Accessory Dwelling Units with Kristi Cirtwill #DDRE32

Episode Transcript
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Aaron Norris (00:06):
Welcome back to the Data Driven Real Estate
podcast, the podcast for realestate professionals dedicated
to driving business using data.
I'm Aaron Norris with SeanO'Toole with PropertyRadar. And
this week on episode 32, we haveKristi Cirtwill. She's a real
estate investor based out ofSouthern California who's been
flipping houses since 2007. Shespecializes in hoarder houses
and the Accessory Dwelling Unit.

(00:27):
Hey, when it gets hard to finddeals, you learn how to create
them. And that's just what she'sdone. She was an early adopter
and Accessory Dwelling Unit. So,we talked about horror stories,
things you need to know aboutADUs, and why they're having
their moment here in Californiaand in other states as well. So,
you will not want to miss theshow this week. Kristi, welcome

(00:48):
to the show. Thank you for beinghere. First question out of the

gate (00:51):
What keeps you so excited about real estate here in
California?

Kristi Cirtwill (00:56):
I just think the appreciation is just too
great to pass up, I realizedwhat you know, when you can buy
a property and 30 years later,it's just an insane amount.
Whereas if you're buying in theMidwest, which is fine, too,
it's just a different strategy.
I just doesn't appreciate thesame. So, I still really liked
that about California. I likethe weather. Not so much

(01:19):
government policies right now.
But we'll stay focused on thepositive. But yeah, no, I'm here
for, for good. And the ADUs,obviously, we'll talk about
today, if, if they come up, havereally added good cash flow to

(01:40):
my property, so...

Yeah, and you've been such a tremendous resource
for me, as you and I have beentackling the ADU space for
years. I've been working withregulators and some of the
senators that have been writingit, trying to give them some
nuance and some feedback. I'vebeen even working with cities
trying to get them excited aboutADUs. But you were one of the
first investors I knew that wentall in on ADUs. So, ADUs come

(02:04):
up, why did you get excited?

Well, maybe I was a bit dumb being the first
one jumping in when making allthe mistakes and paying higher
fees. But I just got excitedabout them back in, well, I
actually think they came intoplay 2017. But I didn't find out
about them until 2018. Andhonestly, I couldn't believe it.
I thought how can you have anR-1 zone property single-family

(02:34):
and put a second unit on it. Andthat's what these are, they're
not just little tiny houses orsomething on wheels, which you
can also do, but these are, andthey allow up to 1200 square
feet of a second house now. Andif you live on the property, you
can have it, I call it a JADUfor short, a Junior ADU where

(02:55):
you have to live in either theJunior, the ADU or the main
house. So, you can you canactually make three units out of
out of a, zoned R-1 property.
So, when I heard that, I whenJADU just came out, I think last
year but in 2018 I was flippinga bunch of houses and realizing

(03:16):
these could actually make senseto keep as rentals because to
keep a single-family house in adecent area in a decent
neighborhood is really hard tomake cash flow, cash flow off of
that, unless you have 50% downor you know, you pay all cash or
whatever. So, I thought okay, ifI can get a loan and build an

(03:36):
ADU, then I can have, I can havea second unit and now it start
to make sense, so.

And you've been building these in several
markets as well. So, you have alot of experience the 2017 ADU
law. How do I describe, thecities weren't exactly excited
about it. I know several peoplein planning, and they were
actually really upset becausethe state by had forced them to
stop playing games and they gotrid of rules around owner

(04:09):
occupied you know, having tohave the property have at least
one of the units be owneroccupied. They've done all kinds
of things to squash thenimbyism. So, it was just
interesting to see even up tolast year with the HOA is not
being able to include JADUs atus as part of their calculations

(04:29):
for the percentage of nonrental...

Sean O'Toole (04:32):
I'm gonna call it, I'm gonna call it timeout like
because we're like at use JADUslike we've got a wide audience
right? What is an ADU?

Sorry, I'm using all these acronyms I guess
I should explain that are anAccessory Dwelling Unit.

Right. Okay.

JADU, Junior Accessory Dwelling Unit.

And you mentiond R-1. It's so, that's a
single-family home and zoned toonly be one, for one home, one
family, one living unit, right,is what these properties were
zoned for. What, you know, theywere designed for. And now,
because of the shortage inhousing, affordable housing

(05:17):
crisis, the state has come inand said, you can put on a
second unit on thesesingle-family zoned properties,
and they're calling thoseAccessory Dwelling Units. Is
that is that a good summary?
Okay.

That's a great summary. Yeah.

Junior Accessory Dwelling Unit now allows you to
do another one on top of that,and it dive into a little bit
more on the difference betweenthe ADU and the Junior ADU. Are
there different sizerequirements? What's, tell us a
little bit more? Where arethose? Is that now statewide? Is
that everywhere? What's. Where'sJADUs stand?

Well, the ADUs can be, I believe, up to 1200
square feet now. And they can beattached like you can, you know,
put something attached to themain house, you can do it
detached, those were the ones Imostly did, detached,
freestanding, stick-built. Youcan convert an existing space.

(06:17):
So, all the above and it canbe...
It can be garage. Convert thegarage into a Dwelling Unit.
Yeah. So, those are, that's allADU option. JADU option, you
have to convert existing space,you can't build something from
scratch, it has to be like, anexample would be like a master
bedroom and bathroom in the backof your house, you could just

(06:38):
put a door separate so that thatunit could be accessed
separately. Good littlekitchenette in there. And now
you've got like a studio-sizedJADU. JADUs have to be 500
square feet or less. You canalso convert an attached garage.
And that could be a JADU.

Like a 20 x 20 Garage, 400 square feet
converted, had a bathroom andkitchenette.

Yeah.

And people have been doing that for four years
just hasn't really been legal.
And so..

And the funny thing is, is back in the day, I
was buying houses to flip inLong Beach. And there, there's
this inspection you have to havewith which, with each sale, and
they inspect the garage. Well,if there's anything going on in
there, you had to rip it allout. And now it's like you can
put it all back in and legalizeit. Just insane.

I ran into something a little different,
but similar, you know, as buyingforeclosures up and down the
state in the 2000 to 2005timeframe. And in Fresno, there
was these houses that I wouldget it would seem like a great
deal. And you go into thesehouses and they were like, you
know, like amazed it was justthey were crazy how there's just

(07:56):
walls and stuff everywhere.
Well, what happened is somebodyfigured out that the section
eight housing rules, right, theyrequire the bedroom to be a
certain size, the closet to be acertain size, but you get rents
based on the number of bedrooms,not on whether it's a good floor
plan or not. So, people wouldlike turn the living rooms into
like two additional bedrooms,just like these houses just

(08:19):
became like these habitrail youknow, mouse maze, it's crazy.
And there were a lot of work tofix up and I realized why I was
the only one.

Well, and that's a good point. And one of
the things even with myconsideration to build more
ADUs, don't just slap thesethings up. Don't just carve out
a piece of your house and makeit a Junior. Like put some
thought into it. Because theneighborhood's I'm doing it in
are nicer ones. And I don't wantto be you know, that guy who is

(08:54):
just making a mess of theneighborhood. So, it does have
to have some thought put, in putinto it. I think.

I was..

Oh, go ahead Aaron.

I call it being a cramlord, you know, cramming all
the square footage, ruining thequality of life and possibly the
value of not just the rents butthe property if you do it wrong.

Right, right.
And sometimes, yeah, like agarage could be worth more as a
garage, don't just convert itbecause it's there. But if it's
appropriate to do so, do it. Imean, the cash flow is great off
of these units.

Garages most important room in the house to
me.

Sean has quite the garage. Got the best.

So, you know, you touched on that, you know, the
quality of the neighborhood,etc. Right? When, when all the
other people in thisneighborhood bought in this
neighborhood they bought into asingle-family neighborhood.
That's what it was zoned. Imean, let's talk about that. I
mean, how do you feel about, Imean, there's an opportunity
here for you as a landlord,right. And but, is this really

(10:00):
the right thing to be doing? Imean, affordable housing is
clearly a problem but, geez. Youknow, having three family units
with a ADU and a JADU, you nextdoor when you bought into a
single-family residence and allthe cars and the rest is that,
is that really the right thingto be doing here?

Well, like I say, it's got to be neighborhood
appropriate. There's just someneighborhoods, it doesn't make
sense. But you know, some of thethings and we've talked about
this, Aaron is what makes a goodproperty to add an ADU? Okay,
well, you don't want to justlike start throwing things on
there. But if there's a backalley access, where, you know,

(10:38):
there's a place to carve out aparking spot next to the ADU,
then is that even impacting theneighborhood negatively in any
way? I don't think so. So, andI, and it's providing housing
for somebody. And I think that'swhy these are getting rented up
so fast as they're smallerunits. They're brand new. It's

(10:59):
not like a condo where you haveshared walls. These are mine
anyway, are mostly detached. So,they're just a separate
building. So, to me, it's, it'sone solution to the affordable
housing crisis.

Is there off street parking requirements,
like the you know, you're goingto add more another ADU or JADU,
you, do you have to add likeanother off street parking area?

I don't think there's any, any restriction on
parking at all these days. Imean, you're supposed to be
within half a mile of transit orwhatever. But, I mean, that's
never even come up as an issuewith any of the cities I've
worked with.

Oh, okay. Yeah,

Yeah. And the thought behind it was to the
affordable housing issue. Thiswas the, a very creative way the
state really forced the hands ofthe cities because some of the
bills like SB50, here inCalifornia were medium density
was supposed to be put alongtransportation corridors. By the
time it landed at the locallevel, council members were
getting complaints from theNIMBYs and it would get squashed

(12:03):
and you're like, 'Well, how dowe do this then?' So, it
leverages existinginfrastructure. I thought it was
one of the most powerful thingsthat they've ever done and then
they've systematically whateverthe city's came out with trying
to stop them. The state has comeon top said stop playing games.
Then you have other cities likeSan Diego I hear they're in
discussion to allow up to eightunits on R-1 lots that are large

(12:26):
enough. And you're like, what?

Whoa.

I don't know if that's gone through but I I've
been watching several differentcities do very creative things,
even Tiny Homes, Tiny Homes donot fall under, those aren't
stick-build. Those are, youknow, are under DMV rules. So,
but some of them are nowallowing them as part of their
ADU regulation. So, you reallyhave to check at the local

(12:52):
level.

Well, and the cool thing is, is they're so
creative, thoughtful designs outthere, it's not like mine where
I just like was so excited. Ijust built a stucco box, which
are still really nice, butthere's some cool designs going
up and and it's attractive. So,it's not taking away from, from

(13:14):
the neighborhoods, in myopinion. Out of all the ones
I've seen.

Walk us through your journey you were one of the
first to get out there reallystart doing this. And you know,
and I mean even yesterday, I sawyou posting about you know, cool
furniture to make these placesmore usable. So, walk us through
your journey where it startedand kind of where it is now.

Well, um gosh, do you want the hoarder home bit
too? Throw them in there? Orjust the ADU bit?

Throw in the hoarder home?

Well, I, I've moved, I'm so naive, I just opt
in move one day to Californiato, and I landed up in Long
Beach. And that was right in2007. So, I didn't know any
better. I didn't know about theups and downs of California, I
just showed up. By the time Igot my immigration stuff figured

(14:08):
out by 2008 I turned around inthe same house I was looking at
the year before was 40% off. Andlike how, how does this happen?
How does this 600,000 house godown to like 350 and so, that
was the start of my career. So,I, the timing worked out
perfectly actually because Istart buying these houses on

(14:30):
sale. So, I started flipping andthen a lot of the homes
initially came off the MLSbecause they were REOs or short
sales, that sort of thing. Andit sort of turned into more of a
referral-based business for me.
Come 2014 or so. I startedbuying everything based off
referral. So. that's when I sortof fell into the hoarder home

(14:53):
niche just had a knack withworking with, it's it's a really
interesting and sensitivesubject. And I think when you
can go and still respect peopleand know that they know they
have gotten themselves in a bitof a situation and they need
help, then that sort of becamethe niche there. So, I'm still,

(15:14):
I'm still a flipper at, atheart. But over time, I
realized, oh, I've got a, I'vegot a hold some of these and I
had a bunch of rentals that justwere way too high maintenance.
You know, they were, they werecondos. And in Long Beach,
mostly, and just too much work.

(15:39):
Like, you shouldn't have to,like, work so hard for passive
cash flow, you know, even after,you shouldn't, even after you
have a management companyhelping you. So, got rid of
those. And that's when Istarted, really kind of doing
the Mike Cantu method where, youknow, start buying better assets
and better neighborhoods withbetter tenants. And I thought,

(16:00):
well, how am I ever going to dothat? When it just doesn't
really make sense for cash flow?
And that's when the ADUs kindof, I heard about that. And I
thought, okay, now this sort ofmakes sense. Because what you
don't get off in the main house,you make up for with the ADU.
So, that's, that's been the, thejourney over the last dozen
years or so.

So, your first ADU was in? You said, 2018?

Yeah, well, I learned about it. And I had a
batch of houses that I was goingto flip and I thought, 'Wait a
minute, if I keep all these andbuild ADUs , then these work.'
So, I built six, like right outof the gate all in different
cities, learning the differentrules and halfway through
finding out I was supposed to beliving in because back then they

(16:50):
had a covenant, you had tonotarize and record to say
you're going to live in eitherthe main house of the ADU, you
will I couldn't live in fivedifferent places at once. So, I
had that challenge to overcome.
And now apparently you can youcan get that covenant removed.
So, I'm looking into that myfriends already looked into
that.

You're not living in five houses anymore, or
you're getting out of that?

Am I buying more houses?

The five you already had, you're not having
to live in all five of them.

No, no, no.
Well, technically, I suppose Icould, you know, one, one day a
week I bounce around, but that'snot very convenient. So, yeah,
so, so, I did, I did five I kepthis rentals, one, I built two
flip. I didn't have anyappraisal problems with that one
because it was actually built onanR-2 zone property. And I have

(17:44):
three more in the works, I'mactually doing my first JADU.
So, I will convert a garage butit is appropriate to do so into
a Junior ADU. So, I'm doing thatas well, so.

Interesting. Can you share a little bit about
cost?

Sure.

Yeah, what does it look like?

Yeah, so, I think the costs have come way
down. So, in 2000, so, I builtthis the six I built I started
in 2018. And I finished I thinkearly 2019. So, the cost back
then on average, the soft costso, basically the design the
architect the structural thesubmitting the plans at the

(18:36):
planning department, and permitso all the stuff before you put
the shovel in the ground, onaverage I was paying about
20,000 per city. So, I think onthe low end 18,000 up to 25,000.
So, in that range and that thatwas just for you know those soft

(18:59):
costs. The construction, I wasgetting at that time 1,080
square foot is what I waspaying. So, now I'm sure that
would be more I justeverything's gone up, lumber has
gone up, for minimum wage,they're talking about raising
that. And it's not just minimumwage, it's like now the skilled

(19:22):
guys are making 18 an hour theywant to be bumped up to so, just
everything ends up going up. So,it's it will be more now but
basically that's what I wasbuilding them for. So, the
construction was 180.

And how are big the units are you building?

On the low end, like a studio size, like 440
square feet. And then I've donea couple one bedrooms and two
bedrooms. I think the largestbeing 755. That was a two
bedroom.

500 square feet.
That's 90 grand plus 20 grandand soft costs 110 grand, and
what do you get for rent? Forthe, for the ADU?

So, I'm running the one bedrooms, I'm getting
1800. The two bedroom? Wellactually I have that property
sublease. So, I have somebodypaying rent for the whole
property. So, I actually don'tknow what he's getting for that
at ADU. But I mean, 1800 easily,and that, that, that would be

(20:29):
for the smaller one bedrooms.
So, I've got a 500 square foot,one bedroom in North Orange
County, that's 1800. So, it's,you know, and it costs 130 to
build or something, you know, itmakes sense. It meets us for a
1% rule or whatever.

Yeah.

You go by.

Right. So, 1800 times 12, 18,000 plus 36,
22,000, roughly a year, you'reincreasing your property taxes
by a grand you increase, maybesome probably have the folks pay
their own utilities. So, yeah, Imean, that's a pretty, a pretty
good return on investment.

Yeah, yeah, it's, it's decent. And one of
the things I like about anything that's new, is you don't
really have any problems with itfor, you know, you shouldn't
have any problems for at least10, 10 years or so, you know,
because everything's new, theroof, the heating, the air
conditioning, you know, youmight have some maintenance here

(21:33):
and there, but, you know..

I would do that, right? Is $20k, you know,
$20,000 grand, and new incomefor $100,000, $110,000. Like,
that's almost a 20% return,right?

You, you can literally, if a homeowners build
these in their backyard, theywill pay for themselves in three
to six years. I've met withhomeowners to show even if you
borrow the money, and you takethe rent from that and pay it
all towards just paying off thatloan, you can have these paid
off in three to six years.

This is where we're seeing the rise of
companies. And I can't rememberthe name of it. But I saw a
company out there that sayinglike, we'll build an ADU in your
backyard, right? And we'll splitthe rents with you. And it's
still a pretty amazing return.

Oh, yeah. Yeah.
Um, I wouldn't do that,personally. But yes, I've heard
of that being done. I am workingwith a company ADU Resource
Center. And they're helpinghomeowners, like get started
because people generally justdon't even know where to start.
And to me, it's, you know, youfigure it out. But some people
just, it's overwhelming,especially now, you can't even

(22:39):
go into the cities, you have totry to figure out who to contact
online and all this stuff, so.

I gotta say, as a homeowner, like the idea of
having somebody living in mybackyard, like doesn't have a
lot of appeal. Right? But forthe, for the landlord, right,
where, okay, maybe they get alittle less rent for the house
in the front, because they'veput a house in the back is
probably not meaningful, lessrent, and it's a huge change in

(23:08):
their return on investment.

Yeah, and people are doing it for
different reasons people areactually building, I mean, they
used to be called granny suitesfor a reason. You know, you've
got another place so you canbuild and house family members.
So, some people are doing thatinstead of putting their parents
in an assisted living home,they've got them right in the
backyard, you know, so, that'ssomething that homeowners are

(23:33):
doing. Yeah, I get it, thatthere's been some resistance
with families with kids who justthey just don't want a tenant in
their backyard. But you know, ifyou're single or a couple or
whatever, and you don't mind,you know, having one of these
things, you can create separatepathways to them, separate
backyards. So, it's veryprivate,

Right.

In some cases,

When they're designed well, like on corner
lots, I mean, it could be a verydifferent living existence. In
that I, I'll link a video Icreated on ADUs, because we kept
getting this question I sort ofshared the three ways to find
ADUs. And one of those is thatvery hyper, hyper-local expert
that knows a specificneighborhood and understands an
alleyway in the back basicallymeans you have two separate

(24:19):
units with a fence in the backand they're living different
existences. It's great.

There's different styles of houses that
work better. And that's a greatpoint, Aaron, because I'm about
to market to one neighborhood inparticular, where I just like
the style of the house. It's thehouse is almost set off to the
side and it's connected by abreezeway to the garage. So, in
behind that garage, you've got awide open space to create a

(24:45):
detached ADU with a separatebackyard for it and you don't
even know, there's no impact atall. You just walk down the
middle and you either go to theleft or the right and you don't
even see the guy next door. It'sjust like having a neighbor.

Have you gotten much feedback from tenants as
far as any anybody sayinganything or you bought the flip
and added the ADU before eithertenant moved in?

I did all the above. So, one property, I did
have a tenant in place. But hehappened to be my property
manager. So, I said, Okay, I'mgoing to build an ADU. And I'm
going to...

Another management unit.

Yeah. And I said, you can, you can rent it,
this is how much I want. And Iknew he'd get substantially
more. So, he was making moneyoff it too. But it got me to,
allow me to build it. But I knewhe was going to move anyway,
eventually, so we ended upbuying his own house. And now he
just rents both of those unitsseparately, and there's no

(25:47):
problem with either tenant. Theyjust know, that's what they're
getting into when they, whenthey rent it. Another two other
ones, I actually rent both thehouse and the ADU just to one
tenant. So, they rent both sothey either they rent out one
themselves, they sublet it, orthey have other family members,

(26:09):
and they just all pay the renttogether.

Interesting.

Especially going into the JADUs, I saw you had a
Facebook post, I think was justyesterday, the day before, where
you're like looking at Murphybeds and stuff like that. So,
you know, talk to us about like,what are the, what do you think
the best practices are like interms of like maximizing these
smaller spaces and making themcool, do you? Do you do them
furnished like with a Murphy bedand stuff? Or unfurnished? Like,

(26:36):
where's that at? And where doyou think the future is?

Um, I do both.
So, some I've rentedunfurnished, a couple others I
have furnished, I actuallyconverted existing space above a
garage that was alreadypermitted as a rumpus room. So,
I converted that into an ADU,and that one is actually up in
Lake Arrowhead. So, that when Irent, I rent furnished, it's

(27:02):
just easier to rent themfurnished sometimes. So, it's
not that much. I mean, it costsyou the upfront to put in the
furniture and, and pay for that,but kind of pays pays for
itself. So, I think it's case bycase. Generally, if you can rent
it, unfurnished, it's probablybetter because then you don't

(27:24):
need to maintain everything. Butsome of these spaces, smaller
spaces. I think it's a draw tohave them well thought out even
more so than the bigger spacesbecause there's not that much
space to work with. So, maybeinstead of putting in, you know,
like, do you really need adishwasher and a 400 square foot

(27:47):
ADU? Like, maybe not maybe thatspace is better used for? You
know, something else? So, caseby case, and you have to just
think about who's going to be inthat unit? What type of renter,
you know, who you'd be rentingit to? So, that sort of thing?

Is everything then stick-built so far? Are you
starting to look at a prefab, ortiny homes or some of those
options?

I've looked at a prefab that somebody else did.
You know, and I tried to talk tohim about the numbers and it
doesn't seem like it's reallymuch cheaper. By the time you
have to drag this thing in or orcrane it down or whatever. It
could be. I think it's justpersonal preference. It was

(28:39):
really nice. But I thinkprobably with my crew,
stick-built is better becausethen you can customize it really
the exact way you want it. So,to each their own. I don't do
that all the way.

You're doing all stick built so far.

Yes.

Cool.

Early on the vacation rental ADU got squashed
pretty quick. So, there's a, Ibelieve most cities have a 30
day minimum. Do you know anybodydoing sort of the furnished
rental for traveling nurses atall and really exploding income?

Um, I do know some some people who are renting
rooms to travel nurses.

Okay.

Um, and that seems to despite, you know,
everything going on with, withCOVID. That still works. In
fact, they're probably the mostcareful tenant out of anybody.
So, they, they'll rent rooms itseems to be what's more
affordable rooms in North OrangeCounty right now. And even Los

(29:43):
Angeles County are 950 on thelow end, that's what rooms are
in a nice house or renting for.
So, and that's furnished, that'sfurnished. So, I think there's a
niche there, if you don't mind.
A little bit more turnover, youknow, every three months renting
rooms? It's a, it's a niche toget into.

Have you had any problems with things like mail?
I love that you have, I'm ableto ask this to you because you
have different counties, you'veyou sent me examples of three
different counties that you haveADUs in and, and each area
handles ADUs slightlydifferently. But mail has always
been a big concern, how do youdeal with that?

Um, I haven't had any issues. Like, it's
weird, because most of thecities want you to put up the
separate ADU number. So, whenthe city issues, whatever that's
going to be sometimes it's, youknow, the main house is 123. And
then the ADU is 123 and a half,or 123-B, or 123-A, or 125. You

(30:50):
know, like, it all depends oncity by city. So, you have to
put that address somewhere. Andyou just sort of figure out
where to do it. Sometimes it'son the front of the garage. So
you've got the main house on oneside and the ADU on the other.
So, sort of weird, and you'resupposed to have two mailboxes.
Okay. So that's just how I'vebeen doing it. so far, so...

Because of 911, having two designated postal
addresses, and I guess, yeah,addresses in that sense are
required. We're not seeing thatcome through in public records.
Right. So, public records stillcalls the APN. Right, and that
APN has one address assigned toit. So, these are a little hard

(31:36):
to find in public records.
Still, at this point, thecounties and cities haven't
really, you know, come up with astandard approach to that.

Yeah, I mean, I guess the biggest issue is when
you're trying to get fooddelivered, and you know, which
door do they knock on, theycan't really figure it out.
That's sort of more of theissue, the mailman sort of
figures it out, you know, overtime, but it the doordash guy is
still a bit confused. So, that'sreally the only issue

First World problems. How about utilities?
Do you make a habit of forcingthe tenants to split? Does that
change by city what theyrequire?

Yeah, you know, if I could go back in time, I've
maybe I would have done this alittle differently. So, city of
Bellflower made me put in my ownseparate water meter of 50 $800.
Later just to install that plusthe, you know, the digging of
the trench and everything elsethat needed to be done. But in

(32:38):
the end, I have two separatewater bills. So, is that going
to pay for itself? I supposeover time, it's, it's good.
Other cities just send you theutility bill all in one bill.
So, it's not separated in anyway. So, for one house, I just,
I just pay it as a landlord, Isort of estimated based on

(33:00):
previous bills, what it wasgoing to be for both units. And
with the understanding or evenwritten into the lease, like,
you know, the bill can't go overthis or you're going to start
paying for it or pay the extra.
So, that's sort of how I've doneit. I've just paid charged a
little bit extra for theutilities. And it's covered that
way. But yeah, should I haveseparated them? Maybe.

You have some pretty hilarious horror stories
about some of the things thatyou've run into. And I would
love for you to share a few ofthem.

Oh, boy, where do we start?

How difficult is it is city so tell us a city or
a story or county?

Well, I'll tell you a project I'm working on
right now. In case there's anylisteners who have any contacts
in the city of Los Angeles thatcan help me. I've had a project
submitted since November 2018.
And I'm still waiting forpermits.

How many... so the ADU law says they've got 60 days
or else it's considered gonethrough. Why can't you just
barrel forward?

Well, I did contact Greg Nicholas, by the
way. But he really is only incharge with ADUs, I think. This
also is a lot split. So, so aminimum lot requirement in city
of Los Angeles is 5000 squarefeet. Well, I bought a property

(34:32):
that's 13,000 square feet on acorner lot, so I'm splitting it
in two. It's already zoned R-1.
So, I don't even have to changethe zoning. But there's two
houses on the lot. So, somewherealong the way, it was probably
zoned, you know differently R-2or something but it got re zoned
R-1 so all I want to do is splitthe lot into two. The houses are

(34:53):
already where they should be onthe lot and then renovate the
houses. And build the ADUs. AndI've had plans submitted since
November 2018. So, in, inJanuary 2020, the rule came out
where if you're going to buildan ADU the cities are supposed

(35:13):
to get back to you within 60days. Okay, then COVID hit. And
that is, I mean, that's just ajoke. Now, just know, where is
anyone getting back to you intwo months, it's more like four,
maybe five months. But becausemy project has a lot split as
well, it's, it's just taking along time.

It takes 4 months to have a new sign approved on
one of my commercial buildings,like, it should have been over
the counter, like in a minute,took four months.

It's really insane, you know, it's there
really isn't a housing problem,it's just more of a red tape.
Bureaucratic problem, that'swhat it is, because and if I can
just get these units on themarket, you know, living in one
and three other units, that'sthree housing units I could be
providing to LA residence, andI'm just at the standstill, they

(36:09):
just keep passing the buckaround to the next guy. And I
just, it just goes nowhere. AndI'm not sure what I can do about
that, so.

Anybody that's belt blaming builders,
investors, etc. for affordablehousing is out of their freaking
mind. It is 100%, yourgovernment officials and
yourself for being a NIMBY,right, like, almost, it's so
crazy, all these folks who say,Oh, you know, I want affordable

(36:38):
housing, we see it here and talkall the time, everybody's like,
the housing is unaffordable,it's not, it's ridiculous. And
then somebody proposes a newhousing development, they're
like, we shouldn't allow anymore building up here. This is
Taho. It's beautiful. And it'slike, pick one, right? Like, you
know, it's it, it's either goingto be unaffordable, and and not
and not very many buildings, orit's going to be affordable. And

(37:00):
we're going to do a lot ofbuilding. Like, it's a choice.
You don't get ...

This is really tough, because you've got people
who just want things left theway it is. On the other hand,
you know, here I am the smalldeveloper trying to put to
improve the neighborhood. By theway, the city wants me to add
three lampposts or streetlightsor whatever. But those got to be
five grand a pop. So, that'spart of the project. They'll

(37:28):
approve it, but I have to do theimprovements on the street.
Okay, fine. I'll do it.

Just for the last split?

Yes. Yes. So, I'm improving that whole corner.
It's on a quarter corner lot.
So, I'm improving that, thatwhole corner, you know.

It's maybe a mistake, like if you put it,
I've done a lot a lot splits,right, where they're like, you
know, even where they've said,we won't allow lots but they don
t have any basis, like a lot splt. If it meets the req
irements, you can just do it,it's 1200 bucks, and you're jus
done. You think if you'd subitted the lot split sep
rately from then the ADUs, lik, maybe submitting the whole thi

(38:08):
g as a package is part of theproblem, or?

I think so, in hindsight, that's the way the
planner told me to do it, ortold my architect to do it. And
we just went with that. And Ididn't think to question that.
So, yes, next time, I'll justsplit it and then, you know, do,
do the billing, because thatmight have gone faster.

Have you reached out to the city council number
yet? And..

Okay, the city council member was just charged
for fraud because they found$120,000 in his in brown paper
bag in his closet. That was mycouncil member.

Yeah.

Was it your $120,000?

No. So, and I did call him before I knew this.
And I said, you know, I'm thissmall. You know, I live in the
neighborhood. I'm trying to dosome improvements. Can you help
me? I never got a call back.
Well, he was I'm too smallpotatoes for this guy.

We've got to leave, I have a brown paper bag
and I know what to put in it,then you would have gotten that
call back right away.

So, what's so crazy if the city of LA was
doing what you did, it wouldcost them $1.5 million. Because
with their HHH funds, it's onaverage 520 grand per unit that
they're building. So, I look atthat and it's just a sin. It's
just so upsetting to me, thatthis kind of stuff happens.

Well, that's that's the, you know,
unfortunately, most things wesee around affordable housing
outside of this ADU thing rightare about how do we use other
people's money to buildunaffordable housing. It's not
about affordable housing at allright? It's like 'Who are we
going to tax to buildunaffordable housing' and then
give it away in a lottery tosome lucky person, but then

(39:56):
we're not going to give them anyof the advantages. We're going
to make them buy this house, butWe're not going to give them any
of the advantages of owning ahouse because we're gonna deed
restrict it so that they get noappreciation. It's just like,
how could we screw this up more?

So, you're saying I should move at a state?
Is that what I should do?

I think you should do exactly what you're doing,
and. You know, I mean, here's,here's the, my bigger picture
thing, like I still live inCalifornia, right. So, why we're
on the California topic, right?
Like, you look at all the bestplaces in the world, right? So,
you know, Trump said, we don'twant people from the shithole
countries, we want people from,you know, the Scandinavian
countries. Well, guess what,they all have way higher taxes

(40:37):
than we do here in California,right? Like, all it, it kind of
comes hand in hand. If you wantto live in a great place, you
get a bunch of this stuff withit. Right? It's it's just, it's
part of the trade-off. You cango live in armpit places in
America and have less taxes, andlet's see, oh, but it,
California is pretty awesome.

(40:58):
You can wake up in the morningand go scan and be surfing in
the afternoon. And, you know,stop by wine country in between,
like.

I totally agree. I totally agree.

I'm willing to put up with a lot. It feels like
right now, though.

Yes, it's it's overwhelming some days, but
just, I've learned to just chillout about it. You know, some
days I get riled up and I fireoff an email or make a phone
call. And then the next day, I'mjust like, hurry up. You know,
it is what it is. And I'll I'llget to it. At some point. It

(41:33):
wouldn't be nice to have thingsgo faster. But it is what it is.

Well, let's say in the state of California, and
it's not just California, who'sbeen focusing on these. I know,
Washington has been a bigproponent of Accessory Dwelling
Units. I really like this as asolution.

Oregon.

Yeah. I mean, we're not alone. But here in
California by right, you as aland owner should be able to
build one Accessory DwellingUnit. There are some exceptions.
There is safety, public health.
One of the things I was toldearly on is if you're on a lot,
and you look overhead, andthere's a power line, you just
be careful. Don't assume don'tspray and pray. It's the wrong

(42:09):
approach with ADUs. I know youhave an environmental story as
well, with liquefaction. Yes?

Oh, yeah. Yeah, I got one of those. You want to
hear that one too?

I do. I Well, I I want to warn people, because
those are the kinds of thingsyou buy in assume you're going
to do it. And then a year later,you're like, Oh, my God, I wish
I would have known.

Oh, yeah, I I've made all the mistakes
literally.

Let's start with what is liquefaction? Like, I'm
gonna keep bringing us down.

I don't even know if I know how to explain
this properly. It's where yourhouse is sitting over some type
of water table. So, on the NHDreport, there's actually a
little thing that says are youin liquefaction? Okay. I never
paid attention to that. Whoneeds to know that for any
reason? Well, this house Ibought. I bought it was a

(43:01):
hoarding situation. So, I don'thave, I don't make the seller do
all those disclosures anyway.
Well, I never knew and I justplowed ahead and started my ADU
design. Well, it was inliquefaction. So, what does that
mean? You basically have to digup. Yeah, it's it could be
perceived as unstable soil. So,what you have to do is stabilize

(43:23):
the soil, you have to dig up thewhole area. So, even if you're
ADUs only taking up a portion ofyour backyard, you have to dig
up the entire backyard, all theway to the lot line, five feet
down, and then put one foot ofdirt back in at a time, compact
it with this thing. Get a thirdparty engineer to come over, put

(43:46):
poke a stick in it. Say Yep,that's good. Put another foot
back, get him back the next day.
It's just this process. And ofcourse, there's nowhere to put
all the dirt you're digging fivefeet down. So, you have to do
one side and pile up the dirt onthe other side. Compact that

(44:06):
side, then dig up the otherside, pile it on top. Then you
have to get more dirt in becauseyou've just compacted it. So,
you need more dirt. It's, it's aprocess. It's a process.

I bought a house back in 2012 and the foundation
was triple the cost of what Ithought it would be because it
had to meet 100-year flood and100-year earthquake
simultaneously. Right? And I'mlike, okay, there's a bunch of
stuff in my town that's beenaround more than 100 years and

(44:43):
there hasn't been 100-year floodand 100-year earthquake that
happened at the same time,right? Like really seriously
like at this foundation is justincredible, right like you think
it would be for like askyscraper or something and it's
you know, a two story to onesections are one story and it's
like, what are we doing? We'remaking housing illegal.

Yeah, the new rules, they make you do all
these things. And okay, well,it's fine. But it seems a bit
excessive when you have like,like, my, my home in in Los
Angeles is 1913 or something.
Okay, it's still standing. It'slasted all this time. So, they
must have done something rightback in the day. But yeah, a

(45:30):
lot, lots of new rules for new,new builds.

Yeah.

If I'm a real estate investor, where, you
know, lessons learned, if anote, from a tactical
perspective, I've shared andI've talked to manufacturers of
ADUs, you know, a lot minimumsquare footage that you've
experienced work well, is it a10,000? Like five to 10,000?
range? 7000? Do you have apreference of how much dirt
you'd like to see?

Um, no, I mean, 5000, preferably on the smaller
side, but it just all depends onthe shape of the lot and sort of
how you can, you know, build onit. If it's got that access way
from the back, it's, it's mucheasier. Corner lots sometimes
work pretty well, but you havethe setbacks now on two sides

(46:22):
for the ADU. The setbacks now,by the way, are four feet, so,
they used to be five feet. Insome cities, they were 15 feet,
I know, I built one 2018, therewas a 15-foot setback from the
rear. So, you just have to sortof know the rules and figure out
where you can put one that sortof makes sense. So, yeah, 5000

(46:44):
on the low end, I would say ifyou can, the bigger the laws can
be easier, the more flexibility.

Yeah, a fun little trick in PropertyRadar is to get
the square footage, and thenstart zooming in and look where
the house is placed. And you canreally create your own
customized list. And if you haveinsights on I had one ADU, real
estate investor, I actuallythink it was in Long Beach,
where he knew where there was analley, but also where it was

(47:11):
easy, very easy to connect tothe sewer line. So, it wasn't
expensive. So, he had sort of aninside track. So, man, those
hyper local insight, super cool.
Now, an opportunity we have totalk about is upzoning. So, if
ou're paying attention to athe local level upzoning o
portunities that haven't even ht the realm of public record. L
t's talk about that. So, if yu have an R-2, you can build a d

(47:32):
plex and have two ADUs, c rrect?

Yes.

I, and let's.
Okay, you've got...

R-2 just became an R -4.

Correct, if you have an R-4 you can build four
ADUs. And guess what kind offinancing you qualify for?
Standard.

Oh, residential one to four so, you, you get
residential financing and youcan build eight units. You're
gonna have eight units.

Yep.

Ah, it's a good one. Aaron. I didn't know that
one.

So, one of my favorite projects I heard about
was a real estate investor whoowned a triplex and I thought
this was really smart. It was ona rather large lot. He's like,
Yeah, what I've decided to do isbuild garages with ADUs on top
that I will rent separately forwhomever wanted to use them. I'm
like, that's so smart. You'reincreasing the quality of the
units themselves and thenbuilding ADUs and he was just

(48:29):
really happy. I'm like, Yes,more of those. So, there's just
a lot of...

What becomes the difference between a unit and an
ADU at that point? Like we'regonna call four units, and we're
gonna call four ADUs? Is therea, is there a technical
difference?

I don't know.
That's weird, no.

I don't I don't think there's any actual
difference other than maybe thesetbacks are a little more
favorable for ADUs. And that'swhy I built and there was only
room for one additional housingstructure on this R-2 things
that I built last year, a coupleyears ago. But so, I called it
an ADU because the setbacks weremore favorable. So, in terms of

(49:09):
the actual space, there's nodifference but in terms of what
you want to do, maybe to get itreappraised that might be a
little tricky. I did have someappraisal issues in the past. I
don't know what those are like,currently, I haven't done
anything recently.

I'm, I'm still hearing that appraisers, they
still don't know what to do,because there's not enough
comps. I think the closer youhave, R-2, R-2 properties, if
you're on a single-family withan ADU you have more of a chance
of them comparing it to aduplex. But yeah, they're
creating an average squarefootage cost and carrying it
over into the ADU which is notgreat because it's the most
expensive square footage crammedin a small space. For flippers

(49:49):
that are doing at us. I continueto see the problem unfortunately

Yeah, and and going forward. I always want to
have a couple different exitstrategies, even if I'm selling
Flipping. What if I can't flipthis due to it not appraising or
due to the market dropping? Orwhatever the case may be, I
don't want to just be relying onflipping. I want to have another
game plan, just in case.

Look at you being all smart? Well, what are you
excited about in 2021? What doyou plan to work on this year?

Well, I'm definitely I'm excited to get
these three, three more ADUs, 1JADU, 2 ADUs built out. So, I'll
be working on that this year. Assoon as I get permits. I do want
to continue my, my hoarding, youknow, marketing, which is, you

(50:49):
know, some days I don't do toomuch, but honestly, it's all
word of mouth. So, I just havejust kind of stay in front of
people. And nowadays, I can't domy, my little wine and cheese,
open houses or, you know, gettogethers. So, it's all online.
And that's why I've realized Ineed to be posting these
pictures. I mean, I havepictures from a dozen years of

(51:11):
all kinds of stuff I've steppedin and all, you know, before and
after, I might as well beshowing that because I'm still
in that business. So, I'm stillgoing to just do that. And just
be mindful that we might have aadjustment coming in at some p
int. I mean, you know, the mrket and prices last year went u

(51:32):
. 15%. Okay, who would have tought, you know, you have a p
ndemic, and prices go up? 15%? Idon't think they're going to d
that this year. So, I just wnt to be cautious of that. But
eah. I want...

Gamestop is breaking the stock market right
now.

Yeah, I guess I want to look at each deal
creatively, I don't want to justrun it for the sake of buying
something, I want to look ateach deal, you know, how can
this be a win-win for me and theseller? Could I do something
with this to, to not just flipit, but maybe to keep it and
build an ADU and have it as arental? Or could, I could I, you

(52:13):
know, sell it to someone or Idon't know, I want to get
creative with it. I think that'ssort of my, my ideas for this
year.

Hoarder houses are particularly just crazy. And you
know, it's one of those caseswhere I don't think people
realize how much value investorsadd in, like taking care of
problem properties and gettingthem back to the point where
they can be financed because alot of these houses that
investors buy, aren't, you know,aren't financiable, they aren't

(52:44):
sellable. Like Like, ohinvestors flipping a house, but
you know, without that flip,nobody's behind it. Because, you
know, you know, you can't getfinancing.

You have to be really creative with those
properties because you'redealing with a problem property,
but you're also dealing with aperson who has some issues, they
can't just up and move. That'snot that's not realistic, you've
really got to help them throughthat process and figure that
process out with them. So,you're dealing with a lot so I

(53:14):
think that's what I like aboutthose is figuring out how to how
to help a person and getting adeal for myself. Make it a win
win.

What is harder marketing even look like? Are
you rolling down the streetbeing like, looks like you're
hoarder call me.

No, no all are referral based, all are referral
based. In fact, I've boughtalmost all...

Mostly from agents?

From, from a portion comes from agents. A
portion just comes through otherbusiness professionals that work
in a similar industry. So, maybean assisted living placement
person or a junk colar typecompany. So, I get them from

(54:00):
financial planners who know aperson's financial situation
where they have a property thatneeds to be sold. So, different
business professionals, it allcomes through referral nowadays.

And, and you're marketing to them and not
homeowners.

Correct.

Interesting, okay.

Homeowner, a homeowner who has the hoarding
disorder, never wants to sellthey will never want to sell
they will need to sell somepoint.

This isn't hoarding this. These are
collectibles, everything.

Yes. You never you never call it junk. Yo
never call it, these are theitreasures

My best one was when the hoarder passed away and
the wife was left there going,Oh my god, what do I do?

So, stressful.
Well, I'm going to make sure topost links to your website.
What's the best way people canget in contact with you?

Probably just through email or my phone number
you can post that if you want.
Aaron.

I think folks should follow you on, on
Facebook. Are you good withthat? Would you...

Yeah, yeah, I'm on Facebook.

How do they find you on Facebook?

I'm just under m,y my name, Christy sartwell.
And also, I'm on LinkedIn. So, Ipost on both of those Instagram
as well, if you want a thirdoption.

You post a lot, you know, pictures of ADUs,
pictures of like furniture forADUs. I mean, you have good,
good content there. But I thinkit's helpful for anybody looking
at this kind of space. And, andyeah, and now you really are
going to have to have goodcontent.

Well, thank you. Yeah, I mean, it's good to
just keep it people's top ofmind. And that's it's sort of a
not a direct marketing. I do butit's just indirect. I'm having
fun with it. You know, why notshow people what I'm doing then?
They remember me for potentialproperty.

Or partnering because that takes a very,
that's a people skill level thatsome investors just don't have.

Right, exactly.
Yeah.

All right. Well, really, thank you so much for
your time. It's been awesome.

Thank you both.
I appreciate it. Thank you,Aaron, and Sean.

Thank you for listening to the Data Driven
Real Estate Podcast, you canfind show notes and links to
some of the resources mentionedin the show at
datadrivenrealestate.com. Clickthat join the community, and
you'll be forwarded to thePropertyRadar community where
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