The video you're about to see is a lesson of what not to do in real estate. I Believe that sharing what to do is just as important as sharing what not to do and showing you the challenges that I face. when I don't take my own advice and you know what? that's just my personality sometimes I don't take my own advice and then when I don't take my own advice I show you why I should have taken my own advice and this video is one of those examples. Roll it! Oh man. this behind me is exactly what I say don't ever get involved in and here I am I Got myself involved in this two years ago and we're just now starting work on it. There's a reason why: In the Zero to Millionaire Real Estate Investing course and the do Yourself Property Management and Rental Renovations course I say do Not get involved with developing If you are your own landlord and you are trying to just make money as a side hustle, build wealth as a side hustle, go from Zero to Millionaire As a real estate investor, developments probably not for you unless it's your full-time gig. Now the beautiful thing is I'm a big fan of sharing my mistakes because a I will never make these mistakes with our startup House Hack and number two I want to prevent you from making these sorts of mistakes. So here's what happened. Here's a three and two in a beautiful area in: Southern California This is probably one of the best neighborhoods of this entire city. I'm really a big fan of buying the worst house on one of the best streets and that's exactly what this property was. except it was a three bedroom, two bath with an illegal addition. I'm not the biggest fan of properties with additions ever because usually they're relatively funky. But I thought, wait a minute, it has an illegal addition right here. the Wall's already built. I Can take advantage of new laws that were passed that would let me turn this single family house into a single unit in the front, a junior accessory dwelling unit right there, and then turn the garage into an Adu as well. That would be three units in one. It's the triplexification of California so to speak. and it's this idea that there's not enough housing in California So hey, rather than people you know parking RVs outside of their home, why don't we potentially create this opportunity where you could have three residences instead of just one? Now, a lot of folks are really anti that because they think it takes away the neighborhood aspect, the single family character of a neighborhood. And that's possible because you end up with more traffic on the street. More cars potentially. Now these laws are designed so that they're close to public transportation. There are bus stops around, but you know people like their cars in America right? This isn't Europe So anyway. I thought okay, hey, the laws passed. No problem the city says though. Well, actually, the state law says they'll give you an approval on the project within 45 to 60 days of your application. That's state law. That's what's required. And guess what? I Bought this property and it took two years and when I said what happened to the whole 60-day state law thing like 27 different times, they're like, yep, we don't got the staff to do it. sorry, it's going to take us somewhere around nine weeks to get back to you every single time we want to get back to you. And so here I am. After two years, I finally have approval on this project to actually begin development on it. Which means I had to sit here paying the mortgage for this thing and the property taxes somewhere around 4 500 bucks. uh, every single month for the last two years. Uh golly, that's uh, you know, 24 months? That's uh, somewhere around probably 120-ish quick. Mental Math thousand dollars of um, basically loss as I'm waiting. Now the good news is initially the property value of this sucker. I got a really great deal on it. The property value of this thing just went straight up, but that's now starting to turn. The problem is I'm nowhere even close to selling this thing so by the time I might be done renovating it, the market might be down back to where what I paid for it, right? So a few quick lessons here. Number one. Even though the law says you can do something, don't believe the government? How is that even a lesson? I'm not sure I Feel like that is so profound I need to charge for it. Don't trust the government? Oh, it is. Black Friday After all, and we do have a Black Friday coupon code where you can learn all of my mistakes and lessons to increase your income. Get lifetime access to those courses either in Real Estate investing Stock Investing And the biggest way to learn in my opinion is learning from other people's mistakes. Uh, don't make those mistakes, but then also try to perfect uh. your basically do what people are doing correctly right. buy wedge deals, cosmetic remodel, Don't get into developments and rent them out, but doing developments? big mistake. So let me take you inside of this. Uh, but again, to finish that thought. Number one: don't trust the government When they tell you they can get you approvals fast they can't Uh, and number two, uh, don't trust the government not to rug pull you. Remember how I said we wanted to turn this into three units? Well, they rug pulled us on that too. Apparently this area is deemed to be a high fire severity Zone and in the last two years after I applied, they decided Well areas that are high fire zones. We don't want the garage to be turned into an Adu Why Somebody can't live in a remodeled uh and and uh, you know, retrofitted garage to make it uh to code for living standards because it's in a high fire zone I Have no freaking idea. But now my project actually only approved for the main house, the guest unit, and a garage and then I have to reapply which could take another year if I actually wanted to go through it to get the third unit. So in other words, I could be at three years of paperwork just to get the three units that the state law said I would get within 60 days. But then again, this is also why some people say just don't do business in California because this is stupid. uh and they're not exactly wrong about that. All right. So let's go ahead and give you a little tour of this mistake. I mean project I mean I look I I Still think I'm gonna make money on it. Uh, I'm a big fan. Again, buy the worst house. Uh, in the best neighborhood. but do your best to minimize expenses. Let me show you what the downside is with development. Okay, the most the like least expensive things. paint, carpet, kitchens, bathrooms, right? Those things are not expensive. They give you a lot of value to your property value. You know what doesn't give you a lot of value? A new driveway. Look at this. We don't even have a driveway, This fence that we had to put in and how much property? My? how much value my property goes up for that? Probably not much at all. and we got to paint it too so it doesn't turn rotted and brown. Uh, look, we don't even have a garage door right now. so if we have to make this a garage again, we have to put a new garage door. But that's not that expensive. You know what else? doesn't give me a lot of money. Stupid crap that's buried like this. This is a sewer line in case you're wondering. The sewer on this property actually goes from the house. uh, connects to the back unit. over here. this looks like a solid cord. Nope, it's a hollow core door. Okay, I'm not gonna walk on that. Uh, anyway, it goes back. can end up following falling through the Hollow Court or that'd be funny. Actually make for good content. It'd be good click bait Kevin breaks his neck. Oh no, that'd be bad. Uh. anyway. so um, here's your Uh ABS piping for, uh, your sewer. It used to be clay clay pipe right here and this is where the clay pipe used to go to and we've gone into a different direction over here. So that way you don't have to bury or dig under the property. you could just go along the side of the property and you pick up your bathroom back here for the guest unit. You pick up the other bathroom right there. you pick up the other um, uh, the front house where you saw it earlier and then you come over here. You connect it all together and look at that. You send it into the neighbor's backyard. Yes, that's actually literally what's happening. It goes under the neighbor's house and out to the street on their side. Kind of a weird sewer system. but you know what they did weird stuff back in the day. This, by the way, is your old school clay pipe. Let's go ahead. and I mean I Really don't want to touch it because it's a sewer pipe. But you know what? for the lulls? Let's do it. Oh gross. Actually doesn't look that bad. Don't look that bad at all. Uh, there were some bad parts in it though. some bellies. I Probably should wash that hand now. Okay, so let me take you inside. Oh you know what? We'll walk around this sign to show you a little more out here. So this by the way, is your stucco outside. Here's your old ungrounded electrical. This is your new Romex Uh I Hope this will get interested. I Don't think there's well. you could probably get that stapled right there. That'd be good. And uh, obviously your stucco mesh here. Sewer looks good. Looks like we've got what will be a uh sub handle here. This doesn't look like a main. Uh, this is for the back unit. This is a main. So basically a sub panel for the primary property. but it'll be the main for the uh guest unit back here as opposed to the the old junk right here. Gotta love it. So look at this. We got our water pressure regulator right here. This actually looks like the main water line. I'm not sure if this is for just the guests. this is probably just the guest unit. We'll double check. We got gas over here and what looks like will probably be a tankless water heater. That'll go in right here. These guys, those puppies are expensive, but they're pretty energy efficient. Pretty cool. Yeah, you've got your copper pipe going through here. You've got, uh, your one tankless over here. Very nice look at that. Nice gas line. Oh yeah. camera very nice. All right. Yep, this looks like it's gonna be uh, looks like we're gonna have common water on the house and that is actually very common with units to have common water. All right. Cool. So that's our outside. Let's now jump inside and see what we got going on over here. you can see some of the wood repair work has already been started. Uh, very common to get rot. Uh, and so you come through, sand this down, fill it with putty, sand it again, uh, and really. prep this for paint. Really is what's going on here. So let's head on inside. Oh, that's new wiring right here. Very nice, Very nice, All right. So this is a Latham plaster property. This is Plaster right here which is a kind of a pain in the butt to work with. unlike drywall which you can easily cut This right Here is of course drywall. easy to cut, easy to work with plaster hard pain in the butt crumbles very hard to work with hard. It also likes to crack. It's another thing is when you have construction going on. uh, it's very common for any cracks that there are in a building to actually get worse. That's because when you're doing structural work, you're changing the loads on a house and it settles overnight when it expands and contracts in different ways. And so here you can see we've got some new ducting going in. We have can lights obviously going in because this side of the house is a little dark so we definitely wanted to make sure we got some nice sets of cans here. Four for the dining room family room over here. We've got a lot of new structural woodwork going on over here now in multiple parts of the house where we wanted to open up the floor plan a little bit. What we've done is we've put in a structural header you can see with our uh post right here coming down. Beauty Beautiful thing about this post is actually not that beautiful. We had to dig a massive hole here and basically pour concrete under where the weight of this post comes down. so you have to underpin, it's called. You basically dig a giant hole and get under that concrete there to support the new loads going down onto these new spaces. So you dig a hole from the outside for this one. and we probably had to do that about 20 times for this property here. I'm surprised the engineering didn't call for, uh, an engineered beam right here, but that's okay. sometimes they don't. It's honestly not that big of a span, so it's probably not that big of a deal. Still got the original kitchen here, the original kitchen cabinets. It's really cool though. the rounding of these. You don't really get that anymore with cabinets today unless you get something super custom. but obviously it's all kind of old and grungy in here. And really, right now what's Just Happening is the framing and the structural work. This is the laundry room. Here you can see this whole wall has been freshly framed over here. Got your strike plate so somebody tries to hang a picture there. They don't puncture a hole into our new pipes we've got. this is where your laundry machines would be. so you got gas over here. We've got a I'm sure they've got it figured out, but I Want to see where they're going to do the vent for the dryer? but uh, I'll ask them about that because I don't see a dryer I don't know if you want to go up for the dryer vent, but we'll see. uh anyway. this looks like it'll be for a sink over here drain for that. Very good. On the other side, you actually have what we're turning into a master. now. the floor plan wasn't like this before. it was a little funkier. So I'm really happy that we're going to be able to turn this into a master, but that's another downside about doing renovations or like actual larger. Renovations uh, development kind of stuff is you think? Oh okay, well if we're going to be submitting plans, well, then we may as well make a nice little closet for the toilet. Let's make a nice new area for uh, the shower, the bathtub, or whatever. and oh, let's do all new. Plumbing all this stuff. It just costs a lot of money. Uh I mean here, you've got new Plumbing going through the whole place. Not only do you have that, but this entire wall is fresh lumber right here. If up, uh, sheathing. I'll apply. with sheathing on the outside, you've got your bolts over here. For the underpinning. You've got a bolt here. You got a bolt here. We had to add that in. You had a boat there. Keep in mind that bolt goes all the way through the existing foundation wall of the property and then into our underpin that we dug underneath the property and poured underneath the property So like, this wall is really beefy. like we're making it good. You know that nice new dual pane window over here? Now it's got some quality to it. Uh, new? Uh. return duct over here. Uh, but you could tell based on the size of it. smaller Supply Docks got some can lights going in Simpson Structural Nails great, obviously the cosmetics TBD Exactly what we're going to do here. but uh, yeah, probably something actually. Honestly, let's let's just think about this right now. Oh, that's unfortunate that this piece is missing. but uh, this is such a tight bathroom that there's probably not that much you can do in terms of if you took this out, you're not going to get this thin of a vanity anymore. I Would like to honestly see this transformed into something that's restained or painted. Probably it's a cheaper, you know. clean all this up. make it. Glide Actually, it doesn't Glide too bad at all. Uh, glaze this. Get rid of the baby blue over here I Think we've got some baby pink somewhere as well. uh, and modernize this. but this is actually not a bad. uh. countertop because it's perfect for the size of this space over here. even the tub even though it's dirty. Now that's a nice tub. It's an iron tub. you know? we got some holes in the tiling here. quite a few of them, but we can fix that. Uh, so. I I think there's some potential to save that? I might think I'm crazy, but even this original door here. this is actually pretty nice. Nice store here. Uh, this is what new electrical going in looks like by the way. uh uh yeah. Romax Give me the power All right. Uh, you can see here. usually white will be your light switches. yellows will be your plugs, although every electrician does things a little bit differently. Uh yeah, you can see yellow for plugs over here. So this here is becoming, uh, like a little bit of uh, this is actually interesting I wonder why we are Walling this for almost a hallway here I this might be it's a double plated wall Here this wall might be structural, which is actually kind of unfortunate because oh I want to look into this I don't love this wall right here because see, this is going to be the door to the guest unit over here and then you can really close this off. You wouldn't even need a door here unless of course you just rent it out as one giant unit. Then you would want a hallway of some sort here. or uh yeah. I mean the hallway makes sense because the reason you would do this I I See it now. The reason you would do a hallway like this is if you want it all to be one home, which is possible it might make more sense to rent it out that way and then let them sublease it if they wanted to. But uh, if it's abnormal to have one room here connect to another room without a hallway, so that's probably What's Happening Here So that way this could be its own sort of bedroom. We'll have to make sure to insulate that wall very well. probably spray foam and then fiberglass. so you really get almost a double insulated value there. This uh is and that's the funky thing about additions is this would be your Junior accessory dwelling unit and this is actually where the kitchen's gonna go. Uh, you could see water line for a refrigerator here. uh, countertop plugs right here. so this would be your your small kitchen. Maybe a little family room over here? Uh, yep. Nice new framing over here on the ceiling. Perfect. And then you step down. It's a little funky. over to where your bedroom is here. A lot of new framing over here. Bolt Bolt Bolt Bolt Bolt bolt. That's a lot of bolting to make you do in California That's a lot of work. Each of those is is a lot of Manpower and they make you do this stuff really for uh, for earthquakes? I mean even just these Simpson ties right here. Uh, you know they're the A35s. They're like 35 cents a piece. maybe 60 cents now with inflation. Uh, and you nail them in. You could also hex screw them in, but it takes a little bit more time and it's a little bit more money. Uh, but they've got the same structural rating. The um, these walls turn beefy I mean compared to what it used to be. Just compare. Okay, like here's your kind of old school wall. that's one that's left. I Realize that's an interior wall, but you probably can't even see a single bolt anywhere on some of these. Uh, and then you compare that to like our new walls: Bold play play plate plate plate right. It looks so much better. so much stronger. Nice dual paint window over here. So this looks like this is the laundry stack right here. So you've got the washer dryer stack here. That's great. Uh, all new Plumbing over here. I Mean this is this is bitching. Look at this. the triple stack. uh, switches here. This looks really nice. This is going to be gorgeous. It's really going to be great. Uh, and I like what they're doing here. I'm not sure what the idea is about why this is a hallway if we're trying to separate that off. so I'm not sure about that. Uh I think the the idea might be future convertibility, right? You know, maybe you you drywall in that door and then if you want to give somebody the option to really quickly like open or close, you could do that. But if this is its own unit, this section here becomes a dead space. Uh, so I'm not thrilled about that, but I'll get to the bottom of that. Okay, so otherwise yeah, this it's like it's a great property. where I do I think this will end up being profitable? Probably I mean if this were done right now today, you know what? we're in 750k plus college is 200k and holding costs 50k. paperwork permits. You know you're into it for a million bucks before you've actually spent the money on the fix up. All the fix up and such is probably going to be somewhere around 150, maybe even a little bit more. You know? could we sell it for one? three, one four? Uh, actually. yeah. I'm the cops are there for that right now. Uh well. will that be true? In in, you know, nine to 12 months from now I don't know, maybe not. and if not, then we'll just rent the sucker out and uh, and give that person maybe the option here. that's I think that's why the hallway's there I'm a little caught up in that and we also got to figure out what to do with the garage. Honestly, I'm so exhausted with dealing with the city. I'll probably just turn this into a garage and then just never deal with these kind of developments again. Or or the way to do it. If you wanted to know a way to do it is what you do. This is this is. the trick. Okay, this would be the way to do it. You remodel it cosmetically, You rent it out, You get a tenant in there, you got a 10 in there for a couple years or whatever while the tenant is in there. That's when you go through the process of doing the the accessory dwelling unit. So for example, if I ever wanted to do this again or do like adus in the future, what I would do is because I'd like to be able to rent three units as opposed to one. uh now I've got two as opposed to one. But whatever what I would do is. um, if I ever did this again in the future and I wanted to do an Adu I do exactly that I would say all right, let's let's get it remodeled. let's get it cleaned up, put a Tenon in. rent it out while it's rented out to be up front with a tenant. hey, we every so often an architect's gonna come by and just to do some measurements and plans, future planning, get it approved and then just sit on those approved plans until we're until. Maybe the tenant leaves or we're ready to do a renovation or whatever. but that will now eliminate all of your vacancy holding costs. Much better strategy. So uh, eliminating costs. Huge Huge. Factor When it comes to real estate, you do not want to be sitting on vacant real estate, And again, I'm a big fan of know what your limits are, know what you're good at. And so for example, with my housing startup house Hack we're We're not going to be doing this stuff. We're only going to be doing basic remodels. buy properties below market value, get them turned around in about 45 days, and then rent them out. Simple. We don't even want to deal with the city. it's dealing with. a city is a nightmare and you have the neighbors and everyone anyway. Uh, check out the programs I'm building your wealth down below for more perspective. Thank you so much for watching and we'll see on the next one. Bye.