74 days after arriving home in sunny San Diego we’ve finally bought our first rehab project, The Painted Lady. I’m real excited about it, she’s a 1909 Folk Victorian Gingerbread. The house is located in an Urban Redevelopment neighborhood just 1 mile from Petco Park and Downtown, with incredible views of the Coronado Bridge and all the way to Tijuana.
There are original hardwood floors under the carpet, 10 foot ceilings, and a lot of original details still intact. This is a huge project and needs just about everything a rehab could require. I’ll be leveling the foundation by adding a new perimeter stem wall and 40 new footings, new roof, re-framing a 360 square foot master suite on the back, replacing all the mechanicals, new kitchen, 2.5 new baths including adding a half bath under the staircase, some new windows and complete landscaping and fencing with an automatic gate on the alley. The house has aluminum siding that’s probably been on there since the 70’s. I peeked underneath it and there’s fiber shingles probably from the 50-60’s . Under the shingles I found the original wood board and bat siding which I’ll expose and also add some of the missing period details like the gingerbread ornamentation and porch decoration the Victorians are famous for.
The Victorian era began in the 1830’s and ran until roughly 1940. Our house is a Folk Victorian, more simple in design than the ornate Gothic or Italianate Victorians, and was usually built more modestly for the middle class. I’m excited to see the scalloped shingles under the gables which I’ll paint multi-color and the decorative gable bracket. This architecture can really hold color well so I’m planning on using a minimum of 6 bold colors to bring her back to life. I’ve done a lot of Craftsman style houses but this will be my first Victorian and only the second 2-story house we’ve rehabbed. With the huge scope of this project it will be a perfect welcome home project and enable me to become reacquainted with the City permitting, historical and inspection departments this summer as well as dial in my sub contractor team. If you can’t see the potential in what we have here, Google “Painted Ladies San Francisco” and you can get an idea of where I’m going with this project. Stay tuned for demo and a walk through design video!
I’m giving 110%, eating and breathing real estate but still haven’t bought anything. It’s been just over 4 weeks now since rolling into town, sometimes you just have to pay your dues so I’ve come to grips with it now. San Diego is so large and to find deals you have to be willing to cover some ground. This week I looked at about 30 properties and made 4 offers. I know the city pretty well after living here for 27 years but I had to buy a GPS to get swiftly around town to some of these unfamiliar locales. Most of the deals I looked at were on MLS and bank owned REO properties. They are commonly vacant and beat up. Some more than others, its common to see signs of past renovations like travertine tile or faux paint jobs from times when easy money and using your home equity as an ATM machine were so popular here. Many homeowners simply ripped everything out when they left and took it with them. A lot of lenders are opting to paint and carpet and then list for near retail price.
One deal I found early this week in the middle class neighborhood of Linda Vista was listed at $168k. It was a great little 50’s rancher 3/3 with a room addition. I pinned the ARV at $299k. It needed complete kitchen, 3 baths, paint in and out, windows, stucco, flooring, and landscaping. I estimated my rehab budget around $60k, it looked real good so I wrote an offer of $172k hoping to grab it quick. This bank only lists their properties on a website, you are not allowed to submit offers via fax or email. Its like the EBay of REO’s.
Whats neat about this system is its suppose to take out all the double dipping as the listing agent doesn’t even control what gets presented, the bank has direct access to the site and picks the best offer. You have to upload your proof of funds and everything to the site. On the last day someone overbid me by 500 bucks and got the house for $172,500. I should have sat at the computer all day.
My direct marketing is working as well, I’ve got offers out on several really exciting projects so hopefully those will come to fruition this summer. I’ve been networking with some other San Diego real estate investors as well, 2 of these guys have alot of offers out and have even offered me some of their deals so I’m real grateful. When you are chasing Short Sales here in San Diego its common to write offers on 15-20 houses and then wait for 6 months. This is the case with these guys and now some of the deals are getting accepted and they don’t want them all. I feel happy with the progress I’ve made during the short time we’ve been back but still anxious to break ground on the first rehab. Stay tuned to see what I’m going to end up with for the first project…
PS. I’m Still Looking To Network With More San Diego Investors, Wholesalers, REO Agents, Short Sale Agents, Contractors and most of all Anyone Who Knows of a Cool House For Sale, Friend me on Facebook or Contact Me here.
PSS. A Special Thanks to Peter for the lead you sent to me on the Real Cool house!
Here’s a great 1920’s bungalow project. It’s a bank owned REO in a highly sought after neighborhood. I missed this deal yesterday literally by hours. By the time we went to submit an offer they had just accepted another one. There’s another great investing tip back story with this house, I’ll share it after I know it’s gone for sure.
“Welcome to San Diego, Now Go Home!” This was a popular bumper sticker back in the day and I kinda feel like the real estate market is telling me this. After spending the first few weeks settling in I’m now excited to started looking at property and assessing the local market conditions. Here’s my take as an outsider just arriving. There are tons of deals here but tons of competition to boot. Several agents have showed me stuff and of course I am searching MLS daily for hours and getting to know the “new” old system. I’ve found the San Diego market to be quite energized with a flurry of seasoned investors, newbies and first time home buyers all competing for what really appears to be a limited amount of inventory. When getting in a bidding war against a potential homeowner for a MLS property you’ll likely get outbid unless its an all cash sale. All the newbie investors that seemed to come out of the woodwork, are also bidding the MLS REO properties up to a point where its difficult to make a decent margin. Some of these guys are settling for skinny profits just to try and keep their volume up. Investors are commonly using POF from hard money lenders, tying up properties with a winning bid and then going back to negotiate round two after inspections. This isn’t anything new but seems to really have listing agents’ guard up here. Local wholesalers are running around town touting their overpriced deals as well. Foreclosures at the auctions have picked up this year substantially but you have several big players to compete with who are paying up to 90% ARV minus repairs. One of these investment groups is backed by Chinese investors and bought over 350 properties in 2010, that’s more than 30 a month. Another group is doing almost the same volume and a third player has about 20 million floating in entry level houses as this has been where the easy sales lie. It was interesting to see that the San Diego Courthouse foreclosure auction is daily, not just the first Tuesday of every month as in San Antonio. That shows you the volume difference here. There are many partnerships of guys doing 5-10 rehabs a year as well and they are all competing for the same stuff.
Being in a new market certainly has its challenges, even if it is my home town. Looking back at our move to San Antonio makes me realize how lucky we were to pick a killer rehab off, right out of MLS on day 3 after arriving. Reality is setting in now, its going to be way more difficult to find juicy deals here. I’m sure I can pull it off, after all we have no choice. There are several avenues I have to chose from, one being to chase down the 3/2 bank owned properties in MLS that basically just need cosmetics like kitchen, bath, flooring, windows, landscaping and paint. With this model I would be bouncing all over San Diego County for sure. The other avenue would be continue with our specialty which is finding the inner city bungalows which are generally 1/1’s or 2/1’s and very small at around 600 s.f. and do the larger structural rehabs adding master suites to them. I viewed quite of a few of these this week to get an idea what my competition looks like.
Here’s a sweet one in the neighborhood that I like. Checking out the rehabbed homes I was interested to see some of the material choices as well as paint schemes. This one is really cool and new construction but some of the other rehabs really lacked the design sense that I know help sell our houses. One rehab selling for top dollar still had some 1970 aluminum windows left in the kitchen, another had some new concrete steps blocking access to the garage and the craziest of all; the top dollar, king of the area rehab that’s now Pending for $650k probably had the worst prep job for paint than I’ve ever seen. This was new construction addition where none of the blocking between the rafters or siding was even caulked before they painted it. The eaves were raw OSB with roofing nails poking through. I was alarmed to see this quality or lack thereof on the highest comp in the area. A new friend told me I should be happy to see this, and I was: ).
The 4-5 adjoining neighborhoods that I have targeted as my new farm still have a plethora of distressed homes in them. These of course are not for sale nor in MLS. We’ve started to ramp up out direct marketing campaign or what I call “the system” that worked so well for us in San Antonio and have been pleasantly surprisedwith a 10% response rate from our efforts. Doing the big remodels will thin out the competition for me as there are no homeowners to compete with, the newbies just aren’t capable and even the big players don’t want to get tied up in a 6 month rehab because they have to keep their money moving, as its borrowed. For me this works great, we enjoy the larger projects because we don’thave to find that many deals a year and we can squeeze every bit of equity out of them by doing the construction ourselves. The big budget rehabs with big profits are where it’s at so I hope I can end up back in this model. You’re not just getting paid for adding the latest “pergraniteel finishes” but you’re adding real value and forcing the house to appreciate by the additional square footage. Hopefully this is where I’ll land but I cant wait forever to start finding them, so we might have to knock a few lipsticks down in the meantime.
Here’s an example of the diamonds in the rough I am finding. There are some great old houses here, its just going to take time to start getting them. If you are a wholesaler or agent and got one of these, or know of one for sale, please contact me, we pay top referral fees. With all the heavy competition here it apparently has corrupted a lot of the local agents. One Top Producing “bus bench ad” agent would not even accept a full price offer when it was Active in the computer, holding out so she could double-dip and represent the buyer as well. Other agents getting REO’s from the banks seem to magically have a buyer lined up at the same time they get around to putting them in the computer, very discouraging to see such unethical behavior. Short Sales in San Diego are all the rage, its easy to get a list of everyone who is upside down in the mortgage and then contact them and offer to help. You don’t have to be an agent to negotiate with a lender on behalf of an upside-down homeowner. Once you get a low offer accepted you sweep in and scoop the deal yourself for rehab. Being new to town I’m being very picky on what we write offers on, it’ll be interesting to see what direction we end up going. You have to stay flexible as an investor and change your strategy for the current market conditions but we aren’t giving up so quick and bowing down to a cosmetic skinny deal yet!