All Forum Posts by: Account Closed

What are the pros & cons of selling with a commercial broker vs a residential agent? The commercial guys call me regularly. Which kind of broker should I hire and why?

Quote from @Twana Rasoul:

@Account Closed consider doing a cashout refinance and pulling out $500k+ tax free...  What neighborhood are you in near downtown? depending on size of property and neighborhood near downtown San Diego, your 1.5 might be too high or too low or a price.

Of course that was the first thing I considered, but I was in the middle of selling another property, plus fixing up the subject property, and I missed the low rates. If I pulled out $500k now my monthly payment would triple and I'd no longer cash flow, even as an STR. This would also not achieve my goal of walking away from the hell that is Airbnb. (Something the City of San Diego is planning to outlaw in less than a year anyway)

Quote from @Wayne Brooks:

@Account Closed You’re not splitting up your cap gains into multiple years (except your down payment), which might, or might not, of been an advantage.

You’re going to be reporting 5 years of interest (ordinary income) then All of your gain(except the down payment) in the year the principal is paid off.

This is why I'd ask for a DP that's a significant chunk of the equity, like 30%. It splits off that 30% into Year 1.

Quote from @Erik Browning:

@Tyson Gustus what is your longer-term goal? This would dictate the route you want to take. I suspect, like other sellers, you want to capture the equity now prior to realizing lower purchase prices. Selling high.

Sure, if you want to lock in using seller financing that is one method to lock in returns at todays market. You can get the cash now and pay the taxes so you can deploy elsewhere. Or you can 1031. It really depends on that goal.

Thanks for the feedback! I'd like to avoid a 1031 so I can diversify into another country and potentially redeploy the cash later (after the coming downturn). The intent is to lock in the current valuation, maintain a stream of revenue, and reduce the tax hit by splitting up the return of equity into future tax years.

Maybe taxes will go up so that's a risk. Maybe an alternative way to take advantage of higher rates would be to redeploy the cash into HML or some liquid investment vehicle while I figure out where to put it next.

Planning to sell a 4plex near downtown San Diego, CA... hopefully with OF (wrap loan). Still doing research to learn the ins and outs of such a deal. Hoping to hear from people who know how to structure such a deal, write the note/terms, what risks I need to address, and what terms are likely going to fly.

Here are the rough terms I have in mind...

Price: $1.5M

DP: 20-30% = $300k-$450k

MP: 8% IO = $7k-$8k

Balloon in 5 years, 12 mo min pre-pay

The property currently grosses about $12k per month as an STR.

My current loan: $500k

My current payment: $3k

Given these terms, arbitrage would net me close to what I net currently, without the work of maintaining the property and managing it as an STR. Thus I'd keep my income. The DP from the buyer would stay liquid in case my loan gets called.

OTOH, similar properties have been going for around $2M so maybe I should just bite the bullet and pay the taxes. All constructive feedback welcome.

I see.  So the solution is to use different words in the appraisal.

Originally posted by @Chris Mason:

Originally posted by @Account Closed:

Originally posted by @Justin R.:

@Account Closed (Hey!) @Dan H. @Colin L. Based on my experience doing it twice in City of San Diego, a companion unit (our name for an ADU) can be added to any property which, by right, is zoned for 1 or 2 dwelling units. 1 or 2 dwelling units is considered residential by the city. So, if you've got a conforming duplex on the lot, you can add an additional companion unit. See info bulletin #400 - it's spelled out there.

In addition to the two successful ones, I tried to do it on a property that has two dwelling units but, by right, supports 3 units.  Not permitted.  That third unit needs to be a regular dwelling unit (and comply with related parking) and can't be a companion unit.

I understand what Tyson's saying about intent of the state-level ordinance, but that's not how the San Diego ordinance is written.

On the financing, I've seen no distinctions between companion units and dwelling units.  2 dwelling units + 1 companion unit = successful conforming refinance in my experience.  As long as I can prove it's permitted.  And, it should - there's no functional difference between a dwelling unit and companion unit in City of SD. 

Aside, what I don't know (and would like to know if anyone has tried it) is what happens if the companion unit is attached to an existing duplex - not sure whether that would trigger commercial requirements (MEP plan, fire alarm monitoring, etc).  Haven't tried a project involving that.

Hey Justin!  (It's not letting me tag you)

Thank you! This is really good to know. Norris the Younger is promoting this notion that it's a free-for-all and 2-4 unit MFR's are all fair game for ADUs. SDCIA is having a special ADU event tonight with a panel discussion.

Someone needs to get @Chris Mason back here to clarify the financing side of things. Justin got financing with an ADU...

 Someone screwed up and now has a non-saleable loan and took a five figure haircut....

Hmm.  I believe I've found the Fannie Mae guidelines for ADUs, and I see why Chris is saying what he's saying.

However...  There appears to be an exception to the rule...

If the property contains an accessory unit, the property is eligible under the following conditions:

• The property is defined as a one-unit property.
• There is only one accessory unit on the property; multiple accessory units are not permitted.
• The appraisal report demonstrates that the improvements are typical for the market through an analysis of at least one comparable property with the same use.
• The borrower qualifies for the mortgage without considering any rental income from the accessory unit. (See B3-3.1-08, Rental Income, for further information, and B5-6-03, HomeReady Mortgage Underwriting Methods and Requirements, for an exception for HomeReady mortgage loans.)

If it is determined that the property contains an accessory unit that does not comply with zoning, the property is eligible under the following additional conditions:

• The lender confirms that the existence will not jeopardize any future property insurance claim that might need to be filed for the property.
• The use conforms to the subject neighborhood and to the market.
• The property is appraised based upon its current use.
• The appraisal must report that the improvements represent a use that does not comply with zoning.
• The appraisal report must demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same non-compliant zoning use.

https://www.fanniemae.com/content/guide/selling/b4...

It goes on to explain the exception for additions without permits.

Seems conventional financing is still a possibility, and the loan is still conforming (assuming the proper steps were taken).

Originally posted by @Justin R.:

@Account Closed (Hey!) @Dan H. @Colin L. Based on my experience doing it twice in City of San Diego, a companion unit (our name for an ADU) can be added to any property which, by right, is zoned for 1 or 2 dwelling units. 1 or 2 dwelling units is considered residential by the city. So, if you've got a conforming duplex on the lot, you can add an additional companion unit. See info bulletin #400 - it's spelled out there.

In addition to the two successful ones, I tried to do it on a property that has two dwelling units but, by right, supports 3 units.  Not permitted.  That third unit needs to be a regular dwelling unit (and comply with related parking) and can't be a companion unit.

I understand what Tyson's saying about intent of the state-level ordinance, but that's not how the San Diego ordinance is written.

On the financing, I've seen no distinctions between companion units and dwelling units.  2 dwelling units + 1 companion unit = successful conforming refinance in my experience.  As long as I can prove it's permitted.  And, it should - there's no functional difference between a dwelling unit and companion unit in City of SD. 

Aside, what I don't know (and would like to know if anyone has tried it) is what happens if the companion unit is attached to an existing duplex - not sure whether that would trigger commercial requirements (MEP plan, fire alarm monitoring, etc).  Haven't tried a project involving that.

Hey Justin!  (It's not letting me tag you)

Thank you! This is really good to know. Norris the Younger is promoting this notion that it's a free-for-all and 2-4 unit MFR's are all fair game for ADUs. SDCIA is having a special ADU event tonight with a panel discussion.

Someone needs to get @Chris Mason back here to clarify the financing side of things. Justin got financing with an ADU...

Originally posted by @Dan H.:

Originally posted by @Account Closed:

This is fascinating!  The California State Senator interviewed on the Norris Group radio show (linked below) seems to be saying the state law supersedes most of the local ordinances because most of the local ordinances were written mainly to stop ADUs in violation of their own master plans.  How are they getting this wrong?

https://www.thenorrisgroup.com/adus-and-sb-1069-pa...

 A local ordinance cannot be more restrictive than the state ordinance.  You have that part correct.  

The state ordinance does not mandate that ADU must be allowed to be added to duplex to quad. It only mandates that it must be able to be added to SFR. So this is the part you do not have correct at this time. A local jurisdiction can allow ADUs be added to duplex to quads but is not required to permit this.

Interesting.  I have to defer to the Senator on this one.  He seems to think multi-family is part of the bill he wrote at the state level (SB 1069).  I guess everyone here will have to do their own research!

This is fascinating!  The California State Senator interviewed on the Norris Group radio show (linked below) seems to be saying the state law supersedes most of the local ordinances because most of the local ordinances were written mainly to stop ADUs in violation of their own master plans.  How are they getting this wrong?

https://www.thenorrisgroup.com/adus-and-sb-1069-pa...