All Forum Posts by: Sebastian Marroquin

In general : I think most people will tell you to go after a 1 bedroom. 

You are slightly in a different situation bc of the area you are buying in! (which is a good thing) 

The area there, next to Cal tech is extremely desirable. Studios, 1 bedrooms and even single bedrooms rent out so fast... that it really doesn't matter. 

Now: if you have 2 properties : a studio and a condo for the same price and similar sq footage: then of course, go for the 1 bedroom or the 2 bedrooms. 

But chances of that happening are slim, so I assume that the studio is cheaper (in price) than the alternative. 

This will come down to your purchase power. What can you afford: and will you break even with a studio price at ($X) or a 1 bedroom priced at $x ? 

Most likely you will not break even : as most studios and 1 bedrooms in Pasadena : will be between $400k (for a small one) and higher. Together with HOA : and you my friend, will not cash flow... but will have a great property that will continue to appreciate!

If you get a 1 or 2 bedroom, you will probably be able to (for example) put a bunk bed in the bedroom and a bed in the living room: Caltech students will go for something like that (I've seen it first hand). 

If your purchase power is anything below $650k (a condo will be your best bet) in Pasadena. 

You could also explore further east on the 210 freeway and buy a single family home: but it all depends on your plans, goals, etc. 

@Brian Tome

Brian is on the money with this one. People are making it all about the agent on here :) for obvious reasons. You obviously want a clear, concise, to the point suggestion, but people are focused on what’s important here, which is representation from an agent. 
I used to be a personal trainer while getting my masters in Kinesiology and all clients wanted to pay for 2 sessions and learn everything I did in 4+ 2 years in college :) 

Then I became a realtor and everyone wants to learn everything I learned in 10 years of working with buyers, sellers and investors. There’s more to a purchase than price. Zillow and the internet make it seem as if all you need is an offer price and a timeline. There are about 100 different places to negotiate terms and the transaction. There are about 20 different plates you have to juggle at any given time. If you are reading this thinking I’m exaggerating, it’s maybe because you have experience buying and selling! :) 

For every FSBO (buyer) that has successfully bought a property, I will show you a seller or buyer that has lost $10k to $100k in the sale or negotiation...

Honestly, the seller may have way more to lose in this market when it comes to money. 
now... you wanted some tangible numbers and strategy on here... so here it goes.

1- negotiate a price with the seller: one you feel comfortable with. Sounds like you want to go with x- 6% 

So a purchase price of $480k 

(Anything between $480k and $500k will be a good enough price for you. As the home will appreciate this year in 2021 at least 4% maybe more depending on your market. That’s 20k already etc 

Once you negotiate the price 

2- ask seller if they would let you bring in a realtor to facilitate both sides for 4%/ 3% total at the $480k price. 
(negotiating skills necessary for this :) ) 

(As you can already see, the seller is losing already: plus in this market they may be able to get a lot more than $500k bc of lack of inventory etc) anyhow...

* the commission is paid by the seller anyway - and why negotiate the price first. 
put the liability on the realtor and the E and O insurance (error and omissions) 

Be tactful, do a walk through of the property, show them comps and put yourself in a position to win while asking them for what they want and what’s important to them. 
Let them give you a price initially. Even if you start at $500k, you can do your inspections, termite, disclosures etc and then negotiate down. 
we have submitted offers with investor clients with no contingencies and all cash and then negotiated a $30k to $50k reduction. 
(by answering to you now, essentially I’m helping you as the buyer... if this was the seller, I would answering in a way different way). 

In conclusion : 

I would offer something very close to what they want and then negotiate in a tactful, respectful and strategic way. 
with a goal of $450k to $480k purchase (depending on physical inspections and potential renovations needed). 
send me a PM if you like to discuss further 

@Zachary Beach

@Sebastian Marroquin people don't only sell bad investments. I'm in escrow currently selling a single family home in Southern California that after management is a 10 cap rate. In an appreciating market I believe in. I'm selling because of the velocity of money. I have made over 300% on my money in 13 months after tax. If I leave the money in the property I could keep 30%+ IRR with 0% appreciation but I know I can get 100% plus if I move it. I'm also a full time active not passive investor so that changes things.

:) Zach I never said people "always" or "only" sell bad investments : I said this is a red flag for me and needs further assessment and due diligence. 

If the Realtor/ owner put the property on the market and there were other buyers/ investors willing and wanting to purchase it, then this would be a different conversation. 

The Realtor will protect his own interest in the property (hopefully his buyer that posted on here also), but remains to be seen. 

To your example: I bet you sold your investment in accordance to comparable properties that were selling on the open market. 

I have yet to see an investor that leaves equity in the property for someone else's gain just because they are nice... doesn't happen. And I don't expected bc this owner/ realtor also took the initial risk to build the units. 

All I was saying was that the property (bc of how it was coming to him and who was selling it to him) needed further assessing and due diligence. 

If he is selling the asset for $300k , i bet he is all in about $200k (just a guess) and a good deal would be: if similar comps are selling for $300k but bc of the relationship and not having to pay commissions to sell: he sold it to this buyer for $250k as an example... 

But that will rarely happen, right? 

Furthermore, I was saying that he could probably find a better property (better has many forms... ) 

And even, He could ask the builder/ realtor to help him build other units: where the buyer (in this post) pays for all of the buildout costs + the builder makes a profit/ margin in the buildout plus purchase commission and the client ends up with a better deal. (just an option and food for thought). 

@Steve Kim

He's selling because he's building his dream forever home and needs cash.

There are handful of other properties that are performing at >10% CoC are at least 50 years old and are all very outdated and in C class neighborhoods which I assume will have significantly larger maintenance/CAPEX costs and lower quality tenants.

So I guess my question is, how do you factor in the age of the property and its higher end finishes?

*** 

I think you have to make a decision: do you want less risk (maintenance issues) and less return (ROI)

or 

Do you want to put in more money, effort and time into the property initially to make a higher return and more initial equity? 

At $300k 

Can you find a duplex in this better area that's a fixer for $200k? (if the answer is yes and you can renovate them both with 50k (25k each unit) and now you can compare apples to apples) the renovated fixers will now have newer systems and less maintenance for almost the same time that the new construction ones. If these numbers are ridiculous in this market - then you can choose to go for the the opportunity presented by your realtor. 

But if the numbers are reasonable, then spend some time and effort looking for them. There should not be any rush: enjoy the process. 

Further more: this is the deal he is presenting: does not mean that you cannot negotiate. He will not be paying commissions to close- is that factored in? 

and have you seen comps for new construction homes (duplexes) in that area? How do they compare? 

Food for thought. 

At the end of the day- if you keep these units for 10,15,30 years... this conversation would be irrelevant and a waste of time lol 

Your units will appreciate over time and you will pay the mortgage down. You will either make a good investment or a great one. Either way you are winning! 

Best way to think about it is as if you are playing monopoly. 
ask yourself: 

1- will you keep the home for 10-15 + years 

2- or less than that. 

We are doing exactly what you are thinking about doing with clients in pasadena and surrounding areas. The difference is that a 1 bedroom ADU rents out for more out here than there.
for that reason: I would research the rental market for a 350/400 sq ft ADU (1 bedroom) there since I bet your garage is about that size, right? 

If it can rent out for $1k to $1300 

Then a $50/55k investment would give you back a return of about $12k to $15k per year. Which is pretty good. 

Or new construction ADU: about $100k could get you about $20k per year. 15% to 20% reruns.
for a 2 bedroom maybe 600 sq ft. 

Since interest rates are so

Low right now: you could do both: 

1- you could do a 203k construction refi loan: to get 50k to 100k for the project or (a refi cash out to do the same) 

Finish the project : rent them out and then use your personal money to go buy 

Another primary home at 5% down payment and use the rest of the money you have to do another ADU in your new home: and pay very little for your mortgage.
then, at that point you will gave 4 doors! 

Let me

Know if you need some pointers 

My initial reaction is to ask:

Why is the realtor/ developer  selling it in the first place? 
if it were a great deal he would not be selling it... 

(His answer is irrelevant at this point) you should simply ask yourself that question. He is an investor and there is no way he would sell it with any type of profit margin attached... that’s just not how investors think (not a bad thing, since you will be thinking the same way later when you sell it). 
most new construction doesn’t make sense from an equity or cash flow perspective - the benefit usually is in holding its value for the next 15 to 20 years and the avoidance of maintenance issues. 
6% or 8% is very low for a state like Texas (or any other state with similar home prices) 

That would be good in CA of example of you are banking on appreciation. 
if you feel comfortable - you can go after a fixer duplex : where you build equity with renovations and potentially get your capital back by refinancing afterwards (brrrr ) 

A cosmetic fixer (paint - kitchen- bathroom remodel) would be good for a beginner. 
you could also explore purchasing as a primary home: that way you only put down 4% to 5% (downpayment ) 

If the “intent” is for you to live in it, you could do that and if life changes in the future after 6 months - you could simply rent both out (since your wife does not want to house hack) 

Some of my clients also fenced the middle of the lot (assuming the units are detached ) and then you would mot be privacy issues but just treat the tenants as neighbors (never let them know you are the owner ) you are always the a manager collecting rents. :) 

I will echo what several people have said on here. 

I am currently working with several people that are going from primary home to primary home... etc 

You will have to check with your lender and see if possible. 

My client had a SFH in Pasadena he lived in: then he added an ADU: rented both out for a positive cash flow situation: then

the lender took about 80% of the rents and applied them to his income and he went to buy another 'primary home' where he only put a 5% down payment (instead of the 20% . 

He used the remaining 15% + other cash he had saved: and renovated the home, Added an ADU in the city of el sereno (90032).

He bought that one for $550k 

After the reno- and ADU conversion: the home is now valued at $760k

(this is just an example) 

We have referrals to contractors, architects etc if this is of interest. 

There are many possibilities with your capital and situation and just to plant the seed: 

I would look into areas with a high price per sq ft. and either buy a Single Fam. Home and add an ADU and Jr. ADU to increase value and cash flow and then refinance it. or

Find a home that is zoned for 2 or 3 units that is 1 home currently: and add the rest and then refi out and get a large portion of your money back. 

500 x 20% : $118K down payment + closing costs ($10K ball park): Total to purchase $128k 

Reno: $50k + $128k : $178k 

ADU: $115k plus $178k : $293k All in

Rents: $5k x 12 months: $60k 

Cash on Cash return: 60k divided by $293k : ConC ROI: Gross : 20.4%

(I'm sure you will have maintenance expenses, capx, PM etc etc ) and you will also have tax sheltering and deductions: plug in all numbers to get an accurate number). 

Total ROI:

purchase $590k + ($118k down payment) $175k (all cash in) : $883k 

60k divided by $883k : 6.79% return 

Equity: Depending on city and depending on how nice the renovations are and how nice the ADU is: (also depending on comparable sales: bc you could have over paid for the home initially for all we know... )

Let's assume that you did not over pay for the fixer at $590k 

After renovations and the ADU: you are all in with the home at $765k (bc you will be getting back the $118k down payment)

and the home may be worth about $850k to $900k (a lot of factors could change this) but you could have around $50k to $100k new equity. 

(questions: how big is the home? How big is the ADU? Was the ADU new construction or a portion of the home or a garage conversion? What city did you buy in?)

I like this strategy and something we plan on doing more of this year in 2021! Congrats! 

Hello! (disclaimer: I am in CA and not in your state, and it's important you speak to someone that knows the area and knows what the buyers like and are willing to pay for and how appraisers in your area are arriving at value!) 

My first inclination would be to do a little homework (due diligence) : Take a look at the other homes you mentioned that are similar to your home (maybe even with the same lay out and architecture but have the extra living space: if you can get into one of those and walk it) to assess the flow and space, that would be great! Sometimes the open concept and high ceilings are what will sell these types of homes and why I suggested you talk to a local expert realtor! 

See what those homes are selling for compared to the ones that look just like yours? 

(did a quick zillow search for price per sq foot: don't know the area: and a random nice house there is selling for about $100 per sq ft) 

So I would venture to say that any addition of square footage in a nice way: where the rest of the home also looks great will add about $100 per sq foot. 

Assuming that the price per sq ft is accurate: then it becomes a math problem. Get some bids from contractors (word of mouth to find them: check on their work etc etc ) and see how much they would charge. 

Assume that you will need a drafter or architect for building plans, engineering etc : facilitating permits with city and also permit fees. 

Building plans should be about $4k to $6k (ball park). 

The good thing is that you won't need foundation (mostly, but depending on what the engineers and architect says as well as the city: plan checker). 

And you won't need perimeter walls and a roof: thats a big chunk of the construction budget. so your construction fees will be a fraction of any regular new construction! 

If you add a master: around 300 sq ft : would would that add in value and what would that costs you to build all in? 

Once you have that plus how much the comparable homes are selling for? That would give you a good idea if this will be a good idea or not!

Hope this helps. 

Sebastian M. 

Realtor in Pasadena, CA 

i second @Nabil Suleiman

You can do it all for free. (On that note: paying for a good course could speed things up). 

The question becomes: do you want to go a bit slower (enjoy the process :)  ) and learn as you go: then maybe pay once you have learned the basics, and fine tune how to do it? Or even learn without paying? 

or 

Do you want to take a "bootcamp" pay $1k to $5k or more and be up and running faster? 

The main things you need: on a basic level:

1. Leads (with good margins): AKA what Nabil said above 

2. Buyers for those leads : cash investors (heck - even qualified retail buyers)

3. The process/ contracts : to get them under contract- negotiate them - and sell them for a process. 

Send me a PM: I'll give you some info for free :)