Thought Leadership | Mortgage | How To & Education
Kristi Cirtwill is CEO of Cirtwill Investments. Originally from Toronto, Canada, she moved to Long Beach, California in 2007 to start a full-time real estate investing business. Since 2008, she has purchased over 250 houses in Southern California, and her specialty is buying hoarder houses. She was also one of the first investors in California to take advantage of legislation on building accessory dwelling units (ADUs) and Junior Accessory Dwelling Units. Learn and laugh as she shares some of the hurdles and mistakes she's run into as an early adopter. More importantly, learn how she and other investors are increasing cash flow on current inventory or making new rentals pencil, even in expensive states like California.
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00:00 The Data Driven Real Estate Podcast Welcomes Kristi Cirtwill, President, Cirtwill Investments
04:32 What is an ADU? JADU?
05:54 What's the difference between an ADU and a JADU?
09:04 What is a cramlord?
09:38 How to spot a good property to build an ADU?
13:18 How did Kristi get started with ADUs?
18:00 How much does it cost to build an ADU? Stick build or manufactured?
26:14 How to maximize livable space in ADUs?
30:07 How do tenants on properties with ADUs handle mail?
32:06 How are utilities managed on properties with ADUs?
33:44 Horror story of lot split plus ADUs
42:34 What is liquefaction? Mistakes that cost so much extra money when building ADUs.
46:51 What is up-zoning? Why is this such a huge opportunity for real estate investors?
49:12 How are properties with ADUs appraised?
52:21 Investing in hoarder homes
Aaron Norris 0:06
Welcome back to the Data Driven Real Estate podcast, the podcast for real estate professionals dedicated to driving business using data. I'm Aaron Norris with Sean O'Toole with PropertyRadar. And this week on episode 32, we have Kristi Cirtwill. She's a real estate investor based out of Southern California who's been flipping houses since 2007. She specializes in hoarder houses and the Accessory Dwelling Unit. Hey, when it gets hard to find deals, you learn how to create them. And that's just what she's done. She was an early adopter and Accessory Dwelling Unit. So, we talked about horror stories, things you need to know about ADUs, and why they're having their moment here in California and in other states as well. So, you will not want to miss the show this week. Kristi, welcome to the show. Thank you for being here. First question out of the gate: What keeps you so excited about real estate here in California?
Kristi Cirtwill 0:56
I just think the appreciation is just too great to pass up, I realized what you know, when you can buy a property and 30 years later, it's just an insane amount. Whereas if you're buying in the Midwest, which is fine, too, it's just a different strategy. I just doesn't appreciate the same. So, I still really liked that about California. I like the weather. Not so much government policies right now. But we'll stay focused on the positive. But yeah, no, I'm here for, for good. And the ADUs, obviously, we'll talk about today, if, if they come up, have really added good cash flow to my property, so...
Aaron Norris 1:42
Yeah, and you've been such a tremendous resource for me, as you and I have been tackling the ADU space for years. I've been working with regulators and some of the senators that have been writing it, trying to give them some nuance and some feedback. I've been even working with cities trying to get them excited about ADUs. But you were one of the first investors I knew that went all in on ADUs. So, ADUs come up, why did you get excited?
Kristi Cirtwill 2:08
Well, maybe I was a bit dumb being the first one jumping in when making all the mistakes and paying higher fees. But I just got excited about them back in, well, I actually think they came into play 2017. But I didn't find out about them until 2018. And honestly, I couldn't believe it. I thought how can you have an R-1 zone property single-family and put a second unit on it. And that's what these are, they're not just little tiny houses or something on wheels, which you can also do, but these are, and they allow up to 1200 square feet of a second house now. And if you live on the property, you can have it, I call it a JADU for short, a Junior ADU where you have to live in either the Junior, the ADU, or the main house. So, you can actually make three units out of a, zoned R-1 property. So, when I heard that, I when JADU just came out, I think last year but in 2018 I was flipping a bunch of houses and realizing these could actually make sense to keep as rentals because to keep a single-family house in a decent area in a decent neighborhood is really hard to make cash flow, cash flow off of that, unless you have 50% down or you know, you pay all cash or whatever. So, I thought okay, if I can get a loan and build an ADU, then I can have, I can have a second unit and now it starts to make sense, so.
Aaron Norris 3:46
And you've been building these in several markets as well. So, you have a lot of experience the 2017 ADU law. How do I describe, the cities weren't exactly excited about it. I know several people in planning, and they were actually really upset because the state by had forced them to stop playing games and they got rid of rules around owner occupied you know, having to have the property have at least one of the units be owner-occupied. They've done all kinds of things to squash the nimbyism. So, it was just interesting to see even up to last year with the HOA is not being able to include JADUs at us as part of their calculations for the percentage of non-rental...
Sean O'Toole 4:32
I'm gonna call it, I'm gonna call it timeout like because we're like at use JADUs like we've got a wide audience right? What is an ADU?
Kristi Cirtwill 4:41
Sorry, I'm using all these acronyms I guess I should explain that is an Accessory Dwelling Unit.
Sean O'Toole 4:49
Kristi Cirtwill 4:51
JADU, Junior Accessory Dwelling Unit.
Sean O'Toole 4:55
And you mentiond R-1. It's so, that's a single-family home and zoned to only be one, for one home, one family, one living unit, right, is what these properties were zoned for. What, you know, they were designed for. And now, because of the shortage in housing, affordable housing crisis, the state has come in and said, you can put on a second unit on these single-family zoned properties, and they're calling those Accessory Dwelling Units. Is that is that a good summary? Okay.
Kristi Cirtwill 5:30
That's a great summary. Yeah.
Sean O'Toole 5:31
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 between the ADU and the Junior ADU. Are there different size requirements? What's, tell us a little bit more? Where are those? Is that now statewide? Is that everywhere? What's. Where's JADUs stand?
Kristi Cirtwill 5:54
Well, the ADUs can be, I believe, up to 1200 square feet now. And they can be attached like you can, you know, put something attached to the main house, you can do it detached, those were the ones I mostly did, detached, freestanding, stick-built. You can convert an existing space. So, all the above and it can be...
It can be garage. Convert the garage into a Dwelling Unit.
Yeah. So, those are, that's all ADU option. JADU option, you have to convert existing space, you can't build something from scratch, it has to be like, an example would be like a master bedroom and bathroom in the back of your house, you could just put a door separate so that that unit could be accessed separately. Good little kitchenette in there. And now you've got like a studio-sized JADU. JADUs have to be 500 square feet or less. You can also convert an attached garage. And that could be a JADU.
Sean O'Toole 7:01
Like a 20 x 20 Garage, 400 square feet converted, had a bathroom and kitchenette.
Kristi Cirtwill 7:07
Sean O'Toole 7:07
And people have been doing that for four years just hasn't really been legal. And so..
Kristi Cirtwill 7:11
And the funny thing is, is back in the day, I was buying houses to flip in Long Beach. And there, there's this inspection you have to have with which, with each sale, and they inspect the garage. Well, if there's anything going on in there, you had to rip it all out. And now it's like you can put it all back in and legalize it. Just insane.
Sean O'Toole 7:34
I ran into something a little different, but similar, you know, as buying foreclosures up and down the state in the 2000 to 2005 timeframe. And in Fresno, there was these houses that I would get it would seem like a great deal. And you go into these houses and they were like, you know, like amazed it was just they were crazy how there's just walls and stuff everywhere. Well, what happened is somebody figured out that the section eight housing rules, right, they require the bedroom to be a certain size, the closet to be a certain size, but you get rents based on the number of bedrooms, not on whether it's a good floor plan or not. So, people would like turn the living rooms into like two additional bedrooms, just like these houses just became like these habitrail you know, mouse maze, it's crazy. And there were a lot of work to fix up and I realized why I was the only one.
Kristi Cirtwill 8:33
Well, and that's a good point. And one of the things even with my consideration to build more ADUs, don't just slap these things up. Don't just carve out a piece of your house and make it a Junior. Like, put some thought into it. Because the neighborhoods I'm doing it in are nicer ones. And I don't want to be you know, that guy who is just making a mess of the neighborhood. So, it does have to have some thought put into it. I think.
Aaron Norris 9:02
Sean O'Toole 9:03
Oh, go ahead Aaron.
Aaron Norris 9:04
I call it being a cramlord, you know, cramming all the square footage, ruining the quality of life and possibly the value of not just the rents but the property if you do it wrong.
Kristi Cirtwill 9:13
Right, right. And sometimes, yeah, like a garage could be worth more as a garage, don't just convert it because it's there. But if it's appropriate to do so, do it. I mean, the cash flow is great off of these units.
Sean O'Toole 9:28
Garages most important room in the house to me.
Aaron Norris 9:33
Sean has quite the garage. Got the best.
Sean O'Toole 9:38
So, you know, you touched on that, you know, the quality of the neighborhood, etc. Right? When, when all the other people in this neighborhood bought in this neighborhood they bought into a single-family neighborhood. That's what it was zoned. I mean, let's talk about that. I mean, how do you feel about, I mean, there's an opportunity here for you as a landlord, right. And but, is this really the right thing to be doing? I mean, affordable housing is clearly a problem but, geez. You know, having three family units with a ADU and a JADU, you next door when you bought into a single-family residence and all the cars and the rest is that, is that really the right thing to be doing here?
Kristi Cirtwill 10:16
Well, like I say, it's got to be neighborhood appropriate. There's just some neighborhoods, it doesn't make sense. But you know, some of the things, and we've talked about this, Aaron is what makes a good property to add an ADU? Okay, well, you don't want to just like start throwing things on there. But if there's a back alley access, where, you know, there's a place to carve out a parking spot next to the ADU, then is that even impacting the neighborhood negatively in any way? I don't think so. So, and I, and it's providing housing for somebody. And I think that's why these are getting rented up so fast as they're smaller units. They're brand new. It's not like a condo where you have shared walls. These are mine anyway, are mostly detached. So, they're just a separate building. So, to me, it's, it's one solution to the affordable housing crisis.
Sean O'Toole 11:15
Is there off-street parking requirements, like you know, you're going to add more another ADU or JADU, you, do you have to add like another off-street parking area?
Kristi Cirtwill 11:25
I don't think there's any, any restriction on parking at all these days. I mean, you're supposed to be within half a mile of transit or whatever. But, I mean, that's never even come up as an issue with any of the cities I've worked with.
Sean O'Toole 11:39
Oh, okay. Yeah,
Aaron Norris 11:41
Yeah. And the thought behind it was to the affordable housing issue. This was the, a very creative way the state really forced the hands of the cities because some of the bills like SB50, here in California were medium density was supposed to be put along transportation corridors. By the time it landed at the local level, council members were getting complaints from the NIMBYs and it would get squashed and you're like, 'Well, how do we do this then?' So, it leverages existing infrastructure. I thought it was one of the most powerful things that they've ever done and then they've systematically whatever the city's came out with trying to stop them. The state has come on top said stop playing games. Then you have other cities like San Diego I hear they're in discussion to allow up to eight units on R-1 lots that are large enough. And you're like, what?
Kristi Cirtwill 12:29
Aaron Norris 12:30
I don't know if that's gone through but I've been watching several different cities do very creative things, even Tiny Homes, Tiny Homes do not fall under, those aren't stick-build. Those are, you know, are under DMV rules. So, but some of them are now allowing them as part of their ADU regulation. So, you really have to check at the local level.
Kristi Cirtwill 12:53
Well, and the cool thing is, is they're so creative, thoughtful designs out there, it's not like mine where I just like was so excited. I just built a stucco box, which are still really nice, but there's some cool designs going up and it's attractive. So, it's not taking away from, from the neighborhoods, in my opinion. Out of all the ones I've seen.
Sean O'Toole 13:18
Walk us through your journey you were one of the first to get out there really start doing this. And you know, and I mean even yesterday, I saw you posting about you know, cool furniture to make these places more usable. So, walk us through your journey where it started and kind of where it is now.
Kristi Cirtwill 13:36
Well, um gosh, do you want the hoarder home bit too? Throw them in there? Or just the ADU bit?
Sean O'Toole 13:46
Throw in the hoarder home?
Kristi Cirtwill 13:48
Well, I, I've moved, I'm so naive, I just opt in move one day to California to, and I landed up in Long Beach. And that was right in 2007. So, I didn't know any better. I didn't know about the ups and downs of California, I just showed up. By the time I got my immigration stuff figured out by 2008 I turned around in the same house I was looking at the year before was 40% off. And like how, how does this happen? How does this 600,000 house go down to like 350 and so, that was the start of my career. So, I, the timing worked out perfectly actually because I start buying these houses on sale. So, I started flipping and then a lot of the homes initially came off the MLS because they were REOs or short sales, that sort of thing. And it sort of turned into more of a referral-based business for me. Come 2014 or so. I started buying everything based off referral. So. that's when I sort of fell into the hoarder home niche just had a knack with working with, it's a really interesting and sensitive subject. And I think when you can go and still respect people and know that they know they have gotten themselves in a bit of a situation and they need help, then that sort of became the niche there. So, I'm still, I'm still a flipper at, at heart. But over time, I realized, oh, I've got a, I've got a hold some of these, and I had a bunch of rentals that just were way too high maintenance. You know, they were, they were condos. And in Long Beach, mostly, and just too much work. 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 company helping you. So, getting rid of those. And that's when I started, really kind of doing the Mike Cantu method where, you know, start buying better assets and better neighborhoods with better tenants. And I thought, well, how am I ever going to do that? When it just doesn't really make sense for cash flow? And that's when the ADUs kind of, I heard about that. And I thought, okay, now this sort of makes 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, the journey over the last dozen years or so.
Sean O'Toole 16:24
So, your first ADU was in? You said, 2018?
Kristi Cirtwill 16:28
Yeah, well, I learned about it. And I had a batch of houses that I was going to flip and I thought, 'Wait a minute, if I keep all these and build ADUs, then these work.' So, I built six, like right out of the gate all in different cities, learning the different rules and halfway through finding out I was supposed to be living in because back then they had a covenant, you had to notarize and record to say you're going to live in either the main house of the ADU, you will I couldn't live in five different places at once. So, I had that challenge to overcome. And now apparently you can get that covenant removed. So, I'm looking into that my friends already looked into that.
Sean O'Toole 17:11
You're not living in five houses anymore, or you're getting out of that?
Kristi Cirtwill 17:16
Am I buying more houses?
Sean O'Toole 17:19
The five you already had, you're not having to live in all five of them.
Kristi Cirtwill 17:22
No, no, no. Well, technically, I suppose I could, you know, one, one day a week I bounce around, but that's not very convenient. So, yeah, so, so, I did, I did five I kept his rentals, one, I built two flips. I didn't have any appraisal problems with that one because it was actually built on an R-2 zone property. And I have three more in the works, I'm actually doing my first JADU. So, I will convert a garage but it is appropriate to do so into a Junior ADU. So, I'm doing that as well, so.
Aaron Norris 18:00
Interesting. Can you share a little bit about cost?
Kristi Cirtwill 18:06
Sean O'Toole 18:09
Yeah, what does it look like?
Kristi Cirtwill 18:10
Yeah, so, I think the costs have come way down. So, in 2000, so, I built this the six I built I started in 2018. And I finished I think early 2019. So, the cost back then on average, the soft cost so, basically the design the architect the structural the submitting the plans at the planning department, and permit so all the stuff before you put the shovel in the ground, on average I was paying about 20,000 per city. So, I think on the low end 18,000 up to 25,000. So, in that range and that that was just for you know those soft costs. The construction, I was getting at that time 1,080 square foot is what I was paying. So, now I'm sure that would be more I just everything's gone up, lumber has gone up, for minimum wage, they're talking about raising that. And it's not just minimum wage, it's like now the skilled guys are making 18 an hour they want 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 was building them for. So, the construction was 180.
Sean O'Toole 19:36
And how are big the units are you building?
Kristi Cirtwill 19:39
On the low end, like a studio size, like 440 square feet. And then I've done a couple one bedrooms and two bedrooms. I think the largest being 755. That was a two-bedroom.
Sean O'Toole 19:56
500 square feet. That's 90 grand plus 20 grand and soft costs 110 grand, and what do you get for rent? For the, for the ADU?
Kristi Cirtwill 20:05
So, I'm running the one bedrooms, I'm getting 1800. The two bedroom? Well actually I have that property sublease. So, I have somebody paying rent for the whole property. So, I actually don't know what he's getting for that at ADU. But I mean, 1800 easily, and that, that, that would be 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, it makes sense. It meets us for a 1% rule or whatever.
Aaron Norris 20:48
Kristi Cirtwill 20:49
You go by.
Sean O'Toole 20:51
Right. So, 1800 times 12, 18,000 plus 36, 22,000, roughly a year, you're increasing your property taxes by a grand you increase, maybe some probably have the folks pay their own utilities. So, yeah, I mean, that's a pretty, a pretty good return on investment.
Kristi Cirtwill 21:12
Yeah, yeah, it's, it's decent. And one of the things I like about any thing that's new, is you don't really have any problems with it for, you know, you shouldn't have any problems for at least 10, 10 years or so, you know, because everything's new, the roof, the heating, the air conditioning, you know, you might have some maintenance here and there, but, you know..
Sean O'Toole 21:36
I would do that, right? Is $20k, you know, $20,000 grand, and new income for $100,000, $110,000. Like, that's almost a 20% return, right?
Kristi Cirtwill 21:44
You, you can literally, if a homeowners build these in their backyard, they will pay for themselves in three to six years. I've met with homeowners to show even if you borrow the money, and you take the rent from that and pay it all towards just paying off that loan, you can have these paid off in three to six years.
Sean O'Toole 22:02
This is where we're seeing the rise of companies. And I can't remember the name of it. But I saw a company out there that saying like, we'll build an ADU in your backyard, right? And we'll split the rents with you. And it's still a pretty amazing return.
Kristi Cirtwill 22:17
Oh, yeah. Yeah. Um, I wouldn't do that, personally. But yes, I've heard of that being done. I am working with a company ADU Resource Center. And they're helping homeowners, like get started because people generally just don't even know where to start. And to me, it's, you know, you figure it out. But some people just, it's overwhelming, especially now, you can't even go into the cities, you have to try to figure out who to contact online and all this stuff, so.
Sean O'Toole 22:47
I gotta say, as a homeowner, like the idea of having somebody living in my backyard, like doesn't have a lot of appeal. Right? But for the, for the landlord, right, where, okay, maybe they get a little less rent for the house in the front, because they've put a house in the back is probably not meaningful, less rent, and it's a huge change in their return on investment.
Kristi Cirtwill 23:10
Yeah, and people are doing it for different reasons people are actually building, I mean, they used to be called granny suites for a reason. You know, you've got another place so you can build and house family members. So, some people are doing that instead of putting their parents in an assisted living home, they've got them right in the backyard, you know, so, that's something that homeowners are doing. Yeah, I get it, that there's been some resistance with families with kids who just they just don't want a tenant in their backyard. But you know, if you're single or a couple or whatever, and you don't mind, you know, having one of these things, you can create separate pathways to them, separate backyards. So, it's very private,
Sean O'Toole 23:54
Kristi Cirtwill 23:55
In some cases,
Aaron Norris 23:56
When they're designed well, like on corner lots, I mean, it could be a very different living existence. In that I, I'll link a video I created on ADUs, because we kept getting this question I sort of shared the three ways to find ADUs. And one of those is that very hyper, hyper-local expert that knows a specific neighborhood and understands an alleyway in the back basically means you have two separate units with a fence in the back and they're living different existences. It's great.
Kristi Cirtwill 24:23
There's different styles of houses that work better. And that's a great point, Aaron, because I'm about to market to one neighborhood in particular, where I just like the style of the house. It's the house is almost set off to the side and it's connected by a breezeway to the garage. So, in behind that garage, you've got a wide open space to create a detached ADU with a separate backyard for it and you don't even know, there's no impact at all. You just walk down the middle and you either go to the left or the right and you don't even see the guy next door. It's just like having a neighbor.
Aaron Norris 25:01
Have you gotten much feedback from tenants as far as any anybody saying anything or you bought the flip and added the ADU before either tenant moved in?
Kristi Cirtwill 25:11
I did all the above. So, one property, I did have a tenant in place. But he happened to be my property manager. So, I said, Okay, I'm going to build an ADU. And I'm going to...
Sean O'Toole 25:25
Another management unit.
Kristi Cirtwill 25:26
Yeah. And I said, you can, you can rent it, this is how much I want. And I knew he'd get substantially more. So, he was making money off it too. But it got me to, allow me to build it. But I knew he was going to move anyway, eventually, so we ended up buying his own house. And now he just rents both of those units separately, and there's no problem with either tenant. They just know, that's what they're getting into when they, when they rent it. Another two other ones, I actually rent both the house and the ADU just to one tenant. So, they rent both so they either they rent out one themselves, they sublet it, or they have other family members, and they just all pay the rent together.
Aaron Norris 26:13
Sean O'Toole 26:14
Especially going into the JADUs, I saw you had a Facebook post, I think was just yesterday, the day before, where you're like looking at Murphy beds and stuff like that. So, you know, talk to us about like, what are the, what do you think the best practices are like in terms of like maximizing these smaller spaces and making them cool, do you? Do you do them furnished like with a Murphy bed and stuff? Or unfurnished? Like, where's that at? And where do you think the future is?
Kristi Cirtwill 26:39
Um, I do both. So, some I've rented unfurnished, a couple others I have furnished, I actually converted existing space above a garage that was already permitted as a rumpus room. So, I converted that into an ADU, and that one is actually up in Lake Arrowhead. So, that when I rent, I rent furnished, it's just easier to rent them furnished sometimes. So, it's not that much. I mean, it costs you 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 by case. Generally, if you can rent it, unfurnished, it's probably better because then you don't need to maintain everything. But some of these spaces, smaller spaces. I think it's a draw to have them well thought out even more so than the bigger spaces because there's not that much space to work with. So, maybe instead of putting in, you know, like, do you really need a dishwasher and a 400 square foot ADU? Like, maybe not maybe that space is better used for? You know, something else? So, case by case, and you have to just think about who's going to be in that unit? What type of renter, you know, who you'd be renting it to? So, that sort of thing?
Sean O'Toole 28:10
Is everything then stick-built so far? Are you starting to look at a prefab, or tiny homes or some of those options?
Kristi Cirtwill 28:18
I've looked at a prefab that somebody else did. You know, and I tried to talk to him about the numbers and it doesn't seem like it's really much cheaper. By the time you have to drag this thing in or or crane it down or whatever. It could be. I think it's just personal preference. It was really nice. But I think probably with my crew, stick-built is better because then you can customize it really the exact way you want it. So, to each their own. I don't do that all the way.
Sean O'Toole 28:51
You're doing all stick built so far.
Kristi Cirtwill 28:53
Sean O'Toole 28:55
Aaron Norris 28:56
Early on the vacation rental ADU got squashed pretty quick. So, there's a, I believe most cities have a 30 day minimum. Do you know anybody doing sort of the furnished rental for traveling nurses at all and really exploding income?
Kristi Cirtwill 29:12
Um, I do know some some people who are renting rooms to travel nurses.
Aaron Norris 29:19
Kristi Cirtwill 29:20
Um, and that seems to despite, you know, everything going on with, with COVID. That still works. In fact, they're probably the most careful tenant out of anybody. So, they, they'll rent rooms it seems to be what's more affordable rooms in North Orange County right now. And even Los Angeles County are 950 on the low end, that's what rooms are in a nice house or renting for. So, and that's furnished, that's furnished. So, I think there's a niche there, if you don't mind. A little bit more turnover, you know, every three months renting rooms? It's a, it's a niche to get into.
Aaron Norris 30:07
Have you had any problems with things like mail? I love that you have, I'm able to ask this to you because you have different counties, you've you sent me examples of three different counties that you have ADUs in and, and each area handles ADUs slightly differently. But mail has always been a big concern, how do you deal with that?
Kristi Cirtwill 30:28
Um, I haven't had any issues. Like, it's weird, because most of the cities want you to put up the separate ADU number. So, when the city issues, whatever that's going to be sometimes it's, you know, the main house is 123. And then the ADU is 123 and a half, or 123-B, or 123-A, or 125. You know, like, it all depends city by city. So, you have to put that address somewhere. And you just sort of figure out where to do it. Sometimes it's on the front of the garage. So you've got the main house on one side and the ADU on the other. So, sort of weird, and you're supposed to have two mailboxes. Okay. So that's just how I've been doing it. so far, so...
Sean O'Toole 31:15
Because of 911, having two designated postal addresses, and I guess, yeah, addresses in that sense are required. We're not seeing that come through in public records. Right. So, public records still calls the APN. Right, and that APN has one address assigned to it. So, these are a little hard to find in public records. Still, at this point, the counties and cities haven't really, you know, come up with a standard approach to that.
Kristi Cirtwill 31:46
Yeah, I mean, I guess the biggest issue is when you're trying to get food delivered, and you know, which door do they knock on, they can't really figure it out. That's sort of more of the issue, the mailman sort of figures it out, you know, over time, but it the Doordash guy is still a bit confused. So, that's really the only issue.
Aaron Norris 32:06
First World problems. How about utilities? Do you make a habit of forcing the tenants to split? Does that change by city what they require?
Kristi Cirtwill 32:16
Yeah, you know, if I could go back in time, I've maybe I would have done this a little differently. So, city of Bellflower made me put in my own separate water meter of 50 $800. Later just to install that plus the, you know, the digging of the trench and everything else that needed to be done. But in the end, I have two separate water bills. So, is that going to pay for itself? I suppose over time, it's, it's good. Other cities just send you the utility bill all in one bill. So, it's not separated in any way. So, for one house, I just, I just pay it as a landlord, I sort of estimated based on previous bills, what it was going to be for both units. And with the understanding or even written into the lease, like, you know, the bill can't go over this or you're going to start paying for it or pay the extra. So, that's sort of how I've done it. I've just paid charged a little bit extra for the utilities. And it's covered that way. But yeah, should I have separated them? Maybe.
Aaron Norris 33:27
You have some pretty hilarious horror stories about some of the things that you've run into. And I would love for you to share a few of them.
Kristi Cirtwill 33:35
Oh, boy, where do we start?
Sean O'Toole 33:39
How difficult is it is city so tell us a city or a story or county?
Kristi Cirtwill 33:44
Well, I'll tell you a project I'm working on right now. In case there's any listeners who have any contacts in the city of Los Angeles that can help me. I've had a project submitted since November 2018. And I'm still waiting for permits.
Aaron Norris 34:01
How many... so the ADU law says they've got 60 days or else it's considered gone through. Why can't you just barrel forward?
Kristi Cirtwill 34:09
Well, I did contact Greg Nicholas, by the way. But he really is only in charge with ADUs, I think. This also is a lot split. So, so a minimum lot requirement in city of Los Angeles is 5000 square feet. Well, I bought a property that's 13,000 square feet on a corner lot, so I'm splitting it in two. It's already zoned R-1. So, I don't even have to change the zoning. But there's two houses on the lot. So, somewhere along the way, it was probably zoned, you know differently R-2 or something but it got re-zoned R-1 so all I want to do is split the lot into two. The houses are already where they should be on the lot and then renovate the houses. And build the ADUs. And I've had plans submitted since November 2018. So, in, in January 2020, the rule came out where if you're going to build an ADU the cities are supposed to get back to you within 60 days. Okay, then COVID hit. And that is, I mean, that's just a joke. Now, just know, where is anyone getting back to you in two months, it's more like four, maybe five months. But because my project has a lot split as well, it's, it's just taking a long time.
Sean O'Toole 35:36
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.
Kristi Cirtwill 35:46
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's what it is, because and if I can just get these units on the market, you know, living in one and three other units, that's three housing units I could be providing to LA residence, and I'm just at the standstill, they just keep passing the buck around to the next guy. And I just, it just goes nowhere. And I'm not sure what I can do about that, so.
Sean O'Toole 36:17
Anybody that's belt-blaming builders, investors, etc. for affordable housing is out of their freaking mind. It is 100%, your government 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 housing, we see it here and talk all the time, everybody's like, the housing is unaffordable, it's not, it's ridiculous. And then somebody proposes a new housing development, they're like, we shouldn't allow any more building up here. This is Taho. It's beautiful. And it's like, pick one, right? Like, you know, it's it, it's either going to be unaffordable, and not and not very many buildings, or it's going to be affordable. And we're going to do a lot of building. Like, it's a choice. You don't get ...
Kristi Cirtwill 37:05
This is really tough, because you've got people who just want things left the way it is. On the other hand, you know, here I am the small developer trying to put to improve the neighborhood. By the way, the city wants me to add three lampposts or streetlights or whatever. But those got to be five grand a pop. So, that's part of the project. They'll approve it, but I have to do the improvements on the street. Okay, fine. I'll do it.
Sean O'Toole 37:33
Just for the last split?
Kristi Cirtwill 37:35
Yes. Yes. So, I'm improving that whole corner. It's on a quarter corner lot. So, I'm improving that, that whole corner, you know.
Sean O'Toole 37:46
It's maybe a mistake, like if you put it, I've done a lot of 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 split. If it meets the requirements, you can just do it, it's 1200 bucks, and you're just done. Do you think if you'd submitted the lot split separately from then the ADUs, like, maybe submitting the whole thing as a package is part of the problem, or?
Kristi Cirtwill 38:10
I think so, in hindsight, that's the way the planner told me to do it or told my architect to do it. And we just went with that. And I didn't think to question that. So, yes, next time, I'll just split it and then, you know, do, do the billing, because that might have gone faster.
Aaron Norris 38:31
Have you reached out to the city council number yet? And...
Kristi Cirtwill 38:34
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 my council member.
Aaron Norris 38:47
Sean O'Toole 38:47
Was it your $120,000?
Kristi Cirtwill 38:49
No. So, and I did call him before I knew this. And I said, you know, I'm this small. You know, I live in the neighborhood. I'm trying to do some improvements. Can you help me? I never got a call back. Well, he was I'm too small potatoes for this guy.
Sean O'Toole 39:08
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.
Aaron Norris 39:17
So, what's so crazy if the city of LA was doing what you did, it would cost them $1.5 million. Because with their HHH funds, it's on average 520 grand per unit that they're building. So, I look at that and it's just a sin. It's just so upsetting to me, that this kind of stuff happens.
Sean O'Toole 39:34
Well, that's that's the, you know, unfortunately, most things we see around affordable housing outside of this ADU thing right are about how do we use other people's money to build unaffordable housing. It's not about affordable housing at all right? It's like 'Who are we going to tax to build unaffordable housing' and then give it away in a lottery to some lucky person, but then we're not going to give them any of the advantages. We're going to make them buy this house, but We're not going to give them any of the advantages of owning a house because we're gonna deed restrict it so that they get no appreciation. It's just like, how could we screw this up more?
Kristi Cirtwill 40:11
So, you're saying I should move at a state? Is that what I should do?
Sean O'Toole 40:15
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 in California, right. So, why we're on the California topic, right? Like, you look at all the best places in the world, right? So, you know, Trump said, we don't want people from the shithole countries, we want people from, you know, the Scandinavian countries. Well, guess what, they all have way higher taxes than we do here in California, right? Like, all it, it kind of comes hand in hand. If you want to live in a great place, you get a bunch of this stuff with it. Right? It's it's just, it's part of the trade-off. You can go live in armpit places in America and have less taxes, and let's see, oh, but it, California is pretty awesome. You can wake up in the morning and go scan and be surfing in the afternoon. And, you know, stop by wine country in between, like.
Kristi Cirtwill 41:08
I totally agree. I totally agree.
Sean O'Toole 41:10
I'm willing to put up with a lot. It feels like right now, though.
Kristi Cirtwill 41:13
Yes, it's overwhelming some days, but just, I've learned to just chill out about it. You know, some days I get riled up and I fire off an email or make a phone call. And then the next day, I'm just like, hurry up. You know, it is what it is. And I'll get to it. At some point. It wouldn't be nice to have things go faster. But it is what it is.
Aaron Norris 41:38
Well, let's say in the state of California, and it's not just California, who's been focusing on these. I know, Washington has been a big proponent of Accessory Dwelling Units. I really like this as a solution.
Sean O'Toole 41:48
Aaron Norris 41:49
Yeah. I mean, we're not alone. But here in California by right, you as a landowner should be able to build one Accessory Dwelling Unit. There are some exceptions. There is safety, public health. One of the things I was told early on is if you're on a lot, and you look overhead, and there's a power line, you just be careful. Don't assume don't spray and pray. It's the wrong approach with ADUs. I know you have an environmental story as well, with liquefaction. Yes?
Kristi Cirtwill 42:17
Oh, yeah. Yeah, I got one of those. You want to hear that one too?
Aaron Norris 42:21
I do. I Well, I want to warn people, because those are the kinds of things you 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.
Kristi Cirtwill 42:30
Oh, yeah, I've made all the mistakes literally.
Sean O'Toole 42:33
Let's start with what is liquefaction? Like, I'm gonna keep bringing us down.
Kristi Cirtwill 42:39
I don't even know if I know how to explain this properly. It's where your house is sitting over some type of water table. So, on the NHD report, there's actually a little thing that says are you in liquefaction? Okay. I never paid attention to that. Who needs to know that for any reason? Well, this house I bought. I bought it was a hoarding situation. So, I don't have, I don't make the seller do all those disclosures anyway. Well, I never knew and I just plowed ahead and started my ADU design. Well, it was in liquefaction. So, what does that mean? You basically have to dig up. Yeah, it's it could be perceived as unstable soil. So, what you have to do is stabilize the soil, you have to dig up the whole area. So, even if you're ADUs only taking up a portion of your backyard, you have to dig up the entire backyard, all the way to the lot line, five feet down, and then put one foot of dirt back in at a time, compact it with this thing. Get a third-party engineer to come over, put 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 of course, there's nowhere to put all the dirt you're digging five feet down. So, you have to do one side and pile up the dirt on the other side. Compact that side, then dig up the other side, pile it on top. Then you have to get more dirt in because you've just compacted it. So, you need more dirt. It's, it's a process. It's a process.
Sean O'Toole 44:19
I bought a house back in 2012 and the foundation was triple the cost of what I thought it would be because it had to meet 100-year flood and 100-year earthquake simultaneously. Right? And I'm like, okay, there's a bunch of stuff in my town that's been around more than 100 years and there hasn't been 100-year flood and 100-year earthquake that happened at the same time, right? Like really seriously like at this foundation is just incredible, right like you think it would be for like a skyscraper or something and it's you know, a two-story to one sections are one story and it's like, what are we doing? We're making housing illegal.
Kristi Cirtwill 45:08
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's lasted all this time. So, they must have done something right back in the day. But yeah, a lot, lots of new rules for new, new builds.
Sean O'Toole 45:37
Aaron Norris 45:38
If I'm a real estate investor, where, you know, lessons learned, if a note, from a tactical perspective, I've shared and I've talked to manufacturers of ADUs, you know, a lot minimum square footage that you've experienced work well, is it a 10,000? Like five to 10,000? range? 7000? Do you have a preference of how much dirt you'd like to see?
Kristi Cirtwill 45:59
Um, no, I mean, 5000, preferably on the smaller side, but it just all depends on the shape of the lot and sort of how you can, you know, build on it. If it's got that access way from the back, it's, it's much easier. Corner lots sometimes work pretty well, but you have the setbacks now on two sides for the ADU. The setbacks now, by the way, are four feet, so, they used to be five feet. In some cities, they were 15 feet, I know, I built one 2018, there was a 15-foot setback from the rear. So, you just have to sort of know the rules and figure out where you can put one that sort of makes sense. So, yeah, 5000 on the low end, I would say if you can, the bigger the laws can be easier, the more flexibility.
Aaron Norris 46:51
Yeah, a fun little trick in PropertyRadar is to get the square footage, and then start zooming in and look where the house is placed. And you can really create your own customized list. And if you have insights on I had one ADU, real estate investor, I actually think it was in Long Beach, where he knew where there was an alley, but also where it was easy, very easy to connect to the sewer line. So, it wasn't expensive. So, he had sort of an inside track. So, man, those hyper local insight, super cool. Now, an opportunity we have to talk about is up-zoning. So, if you're paying attention to at the local level up-zoning opportunities that haven't even hit the realm of public record. Let's talk about that. So, if you have an R-2, you can build a duplex and have two ADUs, correct?
Kristi Cirtwill 47:38
Aaron Norris 47:41
I, and let's. Okay, you've got...
Sean O'Toole 47:44
R-2 just became an R -4.
Aaron Norris 47:45
Correct, if you have an R-4 you can build four ADUs. And guess what kind of financing you qualify for? Standard.
Sean O'Toole 47:54
Oh, residential one to four so, you, you get residential financing and you can build eight units. You're gonna have eight units.
Aaron Norris 48:03
Sean O'Toole 48:04
Ah, it's a good one. Aaron. I didn't know that one.
Aaron Norris 48:07
So, one of my favorite projects I heard about was a real estate investor who owned a triplex and I thought this was really smart. It was on a rather large lot. He's like, Yeah, what I've decided to do is build garages with ADUs on top that I will rent separately for whomever wanted to use them. I'm like, that's so smart. You're increasing the quality of the units themselves and then building ADUs and he was just really happy. I'm like, Yes, more of those. So, there's just a lot of...
Sean O'Toole 48:33
What becomes the difference between a unit and an ADU at that point? Like we're gonna call four units, and we're gonna call four ADUs? Is there a, is there a technical difference?
Aaron Norris 48:42
I don't know. That's weird, no.
Kristi Cirtwill 48:46
I don't I don't think there's any actual difference other than maybe the setbacks are a little more favorable for ADUs. And that's why I built and there was only room for one additional housing structure on this R-2 thing that I built last year, a couple of years ago. But so, I called it an ADU because the setbacks were more favorable. So, in terms of the actual space, there's no difference but in terms of what you want to do, maybe to get it reappraised might be a little tricky. I did have some appraisal issues in the past. I don't know what those are like, currently, I haven't done anything recently.
Aaron Norris 49:26
I'm, I'm still hearing that appraisers, they still don't know what to do, because there are not enough comps. I think the closer you have, R-2, R-2 properties, if you're on a single-family with an ADU you have more of a chance of them comparing it to a duplex. But yeah, they're creating an average square footage cost and carrying it over into the ADU which is not great because it's the most expensive square footage crammed in a small space. For flippers that are doing at us. I continue to see the problem, unfortunately.
Kristi Cirtwill 49:53
Yeah, and going forward. I always want to have a couple of different exit strategies, even if I'm selling Flipping. What if I can't flip this due to it not appraising or due to the market dropping? Or whatever the case may be, I don't want to just be relying on flipping. I want to have another game plan, just in case.
Aaron Norris 50:16
Look at you being all smart? Well, what are you excited about in 2021? What do you plan to work on this year?
Kristi Cirtwill 50:24
Well, I'm definitely I'm excited to get these three, three more ADUs, 1 JADU, 2 ADUs built out. So, I'll be working on that this year. As soon as I get permits. I do want to continue my, my hoarding, you know, marketing, which is, you know, some days I don't do too much, but honestly, it's all word of mouth. So, I just have just kind of stay in front of people. And nowadays, I can't do my little wine and cheese, open houses or, you know, get-togethers. So, it's all online. And that's why I've realized I need to be posting these pictures. I mean, I have pictures from a dozen years of all kinds of stuff I've stepped in and all, you know, before and after, I might as well be showing that because I'm still in that business. So, I'm still going to just do that. And just be mindful that we might have an adjustment coming in at some point. I mean, you know, the market and prices last year went up. 15%. Okay, who would have thought, you know, you have a pandemic, and prices go up? 15%? I don't think they're going to do that this year. So, I just want to be cautious of that. But yeah. I want...
Sean O'Toole 51:47
Gamestop is breaking the stock market right now.
Kristi Cirtwill 51:50
Yeah, I guess I want to look at each deal creatively, I don't want to just run it for the sake of buying something, I want to look at each deal, you know, how can this be a win-win for me and the seller? Could I do something with this to, to not just flip it, but maybe to keep it and build an ADU and have it as a rental? Or could, I could I, you know, sell it to someone or I don't know, I want to get creative with it. I think that's sort of my, my ideas for this year.
Sean O'Toole 52:21
Hoarder houses are particularly just crazy. And you know, it's one of those cases where I don't think people realize how much value investors add in, like taking care of problem properties and getting them back to the point where they can be financed because a lot of these houses that investors buy, aren't, you know, aren't financiable, they aren't sellable. Like Like, oh investors flipping a house, but you know, without that flip, nobody's behind it. Because, you know, you know, you can't get financing.
Kristi Cirtwill 52:54
You have to be really creative with those properties because you're dealing with a problem property, but you're also dealing with a person who has some issues, they can't just up and move. That's not realistic, you've really got to help them through that process and figure that process out with them. So, you're dealing with a lot so I think that's what I like about those is figuring out how to how to help a person and getting a deal for myself. Make it a win-win.
Aaron Norris 53:23
What is harder marketing even look like? Are you rolling down the street being like, looks like you're a hoarder, call me!
Kristi Cirtwill 53:30
No, no all are referral based, all are referral based. In fact, I've bought almost all...
Sean O'Toole 53:36
Mostly from agents?
Kristi Cirtwill 53:38
From, from a portion comes from agents. A portion just comes through other business professionals that work in a similar industry. So, maybe an assisted living placement person or a junk hauler type company. So, I get them from financial planners who know a person's financial situation where they have a property that needs to be sold. So, different business professionals, it all comes through referral nowadays.
Aaron Norris 54:14
And, and you're marketing to them and not homeowners.
Kristi Cirtwill 54:18
Aaron Norris 54:19
Kristi Cirtwill 54:20
Homeowner, a homeowner who has the hoarding disorder, never wants to sell they will never want to sell they will need to sell some point.
Aaron Norris 54:29
This isn't hoarding this. These are collectibles, everything.
Kristi Cirtwill 54:33
Yes. You never, you never call it junk. You never call it, these are their treasures.
Sean O'Toole 54:40
My best one was when the hoarder passed away and the wife was left there going, Oh my god, what do I do?
Aaron Norris 54:48
So, stressful. Well, I'm going to make sure to post links to your website. What's the best way people can get in contact with you?
Kristi Cirtwill 54:57
Probably just through email or my phone number you can post that if you want. Aaron.
Sean O'Toole 55:02
I think folks should follow you on, on Facebook. Are you good with that? Would you...
Kristi Cirtwill 55:06
Yeah, yeah, I'm on Facebook.
Sean O'Toole 55:08
How do they find you on Facebook?
Kristi Cirtwill 55:10
I'm just under my name, Kristi Citrwill. And also, I'm on LinkedIn. So, I post on both of those Instagram as well, if you want a third option.
Sean O'Toole 55:22
You post a lot, you know, pictures of ADUs, pictures of like furniture for ADUs. I mean, you have good, good content there. But I think it's helpful for anybody looking at this kind of space. And, and yeah, and now you really are going to have to have good content.
Kristi Cirtwill 55:38
Well, thank you. Yeah, I mean, it's good to just keep it people's top of mind. And that's it's sort of a not direct marketing. I do but it's just indirect. I'm having fun with it. You know, why not show people what I'm doing then? They remember me for a potential property.
Aaron Norris 55:56
Or partnering because that takes a very, that's a people skill level that some investors just don't have.
Kristi Cirtwill 56:01
Right, exactly. Yeah.
Aaron Norris 56:04
All right. Well, really, thank you so much for your time. It's been awesome.
Kristi Cirtwill 56:07
Thank you both. I appreciate it. Thank you, Aaron, and Sean.
Aaron Norris 56:12
Thank you for listening to the Data Driven Real Estate Podcast, you can find show notes and links to some of the resources mentioned in the show at datadrivenrealestate.com. Click that join the community, and you'll be forwarded to the PropertyRadar community where you can ask questions about the current show and even see upcoming guests and ask questions there. We'd love to engage with you in the community. So check it out. Please don't forget to like, favorite, subscribe and share on your favorite platform where you're listening to the show. It helps us out a great deal. Thanks for listening, and we'll see you next week.
Transcribed by https://otter.ai