How fast the San Jose City Approval takes for 600 sqft addition and how low cost possible

South Bay
1

Recently, I delisted the home where we had lawsuit issues. Since the current offers are lower than what we paid, we do not want to take huge loss.

I found a builder cum realtor who assures me that he will take care of remodel from 3BD 1BH to 4BD, 3BH with appx cost $275/sqft, and sell the home for break-even or more (including his commission+carry cost+remodel cost).

His condition is this:

  1. He gets his partner to build at lowest cost to break even.

  2. He will remodel a nice home 4BD, 3BH for sale point of view ( current home is 1400 sqft+ 2 car detached garage, will be 2000+ sqft+detached 2 car garage)

  3. I have to fund the remodel cost+carry cost.

  4. He and I agree on a break even cost plan

  5. He will sell the home and take the commission.

  6. If he is not selling the home (no offers due to market) for break even, I can take the home 4BD+3BH

  7. If he builds and I do not like to sell, I need to pay him 2.5% commission (as if he sells it to me).

Since he says $275/sqft build cost, I find it good for me to get rid of this home (as we do not like to hold as rental). They are very fast in remodel as they have crew in place.

I have visited one of the home where his relative build. The realtor bought the old home (buyer agent) in cupertino 3bd 1bh and remodel to 4bd, 3bh exactly similar to my case. Looks like they planned well during escrow period, got the home on Aug 5th, got permit and started building now. I have seen his remodel looking nice.

Ballpark estimate is 1 months approval, 3 months build, 1-2 month listing and 1-2 months closing.

The question is how long it will take to get san jose city approval above 600 sqft. I understand less 500 sqft is same day approval, but 610 sqft or 625sqft needs longer time frame. (I am asking him same question)

Second, the builder says $275/sqft is lowest he can do with low profit margin to help his relative (Dad bay area builder, Son Realtor). For me, inexperienced in building/remodel, it is attractive to get rid the home at break even.

But they question is whether it is doable build at $275/sqft ? or Am I missing some potential issue (except changing market condition which no one knows).

2

Why is he doing all the extra work and still keeping only 2.5% commission? Yea his Dad or Builder got a job but just small break even number. Seems like small gain for him for all extra work especially for increasingly harder job of listing agent.

3

This sounds complicated. Why involve him in the selling? Why not just make him build for 275$ and then decide what your next step will be?
Is all 600 sq ft on the same level?
I don’t know about San Jose but my relative did a small 300 sq ft addition in Fremont to an already existing 2 level home - 150 sq ft top and 150 bottom. It took him 4 months to get the city to approve. His project is nearing completion after almost 10 months.
I think you should double your approval time at least and maybe even the build time. Also remember we are approaching winter and rains. I remember how mad I was seeing rain pool on the subfloor of my incomplete addition even if was only for a couple of days.
I’ve been hearing that the market in Cupertino is at closer to 400$/ft to build right now.

This situation is eerily similar to averaging down on dodgy stocks and hoping to sell for a better price. I’ve not had much success doing this.

Another thought - Why not fix the house up at a smaller scale - maybe add a bath and then list it?

4

Not familiar with San Jose, but the 500 sqft mark shoud trigger extra reviews and requirements (fire sprinklers). I don’t see the benefit of spending extra on the 100 sqft, but perhaps the realtor does. I’m sure some people in the business can build for 275, the only question is build what?

You want to avoid the headache of this property, but you don’t want to take the loss. Is a significant portion of the loss coming from the transaction costs or from the market value? If it’s mostly the transaction cost, I would just take it on the chin and move on. It will continue to be a headache to put in another 150-200k and hold for another 6-9 months. If the place only causes you pain, move on as quickly as possible. If you see that you might want to move into it, execute the remodel and decide down the road.

2 Likes
5

Why is he doing all the extra work and still keeping only 2.5% commission? ==> His commission is 5% (2.5% his side and 2.5 buyer side).

If I do not like to sell after home is extended, he wants his commission 2.5%.

He is growing startup realtor, I understand, trying to increase his team and trying to increase his sales output.

6

Is 600 sqft same level? => Yes, I have bigger lot 8000+ and 600+ extension possible. My previous architect designed appx 3200 sqft single story at this place for which I do not have cash to build.

Why involve him in the selling? Why not just make him build for 275$ ==> Build+sale is tied. Dad wants to help his son’s business to grow. Dad is slowing down his business to get into partial retirement. He is not so active other than help grow his son’s business.

Regarding build time, we discussed about rainy times, dec-feb, but if design is approved, they will finish the building within 90 days (max over run another 30 days).

7

You want to avoid the headache of this property, but you don’t want to take the loss. ==> Yes, just break even, no loss no gain is fine.

The current market rate is 10% less than what we purchased. with 4% or 5% commission is added loss over it. I have got a full cash offer by a builder with such loss almost 15% loss which I refused to sell as the home is in nice neighborhood and desirable school location.

The home can be expandable to 3200 sqft single story (already drawn a design), but would not like to proceed with my least experienced build knowledge.

The current home is appx 1400 sqft+2 car garage 440 sqft. The biggest issue is 3BD 1BH and most of the primary buyers are not interested.

Only question is build what? ==> The extension is appx 610 sqft or 625 sqft that will give me 4BD, 3BH single story home total sqft will be 2005 sqft + detached 2 car garage 440 sqft.

If it is less than 500 sqft, break even is not possible with current market condition.

Since the lawsuit and all CA rent control discouraging rental, we want to get rid of all rentals.

If home is sold at break even, everyone is happy.

I told them it is up to them to come up with least additional sqft (which I fund+carry cost) so that we sell at break even.

If the home is not sold (due to various future economic issues), I will hold the home as primary, but it is 4BD, 3BH which is coming to me at the cost $200k (150k to 175k remdel+25k carry cost).

In such case, I will move in as primary and sell my current primary (I hate selling my current primary, but will do it - if forced - to get 500k capital gain tax exemption).

Dry-Creek neighborhood and walk able distance to books-in elementary school which is topper in willow-glen. With new google complex coming in 5-10 years, brighter chances to sell for profit later.

With current deal $275/sqft+sales(5%) if I get break even including carrying cost, I feel that I won’t get such deal in future (Remember, I am in-experienced with home building). These are experienced builder+sales team.

8

The way I see it this transaction isn’t only about numbers. You has planned to build your dream home, but that dream died. Did building the dream home require that you are able to make money down the road when you resell? If you were my buddy, I’d tell you to keep the dream alive as long as you can afford it and if it meant something to you.

It isn’t impossible to build for the first time, it’s just filled with bumps in the road. A lot of it is about managing yourself, meaning you, not the project itself. If you have done a major remodel before with plumbing, electrical, and moved walls around, you have more experience than you think. You have a shell with the foundation and framing, then you have all your mechanicals, and the rest is all the stuff you see.

Did you mean to say you hate your current primary or you hated the need to sell your current primary?

Now that I reread your post, it sounds like the dream died because there may be no value in over building down the road. That’s much more of a rational and logical approach and would make this much more of a numbers issue.

If your worst case scenario is that it becomes your primary, remember to tack in the 2.5% commission to your cost. 50k on a 2M breakeven. In the big picture, 50k for someone to manage and expedite things is not a big deal.

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9

Next year is election year, i say better preserve cash. Expecting a lot of volatility going forward.

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10

I like my current primary, it is 3750 sqft year 2005 built, bought it 2011 as a short sale. At this stage, after bitter experiences, we do not want sell our current home. I got it at through away price by bank.

You are right, we planned to build a dream home, but could not do it by my poor build experience & huge cash involved (risk of cost over run). We want to get rid of the rental home with break even. I can get all my down payment amount and pay off my current primary home loan and happily live free of loan.

Yes, that is the risk, but that risk is there every time whether we buy or sell.

BTW: My worst time in real estate was the law suit time where It would have led me bankruptcy stage or would have made big loss. The impact/effect is like a lay off, we never slept peacefully. Even at 11 PM, we get email from our lawyer (he also worked extended hours).

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11

I was sued many times as a structural engineer. It is very stressful. Going through a suit now about disclosures. I like the 19th century method of dueling to settle disputes. Much cheaper and more satisfying. Nobody but the lawyers win in lawsuits.

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12

??? Lower than what you have purchased 10 years ago?

Edit: Saw the 15% loss.

:+1:

With proceeds from the sale, can make back the 15% loss from trading stocks within 6-9 months?

14

Bought 12 to 18 months ago.

15

Personally I would sell. Take the loss against other cap gains. Rental business takes work and risks like any business. Nor for everyone. Especially if you are good at picking stocks. Less work and no chance of being sued.
The other reason is if you are in a hole don’t keep digging. Do not put good money after bad.

2 Likes
16

@Jil While we are sympathetic about your situation, as landlords we want to learn from it. Since you can’t tell us the case in detail, how about just post a list of do’s and don’ts. Thanks in advance.

About to add above to my post. Rental not only take work but is not the kind I enjoy too.

17

I can not post any details (except generic) as I may get into legal trouble. Perhaps, after few years it may be possible. but not now.

All I know is read the contract word by word (rental or buy or sell) and strictly adhere the signed contract. Any changes must be in writing and preferably with the other party signature.

This is the main reason we sign every document and every page of buy/sell contract. Any misses may work against landlord (or seller) as he/she is vulnerable being wealthier than tenants(or buyer).

Any update or work (say painting or appliance changes or your visit), keep it in writing and follow the same. For court, you need proof similar to IRS. No short cut.

Rental is time consuming business and it is not like buying SPY and swim on the tide.

18

did you have property management to do the work or you do it by yourself?

19

Unfortunately I do not want to answer anything about my specific issue.

20

Did your insurance company help you with the lawsuit?