Garage Conversion Flop

garage-conversion

Although the concept of converting an unused garage into a livable dwelling is not a new idea, Gerry Brown signed the Wieckowski bill into law which actually promotes the idea http.  See http://bit.ly/2dSK7rc.  However if your conversion is not done right, not only can it be a disaster for your tenant, local laws can sting a homeowner financially.  In Los Angeles there are local housing laws like the Los Angles Rent Stabilization Ordinance that must be  followed in addition to state law.  One garage conversion I remember went so badly for the owner that they ended up paying over $14,000 to the tenant.  The situation was like this:  A new owner bought a property sight unseen in the city of Sylmar California.  The house was a 3 bedroom 2 bathroom with a detached garage in the back yard.  There were tenants living in the front house and the detached garaged which was converted into a 1 bedroom apartment.  The back tenant had a child who was getting very sick living in the back house because the ventilation was very poor in the bathroom.  Add that the front house tenant was also the previous owner who had been foreclosed and had not yet surrendered possession of the property to the new owner.  The previous owner was very upset about losing his house so he would let the 2 pit bull dogs living on the property roam the yard. Unfortunately for the back apartment tenant the dogs were unfriendly towards people so the dogs would intimidate and often try to hurt the back tenants. So now we have a back tenant who has a very sick child because of the ventilation problem and they couldn’t come and go as they pleased, essentially entrapped in the garage. Eventually I was able to negotiate with the owner to leave the front house (since he was living rent free from the resulting foreclosure) but the back tenant wouldn’t leave. As it turned out, she had hired an attorney who hired a professional licensed mold testing company who took samples throughout the garage and verified the existence of black mold spores. It wasn’t short after that the attorney wrote a letter to the owner stating that, under LARSO rules the owner MUST pay the tenant as much as $18,000 to relocate the family and even threatened with an additional $36,000 of health related damages suffered by the tenants child! Although the owners attorneys responded and disagreed with some of the claims, a settlement was quickly reached of over $14,000 in favor of the garage tenant. Although the previous owner had probably never foreseen the potential disaster that ensued, new home owners must be aware of how local laws can impact a planned garage conversion. Had the previous owner used sound building and construction practices, the ventilation issue would most likely not have been an issue and would not only have kept the family safe, but the new owner from having to pay a large settlement to move the tenants out.

MIXED MESSAGES!

Who will forget the week of messages we just experienced!  First the (phony) message that set off innocent Hawaiians about ballistic missiles causing panic when instructed to  to seek immediate shelter!  Then football watchers at this Sunday’s Minnesota Viking game wearing Apple Watches being sent messages by their Apple Watch that they might have a heart issue which was actually caused by the excitement (and resulting increase of blood pressure) from the miracle play that resulted in the Vikings victory over the opposing Saints.  Messages people!!!  These events were one more reminder to me that STICKING TO THE PLAN is the only thing we can ever depend on.  This summer I was managing a single family remodeling project that was in its early stages.  An agent and a painter came over to look over the house and told me that I would be lucky to get around $525,000 when the house was finished.  I disagreed.  I told them that the house would be undergoing several floor plan changes that would re-create how the house could be used, thus giving it greater value.   Eyes would roll as you can imagine.  This didn’t deter me.  I was the one with plans in hand and after s

eeing how several similar remodeling projects had performed in the marketplace my plan was grounded reasonable expectations.  The target future value I held onto was $575k.  At times the project didn’t go well.  Work was slow because of the crushing summer heat and the workers just weren’t as productive as when temperatures were cooler.  Labor costs began to exceed budget.  It severely tried my patience.  But by the time the ‘heavy lifting’  was finished, opinions changed.  Agents and vendors alike remarked that $575k would be a good asking price.  Then, a nice break from the heat helped further advance progress so that hardwood flooring and kitchen cabinets could be installed.  The tide had turned.  In the end we finished over budget, with the house taking three months to sell and earning a $595k sales price at closing.  Sometimes you’ll work a project and you’ll field options that will differ from your plan.  If you’ve done your homework, those options are unqualified and should be disregarded as nothing more than a mixed message.  Mixed messages can cause chaos and confusion because they often lack clarity and grounding in facts!  My job was to maximize the value of the house so that when I finished the house it would have a value of at least $575k, potentially more.  When we sold the house above my target value it was one more reminder that STICKING TO THE PLAN is the only thing you can ever depend on.

PS.  I thought you would appreciate the before and after pictures this house project!

NOT Slowing Down at the Holidays

Holidays

The holiday season is such a festive time of year.  December is full of events “all-things-social.”  Mix in holiday shopping, traveling, preparing to travel, packing to travel…life gets busy this time of year!  I recently called a good friend in Phoenix who told me three quarters of her real estate office is out of the office.  I asked “is the office having a holiday party?”  Her response was amusing.  “No, they are out.  Everyone’s coming back after the 1st.”  As we continued to talk I mentioned to her that real estate can slow down this time of year.  Without missing a beat she responded, “We slow down, but some of us have to get things done.  I’m having one of my best months right now with customers who need to close before year end.”  She made a really good point.  For some sellers, renters, exchangers the holiday season doesn’t give their obligations a break till after the New Year.  For example, I’m still getting calls from customers who really need a house rental by the 1st of January.  Add that two local agents contacted me recently with two new listings in which the sellers need to close quickly.  Then I was contacted by two loan officers who are featuring special loan deals this month including no money down and no document programs for new home buyers.  So much for taking a break at the in December!  The amazing thing that I have learned over the years about real estate at the holidays is this:  buyers and renters have so little competition they practically control the deal!  If you think about it, where are most people you may know today?  Online shopping?  Traveling?  Running down to the grocery store to pick up holiday food supplies and beverages for the big meal?  Getting ready for tonights party/concert/program?  One example I can share recently was on a new home lease listing in Inglewood.  After speaking with the owner he explained to me, that even with the house only on the market for 3 days he would be willing to drop the asking rent $100/mos.  just to get a renter in by year end.  3 days on market!  It takes AT LEAST one weekend and a full week for the public to find a new listing, let alone set up an appointment for a showing!  This rarely happens in the spring, summer or early fall in my market.  Another example is of a seller that I made an offer on a single family house that needed major remodeling work.  A real fixer upper as you can imagine it.  Needs everything.  I asked the seller for several concessions including a very delayed closing to allow the bank (which FOR SURE will be working slowly at the holidays) to fund the deal into early February if needed.  The seller’s response was very generous and said “this sounds fine to me.”  WHAT OTHER TIME OF YEAR WOULD THIS HAPPEN?!?!?  Ahhh the holidays.  Yes, even with the shopping, the parties, the meals, those oh-so-social events that make the spirit of the season so rich and festive, there is still work to be done and deals to be had.  Except this time of year, it can really feel like a one person audience.  I don’t know about you but I like the odds of getting deals closed at the holidays more than any other time of the year.  Happy Holidays everyone and a joyous New Year!

Need help getting your deal done?  Contact me at buyorrentmyhomes@hotmail.com!

Paul Krause is a licensed California Realtor #01835890 and General Contractor #1029575 and is based out of Los Angeles, California.

 

Housing Affordability Trends

Studio Apartment

California’s passing of SB1069 (link here: http://sd10.senate.ca.gov/news/2016-09-27-gov-brown-signs-wieckowskis-accessory-dwelling-units-bill-provide-more-affordable) took the old concept of renting out one’s garage/storage space and made it legal.  Although restrictions exist, the new law is one more sign that housing affordability is just as much a concern for Californians as housing availability.  Homeowners looking to reduce the cost of home ownership have always considered whether to rent out a room or make an illegal garage conversion.  With the law being put into effect it is likely to keep the residential fixer-upper contractors busy for a while.  There are 3 BIG advantages a garage conversion has over renting out a room in your main house.  My top three are:

PRIVACY – There is nothing more odd than sharing a space with a roommate in your home, if its your home and its been years since you have non0family roommates.  The occasional run in at the bathroom or refrigerator can be as meaningless or annoying as you make it out to be, but you have to prepare for it either way.  For some that will feel odd and even find yourself asking “why am I sharing this house with this person?  Oh yeah, that’s right – Because its the only way I can pay the mortgage and have enough money left over to have a life!”  The detached garage/storage space solution eliminates the social complexity of sharing space because everyone has their own space and well defined boundaries.

SCHEDULES NEVER CONFLICT – Come and go as you please in a detached garage/storage space situation but NOT so when you rent out a room.  If you have a renter that keeps off hours, to some extent so will you.  An owner really needs to focus on lifestyle questions in the renter interview process to better understand if a roommate will functionally “work out” or result in a toxic living environment.  Additionally, schedules can change.  A change in a persons job, profession, relationships, etc. can turn a once functional lifestyle arrangement into dysfunctional arrangement if both parties are not willing to make compromises.

PAYING YOUR FAIR SHARE – A detached garage/storage space arrangement makes it easier for the renter and the owner to determine what a fair rent is because the market can be compared much more easily for a converted garage.  Renting a room is almost impossible to find a comparable rent because no two houses are the same.  Additionally some owners do not want renters using in-home laundry facilities and would rather they go to the local laundromat to help keep utility usage down.  Splitting utility billing can also be tricky because renting a room (maybe 100 square feet) is not really renting a room but also the hallway, the living room, the family room, the kitchen, etc.  By going the converted garage/storage space route an owner and renter can agree more easily on what parts of the property will be included in the lease and which ones are not.

Thanks for reading!

 

NEW LISTING! Downey California!

This is a single family house project which I remodeled in Downey California.  I installed a new 3-ton Central Air Conditioning and forced air heat system, new electrical and sub panel, windows, bathrooms, a fully remodeled kitchen with new cabinets and appliances which features a very open floor plan!  Also includes a studio apartment attached to the 2-car garage which has its own 1-ton Air Conditioning system and forced air heat system so its IDEAL for OWNERSHIP AND INCOME POTENTIAL!  Available IMMEDIATELY, Take a look —->

Front EntraceFront Side yardKitchenKitchen 2Kitchen and Laundry roomDinging Room and living roomMaster BathroomMaster BedroomBedroom 1Bedroom 2Bedroom 3BathroomBathroom ShowerBack YardStudio ApartmentStudio KitchenetteStudio Full BathroomTwo Car Garage

What is the Most Important Job Skill?

Job Skills

This question was posed to me this weekend when my son asked me how I do my job.  Working in real estate I work with people from all walks of life.  More recently I engaged services with graduate student name Maria (hiding her real identity).  Maria is a full time working professionals seeking a graduate degrees through night school and online learning classes.  Maria was very concerned about how the deferral of her student loans would impact her affording a new home.  This is not uncommon.  The government has reported student loan debt well into the trillions of dollars (https://www.forbes.com/sites/zackfriedman/2017/02/21/student-loan-debt-statistics-2017/).  When I asked about her plan to pay off her loans she answered that; “…hopefully when I graduate I will be able to apply for a higher paying job.”  This leant me to think about my conversation with my son.  In the 80’s an important job skill was resume writing.  In the 90’s job interviewing.  In the early 2000’s it was networking.  Although these all have importance I am learning that financially independent people learn how to creatively financially engineer every aspect of their lives.  New technologies with crowdsourcing in order to finance real estate, movie, even business acquisition and start up projects is only one example of creative financing.  Let’s also not overlook job skills as a fair “trade” to acquire a service or asset.  One example would be to take an equity position in the purchase of a house in exchange for providing services to remodel and oversee the construction of the house.  One partner buys the house and provides funding for the rehab costs while the other does all the work.  This is a strategy I recently used for a house purchase of a single-family remodeling project in southern California.  With my skills in sourcing materials and labor, my partner can focus on finding funding sources that ensure this project can be completed.  Over the next two weeks I will be discussing additional creative solutions to financially engineer real estate transactions.

What This Single Mom Did To Keep Her House

House

You arrive home tired and exhausted from a long day at work only to find the house is empty and very quiet.  An envelope addressed to you is left in the usual place where you usually place your things when you arrive home.  Opening the letter you find a one page note:

I’M SORRY BUT I JUST CAN’T HERE ANY LONGER.  I’M MOVING BACK HOME TO SORT THINGS OUT.  TELL THE KIDS I LOVE THEM.

Can you imagine coming home from a long day at work to this letter?!?!  Neither can I!

But for Norah this is exactly what happened.  This was a serious problem.  The spouse, father and income-contributor of the family had just deserted a family that very much depended on him.  Norah had to make some hard choices over the next few weeks.  Because she had made the purchased the home she was living in prior to getting married, her primary residence was in her name only.  After sorting out her situation Norah had approached my colleague with the idea of selling the house for $375,000.  She would then downsize into a less expensive apartment that she and her 2 young children could start over.  Norah felt she had enough equity to cover two years of rent but still had sizable monthly bills.  One of the largest bills was her automobile loan, a stiff $400/month.  Norah still owed $9000.00 on the auto loan so the debt wasn’t going away anytime soon.  After learning about Norah’s circumstance my colleague could see she was in a tough position. Not just because of her bills, but because of her life circumstance.  Loosing the financial and emotional support of her spouse, uprooting her 2 young children, selling the house, moving into new surroundings and into a new apartment.  This would be a lot.  My colleague sat down with Norah and looked at her monthly budget.  There was no question that she earned a good living, but the auto loan was expensive.  Looking deeper into the details my colleague found that Norah had the money to cover the mortgage.  She just didn’t have much left over after paying all her bills.  To provide a solution she suggested that she would be willing to buy the house from Norah with a 5 year option.  As part of her down payment, which would be non-refundable she paid off the car note to the bank.  She then originated a promissory note with Norah in which Norah would pay her $137/month for the next 5 years.  My colleague agreed to reduced the auto loan by $1000 and then deduct it against the Option purchase price she offered.  This would keep the monthly auto payment down.  Even better, she told Norah that if during or at the end of the 5 years she wanted to buy out the option from my colleague, she could purchase the house back at a price they would agree to, or a 10% increase whichever was less.  They agreed to the deal.  Norah had to agree to not miss any payments on auto loan and maintain the property(repairs), taxes and insurance.  So what did this accomplish for both parties?

-Norah was able to continue to live in her house and keep the children in the same school district.

-Norah was able to sell her house at $375,000 without hassle by accepting the option.

-For the next 5 years Norah can sort out her financial goals without the pressure of moving and starting all over again.

-Norah will still be paying down her mortgage debt so if she sells the house in 5 years she will still have received 5 years of mortgage interest deductions on her taxes.

-For the next 5 years if Norah’s financial situation improves she may buy out the option and repurchase the house – thus never moving.

-Norah reduced her monthly expenses by refinancing the auto-loan with the Option buyer at a more affordable payment which will leave her with more money in her pocket at the end of the month.

– The buyer’s option guaranteed a minimum of a 10% increase on the purchase price if Norah were to buy out the option.  A 32% return on investment after paying $9000 to pay off the original auto loan.

-Even if Norah doesn’t buy out the option she agreed to continue to maintain the property (repairs), pay the mortgage, taxes and insurance so the buyer has zero property management issues to deal with.

Although Norah could have sold her home, this solution gave Norah favorable options in which to stabilize her life circumstances to give her the confidence to face her financial challenges from a position of strength.

Don’t overlook WIN-WIN scenarios.  The obvious isn’t always the best solution.

Contact me if your looking for solutions to your housing needs!

buyorrentmyhomes@hotmail.com

 

The Seller Carry-Back Solution

seller-financing

So now you have made years of payments to your mortgage and slow steady appreciation of the market has improved housing prices.  But a recent layoff has just caused a sudden job loss.  The severance being offered will only last a few short months.  A review of personal finances reveals that the house payments that the job supported will be almost impossible to carry through the transition from your outgoing job to a new one.  So you make the decision to downsize your lifestyle till you get solid footing with a new job.  However after you put the house up for sale you notice the offers are well below your asking price.  This is where selling TERMS through a Seller Carry-Back could make the difference between selling your home and not at all!  This is a real scenario:

Selling Price = $400,000

Bank Loan = $150,000

Seller’s Equity = $250,000

You up one morning to find an email from a local builder that believes the house has tons of potential.  Their plan is to add square footage and remodel the kitchen and bathrooms based on the pictures in your listing.  But the buyer thinks the price is too high.  Additionally the builder already has multiple projects in process and cannot borrow all of the funds he would need to finance the purchase and remodeling.  What can you do?  Offer TERMS.  Here is how this recent sale took place.  A seller made an offer to the builder buyer, so that, if the builder would pay the $400,000 asking price, the seller would offer a promissory note of $250,000 with no interest and no payments for the amount of the Seller’s Equity till the builder completed the remodel and sold the house.  The builder would assume the payments on the sellers existing $150,000 Bank Loan.  The builder took the deal and opened escrow.  With the house payments being assumed by the builder, the seller could breathe a sigh of relief.  The whole project would last six months, and resulted in the creation of a newly remodeled home that sold for over $730,000!  The seller closed with the builder for the $400,000.   The builder paid back the $250,000 promissory note (the house equity) and the $150,000 Bank loan when he sold the house to a couple that was looking for a new home in that neighborhood.   By selling the house with TERMS the seller created several opportunities:

  1. The seller was able to sell the house for $400,000.
  2. The buyer builder did not have to qualify or apply for a $400,000 loan to buy the house.
  3. The builder assumed the monthly payments on the Bank Loan.
  4. The builder was obligated to a “Promissory Note” for the seller’s equity ($250,000) with No interest and No payments till he finished and sold the house.
  5. The builder only had to obtain a construction loan for  $125,000 to remodel the house to improve the property.  This reduced the builders out of pocket borrowing costs and reduced the amount of leverage he would need to re-sell the house.
  6. The buyer builder made a profit in the tens of thousands of dollars by only borrowing $125,000 using a seller-financing and a seller carry-back strategy, instead of borrowing the entire $525,000 to achieve the same sales price of $730,000!

This deal is an example of a complete WIN-WIN for both buyer and seller and solved the problem for each party involved!

The Lease Solution

lease

In 1992 an up and coming real estate investor/agent found himself over his head in the commercial real estate market — $5 Million in debt!  He couldn’t pay back the loans for his commercial real estate projects.  At the same time many developers were getting out of commercial real estate because the market was collapsing.  Not a single banker would negotiate or restructure his debt.  His loans were causing him such a headache he couldn’t pay his bills including his mortgage.  He had to downsize immediately!  So he put his house on the market before serious trouble ensued.  But he didn’t try to sell his house.  Instead he recognized that his home had value and if he could find a suitable renter, it would allow him to return to his house after getting his financial situation in order.  He consulted several colleagues and determined the best idea was to find a tenant that would pay a full year of rent in advance.  This strategy would allow him to keep his house, even though he would have to move out temporarily.  He called every realtor he could think of and asked if they could knew of a renter who could make a full years worth of payments — up front.  Weeks passed when one morning an associate learned about an athlete who had just retired from sports and was between home purchases.  The athlete wanted to take a couple years to make her next buying decision.  After walking the property the athlete said “I’ll take it.  Would you be ok if I signed a 2 year lease?”  The investor/agent couldn’t have been more excited.  In actuality the athlete liked the home so much she actually stayed much longer.  This gave the investor/realtor the time he needed to rebuild his residential real estate business, which at that time was his only source of income.  It took 8 years — but he did it!  Eight years after he had left his home he was able to move back into his residence which had never gone into foreclosure.  Foreclosures are on the rise again.  If you come across someone facing financial strife please refer them to this blog.  There are more and more solutions available to ease the burden and solve the problem at hand!

Short Sales: Do you need to list with an Agent?

cfk

The loan modification failed.  You’ve shelled out tens-of-thousands of dollars in attorney’s fees.  The impossible-to-pay mortgage payment is WAY behind.  All the agents of foreclosure (Realtors, Lawyers, Media, Guru’s, etc.) are telling you the same thing:  A short sale is your only option.  It’s your only way out.  So it would seem practical that your next step would be to contact a realtor to list the house for sale.  Well — you would be surprised how many realtors I have met that simply focus on “getting the sale” to “get their commission” that they forget the obvious:  the homeowner is the client, not the bank.  Realtors who focus on the sale typically only focus on “what the lender wants.”  If your a homeowner in this predicament remember — TERMS are all that matters to a homeowner in a short sale transaction, NOT price.  A homeowner needs TERMS to ease the burden of dislocation.  Let’s be real.  The homeowner is about to lose their house.  It will be potentially one of the most traumatic experiences of their LIFE.  What should a homeowner do?  This is what I would do — First — I would interview a potential listing realtor.  I would ask this simple question:  “What terms were you able to get your last short sale client at closing?”  If the agent begins to deflect the question with a canned response that is similar to this… “Well with short sales, its up to the lender…”  I would RUN.  Not walk,  RUN!  This is a realtor who has NO IDEA what they are doing!  So don’t be surprised if they get you NOTHING at closing.  NEXT, I would keep calling till I found a realtor that could give me a verifiable deal story.  An instance of how that realtor was able to negotiate time or money.  Or both.  Keeping in mind verifiable means, the agent will give you the contact information of the homeowner they helped.  Like anything else, never assume a story is true no matter what you have heard about a particular realtors reputation.  Verify everything.    Why does this matter for homeowners?  It’s like this:  This is your LAST chance to get help — you have NOTHING TO LOSE BY SIMPLY ASKING.  In addition, you might be surprised to hear what the lender is willing to do to move on in the process.  Most recently I met a homeowner who was offered more than 120 days — 4 months — to find a new residence.  That’s 4 FREE MONTHS OF RENT!   Another homeowner I met was offered over $10,000 by the lender to ease the burden of moving within 30 days!  THAT IS WHY TERMS MATTER!  You never know until you ASK.  If you find yourself in a Short Sale scenario contact me through my blog.  I can help!