks for your input! 

 Thank you for the response: this is a hypothetical buy for me right now since I don’t have the funds for it. (I will be the listing agent on it and the numbers are conservative as I left about $100 to $200 out in efforts to be conservative). I like this conversation because I do plan on buying a building like this in the next 2 to 4 years! :) thanks 

This will maybe be market specific but I’ll ask you and anyone else that is not a Realtor on here: 

(Let’s say that your home is worth $500k right now in its current condition) 

And I offered you $510k : would you take it? 

If your answer is yes: then I would suggest you use a Realtor. :)  (Keep in mind the home is worth $500k ) 

Why? You may ask… well because selling a home is not just about marketing, or photos, or putting a home on the MLS… There's way more than that.

Negotiations are a huge part of this along with everything mentioned above. 

Unfortunately, you will probably list for $499k and get an offer for $515k in the first 3 hours and you will feel great and think that you did a great job. Lol and will never know how much money you left on the table. (Not your fault, maybe some of the people at fault here are the realtors that you have worked with that were unable to explain their value to you). 

Many- many - many home owners will sell for sale by owner and will avoid paying a 5% commission (on $500k that is $25k ) and miss out on $50k or more, plus they will not build a relationship with a realtor that could bring them a deal to buy there after and make $100k to $200k in the new purchase. You get what you pay for in all cases: while shopping for food, clothes, attorneys, CPAs, Doctors and Realtors. 

Consider this: Are you better at doing your job today than you were 5 or 10 years ago when you first started? 

Also: are you better in your industry than other people? And are other people you look up to in your industry better than you? Chances are the answers are, YES! 

Focus on what you do, stop having a scarcity mentality and work with the best. You will make way more money by working with honest, ethical, and knowledgeable professionals in any field. 

Let me know if you would like me to net you an extra $50k to $200k on a sale or find you a deal to purchase where you could walk in with $100k to $300k in equity? (I hope that my commission won’t be in question when you see I can get you these results) :) 

What do you think? Good deal or a pass? 

The numbers: 

Seller wants $2 million dollars. 

6 units are 1 bedroom and 1 bath and rents are under market by around $500 to $600 each. 

There are 2 : 2 bedroom and 1 bath units: One rented out and the other will be vacant at close of escrow. 

Total rents for : 6 1 beds and 1 2 bed: $10,100 

And the vacant unit would rent out for $2k 

As is with out doing anything to the property, total rents would be $12,100. 

(Currently, assuming a 30% overhead : or 

$12,100 x 12 months: gross rents annually- $145,200 minus 30% (operating) : $101,640 net income. 

At $2 million : that would be a 5% CAP rate (my commercial co-worker says that most are selling at a 3% or 4% CAP right now).

Over time, what would be the value if you increased rents to market rents:

Conservative numbers: 1 bedroom : $1800 (can go to $1950) x 6 units : $10,800 

2 bedroom: $2k (could go to $2300 / $2500 )  x 2 units : $4k 

Total pro-forma (estimate new rents): $14,800  (times 12 months: $177,600 minus 30% : 

$124,320 (NET) 

Future value : 

@ 4% CAP : $3.108 million

@ 3% CAP: $4.144 million

Does buying this property at $2 million make sense? 

(I usually do residential deals between 1 and 4 units, so looking to see if you think I am missing any info?) 

30% Operating expenses seems generous to me, as most commercial agents have told me that these could be brought down to about 27% of gross rents. 

Units will need about $25k to $30k each (8 units ) so that would be about $240k 

Plumbing has been replaced to copper in the last 10 years. 

Roof is also about 10 to 15 years old. 

AC : building has wall units. (I am getting more info about rents, leases, and expenses). 

Thanks for reading 

I will echo what everyone has said. If you want to wait to save for that first investment, great , follow that path. 

Something to consider that may be less expensive and will give you great experience is: 

Rent arbitrage (check my spelling): Go out and look for an landlord that will be willing to air B and B their rental. Either rent it yourself or ask them if they would be willing to go 50/50 with you. They get first what they would rent it for : say $2k and you guys split the profits after monthly expenses (utilities, food, toiletries etc ) 

This will be inexpensive to start: maybe $5k to $10k if you partner with them. You will get a ton of experience without committing to the purchase. and you will see if this is really what you want to get into. It’s not for everyone… 

If and when successful, then start the second one and third one or save faster for your down payment and closing costs for your own property. 

I know some people (real people) making between $8k to $15k per month with this strategy without owning any homes. 

I am bias in that, I preach for people to buy homes and build wealth but I also believe in business and being creative! 

Once you are ready to buy: you could go for a fixer, renovate it, add value, add the ADU and start building your empire. It takes time, but once you get to your 2nd or 3rd home, you will start building momentum.

Good luck 

Cheapest investment is always in your back yard: 5% down payment SFR and add value to it: renovate, +ADU and even add sq footage.

Force equity and refinance to 80% of value - pull a lot of your money out and cash flow with very little investment in the deal. And move it to the next one. 

Unfortunately you have lost a lot of equity since 2010 (we all understand why you haven’t bought, and you cannot go back in time… ) : so let’s not do that again. :) 

Buy something you can afford, add value in case of a market correction, save 6 to 12 months of emergency funds and you will be ok! 

Not sure that this would help… but you could go to any major ADU construction company and ask them for a quote for a New Construction ADU. It will be in the $150k to $250k range.

Then send it to the appraiser or lender: Maybe- just maybe- they will take that into consideration and up the value. 

This should have been done at the appraisal meeting/ appt. 

I have done this many times with home renovations with my clients and miraculously, we more often than not, get the value we want :) 

You also have to be nice and respectful to the appraiser on site when they come. :) 

My 2 cents. 

You could get another appraisal all together : and you will get a different person and you can try this option to see how it goes. 

I would have a conversation with them and ask them a bunch of questions also. 

Ie how many appraisals do you have today? Do you do appraisals for investors outside of the bank? Really… ok- bc we are thinking of doing appraisals for every investment / flip property we buy this year (do you buy a lot ) we do between 7 and 10 per year and I have investor friends that do the same. 

Can I have your business card? Great, thanks 

;) build the relationship and what do you know… value comes in a bit higher ! 

No :) 

Not what I meant. I would have a relationship with a contractor and one your offer gets accepted, I would bring them firsts to see their assessment and what they think. Sometimes you will only get one chance to see the property - so maybe that is the time you pay a contractor to assess it. Maybe you offer $100 per assessment : say you do 5 that will be $500 and then ask them to include that $500 as part of your renovation budget. 

(At the end of the day: they are taking time out of their day to work for you). 

Once you get the offer accepted then you would hire an inspector and pay them. 

A realtor you are working with can walk you through these steps.  

Blake : I’m invested :) what did you decide to do? 

It is really all about the zoning. 

You may see a property advertised as "2 unit" or "duplex" or "dual family or 2 family… " and the list may go on…. But that really, is only done for marketing purposes. The second unit may not even be legal. So you want to stay away from agent remarks on-line or on MLS.

(As an agent, this hurts to say, but we often do it to embellish the property and then of course we will disclose as we don’t want liability). Now, I know you want to expedite your search and you are looking for a good system to go about it. I get it. And you can add those filters to your search, but you have to know that the “due diligence” will always be on you as the buyer. 

So what now? Look at the zoning as that will dictate the property’s best utility. And not just on title but also going to the city to check on it. 

A property may zoned as 2 or 3 or 4 units and it may have a legal "SFR + ADU" and a lot of home owners or investors will do that or go that route for many reasons including:

1. Cheaper to build an ADU

2. Avoid parking restrictions or having to put in more parking 

3. Set backs (ADUs tend to have shorter set backs than a 2nd unit etc etc ) 

So if you encounter an ADU: and the property could be a legal 2 unit property: there will be implications for going that route and checking with zoning, and building and safety will be your best bet.

Always check - always check - and always check :) 

I would set the filters : once you find a good potential property that meets your criteria : then start doing your home work on it (zoning, public works, set backs, fire dept, school fees etc etc ) Good luck