My $2 Million Dollar Beach Home | Money Pit Exposed.

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hey everyone me kevin here welcome back

to this project it has been just over a

year since i bought this property at the

end of september which is pretty sad

because usually i like my renovations to

go and be done within 45 to 60 days yet

it's been a year and we're still in

renovations so in this video we're going

to talk about this 1.3 million disaster

we're going to talk about problems we're

going to talk about how to prevent those

problems in the future and things that

we've learned and things that we're

doing in the property so let's head on

in take a look one of the first things

that i want to say is

i have never owned right on the water

before and it is mind-blowing to me

but this is new hardware as of about six

months ago and you can already see

rusting on the hardware specifically

right here where sort of the hardware

meets the door and it's crazy because

it's so salty the air

it's like this corrosive air that just

blows around outside here anything metal

just rusts and decays out here it's

insane

but to think that you know a nice

quality quick set i mean it's quick set

smart key that's that's the higher

quality version uh hardware would just

uh corrode this quickly i mean eight

months and you're already corroding

imagine what this will look like in a

few years pretty wild i'm not sure if

they manufacture uh corrosive resistant

hardware that'll be something to look

into but honestly if this is you know a

20 30 kit here or whatever for a single

door set

is it going to make sense to spend 100

or 150 on some special fancy

anti-corrosive kit that's probably going

to corrode anyway probably not but i

don't know maybe i'll google it

so come on in let's take a look around

here so this uh this is our project

uh we'll uh we'll show on screen some

before images uh from our matterport of

kind of what the place looked like

before and this is really the theme

we're going for here i like to call this

a

level two and a half style renovation so

level two is where you get your a rental

grade this is where you're doing uh nice

quality work you're making things safe

but you're not overspending level one is

kind of a little bit in the direction of

i don't wanna say slumlord because it's

not true but uh you're gonna leave a lot

more product in a level one renovation

level one renovation is usually where

you might be in like certain parts of

the midwest like ohio or idaho where

you're getting five six hundred dollars

in rent for a house it doesn't make

sense to go in and replace the oak doors

or the grass handles it just it's not

gonna be profitable it doesn't make

sense so that's going to be more level

one sometimes people confuse that with

being slumlord in my opinion a slumlord

is somebody who doesn't repair things

that are dangerous to health and safety

like a leaking roof or electrical

problems right that's that's slumber

that's like negative level so level one

is is really low rent where you're

capped level two rental grade uh when

you get to level four you're doing

high-end custom spec builds and between

level two and two and a half is where

you wanna be for a rental

level three is going to be like i'm

living here but i'm not specking it out

like a multi-million dollar home i just

want higher quality stuff for myself so

for rental grade

at the beach i'm gonna go step up from

level two i'm gonna go with a level two

and a half i'll show you some things

that would define a level two and a half

so for example

right here we wanted to open up uh this

this wall right here uh the loads are

really sitting on the left and right of

this wall but we had to go through a

permitting nightmare just for an opening

like this i'll talk more about permits

in a moment but

this opening this up is a really good

idea we will generally do this in a

level two renovation as well level one i

wouldn't touch this but level two

renovation you know regular rental rents

for two to five thousand dollars a month

not super high spec we're definitely

going to want to open this up because

people like

people want to feel like they can live

in a more open concept that's obvious at

this point

the fact that we're going with new

cabinets here is also a version of two

and a half usually we'll just paint

existing cabinets that are still in good

shape however in this case there were no

cabinets we bought this property ripped

down to the studs which that opened up a

whole can of worms in terms of

permitting nightmare we'll talk about

that soon but as you can see we've

really got a nice modification here to

the way the kitchen flows compared to

what it previously was when this was all

closed off and you'll see that in the

matterport scan will throw up but

something else that's i think very nice

to do is is adding your crown to the

cabinets up here this is just a little

bit of an extra detail that i think is

is really representative of a two and a

half uh

rental renovation if we were gonna do

crown molding on the actual property

walls that's gonna bring us more to like

a three three and a half now we're

starting to get a point so we're

overspending

generally for a rental you don't want to

go to three even for a flip you don't

really want to go to a level three

because you're going to be overspending

so i'll point some more things out as i

see

now another thing that we did on this

property is we upgraded the electrical

to obviously the gfci the new white

tamper resistant decora outlets and

switches here but a new code would

actually probably have had us add

another two or three outlet receptacle

boxes here which we did not do because

we're not replacing the electrical

system in the house the place was built

in the 70s you've got three prong copper

electrical it's not necessary to upgrade

all of that and this is sometimes where

you have to fight with the building

inspectors a little bit because the

building inspectors will say oh well

property's down to the studs you've got

to add more outlets it's like no we're

not updating the electrical system we're

not going to spend money doing that

because a there's no health and safety

issue b we don't need to rebuild the

home to 2021 specs because then nobody

would ever be profitable on real estate

and again there's no health and safety

concern right so sometimes you have to

push back a little bit on some things

that are grandfathered in and again

there's nothing wrong with the

electrical system the way it is if

anything we're improving it by going

through all the receptacles again and

upgrading them this is something that

i'll do for almost all of my properties

now if i were going to do a level one

renovation and let's say i had ivory

outlets here i'd probably just get cover

plates that also cover the actual outlet

itself and make it look white so now

instead of hiring an electrician to

spend you know

thirty forty dollars an outlet to

replace these which obviously you know a

lot of people are like why that much i

can do it for ten dollars an hour or

whatever i understand it's not that hard

uh doing it correctly takes some skill

though so you don't wanna devalue

electricians and having somebody do it

properly but

you on amazon maybe we'll put a picture

of these up on screen you can buy these

plates actually we should put a link

down below as well you can buy these

plates that literally cover not just the

frame plate like it actually covers the

outlet to where it all looks white and

you can plug things in it is really

ingenious i would use something like

that on like a level one level two that

might look a little cheesy and so you

want to be careful that your renovations

are consistent so for example in my

opinion this is going to be a very

consistent level two and a half rental

property if i uh if i started doing

things like level one things like

putting that plate in over here and the

rest you know i put crown on the cat on

the new cabinets now it's like you have

this mismatch you have some level one

thing some level two and a half things

doesn't make sense so i always like to

stay bracketed within within these

brackets of levels another thing is

adding lots of cam lights we we probably

added somewhere around 25 to 30 can

lights throughout the property here

because it felt dark

especially once you get past 12 o'clock

we're filming this at about 11 a.m right

now

once you get past 12 the sun's over you

and the sun actually sets on the other

side so you're known as having an east

facing dock over here this is where you

get morning sun but once you get past 12

it starts getting dark in here so it was

one of the reasons we decided to add

candle lights and lighting if i was

gonna do a level two renovation which

would be a lot more like uh maybe a

twenty two hundred dollar twenty five

hundred dollar rental this is gonna be

more like a five thousand six thousand

dollar rental uh then uh i probably

wouldn't be adding canned lights i would

let a tenant just plug in extra lighting

if they wanted to but i probably

wouldn't spend the extra money

uh okay so so uh you might be wondering

what

left this property uh

essentially vacant for so long because

not only do you lose money of

opportunity cost i've got a 900 000 loan

on this i bought it for 1.33 million so

i'm in it for about 437 000 plus some of

the work that we've done so maybe five

hundred thousand dollars into it right

uh not only have i lost the opportunity

of what i could have done with that i

mean i could have thrown it at a tesla

stock right uh i could have um also been

renting the property and collected rent

on this there are a lot of things you

could do with that money uh so it's a

little bit of a bummer to see this

sitting vacant for a year and i'll talk

about why in just a moment but it's

worth noting that

fortunately and you can't always predict

this but when i bought this this was

probably finished about a 1.9 million

dollar property so obviously i had a

very nice wedge about a 550 000 wedge

from what i paid 1.337 or whatever i

paid to 1.9

really good spread there i think that

makes this a very profitable project it

was a very good deal when i bought it it

was all down to the studs which meant

only a cash buyer could buy it

and i got a private party loan to

actually get financing on it uh and uh

then

now i've been fortunate the market

hasn't been crashing or plummeting if

anything it's been appreciating more and

more rapidly so this is probably now

sitting at about 2.1 maybe even 2.2

which is kind of like mind-blowing to

think about it might even make sense to

just sell the property although usually

i don't like selling real estate because

the fees are through the roof so what

took so long

to actually get this property to where

we are now where we have officially good

news and we have been fully approved for

these

we finally have our permits uh fully

approved to where we can complete the

renovation what took so long and what

mistakes occurred that

we can avoid in the future

well i'll answer that

so

number one when you buy a property

that's taken down to the studs and

somebody's selling it because it's been

taken down to the studs the odds are

they've already exposed the property to

the city so much and they've gotten so

frustrated with city building and safety

process that they're quitting the

renovation project that's a sign that

you're walking into a minefield

it's a sign that you're walking into a

headache like somebody else failed

probably because of the city's

ridiculousness

and i i didn't initially think that i

would have as many problems because

the people who were renovating this

property they wanted to add about 400

square feet right here they wanted to

add an elevator and a second story here

like they were gonna do like a level

four renovation on this it was gonna be

insane uh they were really gonna custom

spec this home out they ended up

deciding to buy just across the channel

a a move-in ready home that was like a

2015 renovation so not like brand brand

new but they didn't have to deal with it

anymore because dealing with all this

dealing with architects engineers the

city sending you violations because your

architects and engineers are taking too

long uh you know them getting mad at you

because you're starting to do some work

at the property before you actually have

the permit like all that stuff is very

very stressful it's very very annoying

and frustrating so i think when you go

into any kind of larger renovation where

uh you

think you're gonna have to deal with

architects and engineers you better be

prepared to be very patient and uh

expect the road bumps because working

with the city sucks this is why

generally i would say in 95 of my rental

renovations we don't deal with the city

because we're not having to deal with

the city we're going in we're painting

cabinets we're doing paint and flooring

uh we're doing basic cosmetic work we

don't need to pull permits on that i

mean city officials have bluntly told me

to my face kevin if you're just going in

and you're replacing ceiling fans and

you're doing like for like exchanges

just don't bother us like just do it uh

and it's because they're overwhelmed too

they're overwhelmed they're understaffed

they're laying people off covet's been a

disaster for people these people are so

stressed and honestly nobody likes them

like could you imagine going to work

every day and everybody freaking hates

your guts like i kind of feel bad for

them but i also hate their guts but i

know it's not them personally like i'm

sure they're nice people i know it's

just

it's california government california

bureaucracy it's a disaster so anyway uh

so first lesson is if you're going into

well try to stay away from renovations

if as soon as you hear architect

engineer

you're setting yourself up for a

disaster that is no disrespect to

architects or engineers uh it just is

what it is and they would recognize that

as well and i'm sure that they're

probably nodding their heads like yeah i

get it that's different renovation

uh like i would rather work with an

engineer privately and like hey engineer

you're like this is a non-load-bearing

wall right like we don't need to pull

permits on this right we're good like

this is good and like yep this is safe

you're good this is an on-bearing wall

you're good here uh and get some sort of

certification like that and not have to

deal with permitting like if you move a

load very well you're gonna have to deal

with permits but anyway so uh

lesson number one stay away from

renovations that are massive if you can

lesson number two is if you're gonna get

into renovations that require architects

engineer be prepared for a cluster f

number lesson number three is if you're

going to change architects and you have

an architect who let's say already put

together an entire set of plans if you

burn that bridge with that architect and

you have a bad relationship with that

architect because they're just failing

and they're not good at responding or

they got overwhelmed or their quality of

work is starting to go down you're like

you're done you're off this job

they take their paperwork with them

which means you start from scratch and

when we're in a building crisis like

what we are in now where it's so

difficult to find good engineers and

architects because everybody's spending

money like crazy uh and everybody's

building

you're it's gonna be a while before you

find another architect because on this

project we fired an architect

took probably about four weeks to

interview and find another architect to

actually give us an appointment gave

that architect six weeks to get plans

done

never got anything done took five grand

from us lied through their teeth ended

up they were retired and didn't really

care to do projects other than just kind

of go talk to people at the city and try

to make friends at the city which they

never ended up doing they ended up being

hated by the city and so we had to fire

that person as well then start the

process of hiring an architect again

so i ended up actually this summer

hiring two

different architectural firms and i'm

like that's it i've got multiple

renovations going on where we need plans

for i'm not just gonna put all my eggs

in one architect basket so to speak i

hired two separate firms

to do plans on different projects and

fortunately knock on wood so far both of

them are very good one of them is way

more expensive than the other one so i

probably won't use them especially if

the other one ends up holding through on

some of their projects but it's a

nightmare it's a disaster because you

not only are you trying to deal with

these architects but you're

waiting forever for the city so on this

project we opened this wall

we replaced the doors and windows

in terms of actual structural things

that we changed we didn't actually

change anything structurally here but

i'll talk about why that's open just a

moment we'll go upstairs so we opened up

that wall which didn't affect loads but

it still

bothers the city

we uh opened this

section of wall right here which there's

no weight on this anyway from from our

understanding we turn this into a

laundry room because this used to be

like this stupid outside closet like

they had a door

right here to the outside and it was

just sort of like a storage room where

you could

throw your surfboards or something

stupid

so we turn this into a little laundry

room here we're going to put a nice

quartz countertop on top of here uh so

you've got your you know storage

cabinetry here for your linens but

you've also got a ton of extra storage

that we've added over here and uh

actually i'm gonna see here hold on a

sec

oh yeah no okay good sometimes when i go

through i look and i'm like wait a

minute is that not a tamper resistant

outlet because it's black but um these

are the ones that you get at lowe's and

they have a little black shutter so they

are tamper resistant temper resistant

tamper resistant anyway tr

uh so anyway we normalized this but okay

so opened up that non-bearing wall over

there put a header in here to put a

simple doorway in here to basically take

an existing room and just flip where the

door is

and then the other thing that we did was

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up here was really weird because

they originally

i don't know why but they turned this

into a two-bedroom which is not

functional and kind of stupid so we

turned it back into a three bedroom

so you've got one bedroom here

you've got a second bedroom here where

we added a closet

and this bedroom had actually been

just turned into a massive

master space here so this was all one

room we added this wall right here

adding walls is not a bad thing it's a

good thing now the city wants to see

that you've actually like attached the

wall so if there's an earthquake the

wall doesn't come falling down but like

that's amateur like okay fine this is

not a big deal so so far it's like

opened a non-load-bearing wall added a

wall not a big deal and uh

left the bathrooms the same

added a door jamb here because there

wasn't one not a big deal either

uh

left this wall exactly the way it was

and then over here

this actually had a substantially larger

opening the opening came out uh

it came out this direction they had a

an eight foot french door here so the

opening was a lot larger and we ended up

downsizing this to a six foot opening

and so we put in a nice uh

engineered

lumber a piece of lumber here header

framed in

the wall and so if anything we've

actually reduced the opening and added

more support and more beefiness to the

property well this is where the city was

like well here's the thing kevin you may

have reduced the openings

but because the prior owner without

permits

opened

the walls from what they previously were

they made everything larger they added

this eight foot french door they made

this a two bedroom because they screwed

up this entire wall they've screwed up

more than like i don't know what it was

16 percent of the wall or whatever we

now want you to bring this entire wall

of this house to 2021 standards so

that's very annoying and this is one of

the big reasons that i say don't buy

properties with unpermitted renovations

because at some point in the future

you're gonna have to prove all of the

work that people did before you and if

they did a crap job didn't pull permits

didn't do it right

you have to fix all of their crap

and so even though what we're doing is

adding strength touching on a non-load

bearing wall and and flipping a doorway

we're not really doing anything we got

caught up in permitting on this project

for a year

because of basically the people doing

janky stuff before us and there's really

nothing you can do with that so kind of

lame but is what it is now we've got to

shear this wall which basically means

adding plywood not that big of a deal

hopefully they'll let us do it on the

inside here and then we'll have to get a

little bit creative with how we end up

preferring this this extra like maybe

we'll use like a uh we'll put our uh

half inch plywood up

uh unless they want you know 5 8 uh

which the plans specify i just don't

remember exactly what they called for

but then you know that's usually the

thickness of our drywall so we'll

probably do like a quarter inch thick

sheet of drywall and we'll just have to

get creative with the molding over here

how we end up uh

furring out uh the

the drywall with the door molding so

we'll figure that out it might mean just

kind of putting another quarter-inch

layer of drywall around this whole wall

here won't be a big deal we'll be able

to cover it up with moldings when we

bring those out so not that big of a

deal fortunately

the things we're dealing with

like i said not a big deal

it's

sad though because

the cities are so behind and the

construction industry is so behind uh

things take a whole lot longer and just

a pain in the butt and sometimes it

makes you kind of roll your eyes like

man i should just be buying stocks but

remember i invest in real estate as a

way to diversify you don't only want to

be all in on crypto all in on stocks all

in on real estate anyway this is just a

nice closet here pretty basic it's just

a maintenance paint we've got the swiss

coffee on the baseboards i love these

baseboards by the way this sort of

molding very craftsman very simple very

sleek right our usual black bronzed uh

and lately we've been almost trying to

go all black

on the hardware it's just really nice

contrast similar with the bathroom we

actually tiled the master

this is a this in my opinion

let's turn the fan off it's annoying

there we go this in my opinion tiling a

bathroom like this leans a little bit

more towards a level three renovation so

if you want to come in here flip around

i'll show you this uh this this is a

subway tile obviously with the darker

grout

i love the metal trim uh shout out to

nick and mark for throwing the metal

trim in here this in my opinion is is

really like a touching a little bit of a

level three maybe the one way we kept it

two and a half is we didn't actually

tile the pan

tiling pans is a disaster because when

you tile pans you have to water test

them you have to float them in in a

pretty expertise way so that you have

your slope

uh and it takes skill

it's not very easy to do it takes skill

to do this properly and then

waterproofing it and if you screw up you

end up with water leaks and you cause a

disaster for yourself

so i personally prefer just taking a

fiberglass

pan

like what this is a fiberglass shower

pan you know this is not going to leak i

mean there would have to be a fluky

manufacturing defect or some sort of

hole in this for this delete so there's

very very small chance of this leaking

and then you could just do the beautiful

stuff which is tiling up most people who

are renting a property or buying a

property they won't notice that this is

just fiberglass especially once you put

a glass door in here honestly nobody

cares they look at the tile ooh nice

okay and then they move on not that big

of a deal we did also upgrade the

windows on the property so

that's probably leaning a little bit

more level three-ish

usually i don't go through and replace

all the windows

uh some of these though were broken uh

damaged so it just it needed to be done

on a property like this uh and again

that that that's probably for this place

level two and a half they're not like

super super expensive they're from

contractors warehouse and they're basic

so probably reiterating again that two

and a half uh since all the walls were

exposed anyway on this project we it

totally makes sense to replace the vent

stacks and your drains uh wallets

exposed i that's one of the things that

i hate though about when everything's

exposed it's kind of like well while

we're at it we may as well that's

dangerous because that's how costs

really really start going up you throw

in the new pex plumbing you throw in the

new drain lines but the problem was the

prior owner already removed all the

plumbing so we didn't really have a

choice like they already sawed off the

plumbing that was here before so i

always try to stay away from that you

may as well this is a place where

we did go with my classic kind of level

two

two and a half ish right maybe a little

less than level two this is just a

straight up fiberglass round it's your

guest bath this whole kit right here is

like 750 bucks

which compared to the probably four

grand that it costs you to tile the

other one

this is a lot juicier now probably with

labor you're maybe like twelve hundred

dollars but still you could save a good

almost three thousand dollars doing

something like this and once you put a

shower curtain in for a guest bath

nobody's gonna know the difference and

honestly i kind of like it when you get

a lot of the little shelves here you get

sort of the bowed out tub i like it it's

cool

so yeah i'm excited about that i added a

can light over the shower too

so uh yeah but anyway because now that

whole wall on this side has been

uh exposed and

uh

compromised for the city we now have to

do a few extra things down here and some

of this is total overkill but sometimes

you just in negotiations with the city

you're just like fine whatever will do

it so we're going to be adding

some hold downs overkill but we're going

to be adding some hold downs just to

satisfy the city on this wall uh to the

right of where that doorway is it's

silly but whatever we'll do it

on this side

we the city wants us to verify that

there's actually a footing

here so what that means is we're going

to have to take a long drill bit

and drill under where this wall is to

verify that there's like a 27 inch

amount of concrete uh footing which

there should be because this was a

load-bearing wall this still is a

load-bearing wall load and load on that

on that corner here the opening didn't

have load anyway at least that's the way

they built this originally so we are

expecting footings to be here which

won't be a problem if there for some

reason is no footing well then it turns

into a little bit of a nightmare because

you basically have to you'll have to dig

a hole that you can get in probably have

to be somewhere around what three by

three like a nine square foot hole you

just dig a hole straight down then you'd

kind of start excavating to get under

your post over here you'd set your

rebar uh you'd attach the previous

concrete by drilling into the previous

concrete that's there attach rebar into

there and then you pour concrete into

all of it

uh so yeah that would obviously be extra

work but you know i've gotten to the

point where i look at that and i go

really like is that the worst that you

could do on this this project that's

still going to be extremely profitable

big deal like we'll deal with it if it

comes up but i mean you always have to

remember it's still that opportunity

cost like it could have just taken the

money that went into this even though it

sounds profitable put it in a tesla

stock and would have done way better

but

you can't know that

so what do we have over here uh oh yeah

okay and so here

now because they're like well that whole

wall upstairs is compromised this is

total bogus this is the way the house

was built like this header was here when

this house was built like this well they

want us to take this header out and put

in an engineered header so this is going

to be a little bit of a pain in the butt

to take this thing out and and replace

it and then throw some probably hold

downs down on the sides but you know

what

he's just one foot in front of the other

and you just get it done but this is

exactly why i try to stay away from the

city when you can uh now obviously if

you're doing things that that

require structural work you should do it

properly and get involved with the city

but a lot of this is would not be

necessary if we were simply replacing

the door upstairs and the home was the

way it was originally built

all of this extra overkill that's being

done is solely because the prior owner

screwed up the as they say integrity of

the upstairs wall and now we have to do

all this overkill work uh you know i

don't want anybody to think when i'm

like oh this is why you don't want to

work the city so you could like skirt

around the stuff no no i mean if you

have to do something and you want to do

it right do it but our engineer told us

like hey this is overkill you don't need

to do this the only reason you're doing

this is to satisfy the city because they

think somebody joined with it in the

past that's it like the house is totally

structurally fine with this the way it

is right now if anything you made it

beefier and stronger upstairs so but

again uh it's not worth fighting the

city sometimes and you just uh you bite

the bullet and deal with it so uh these

are some insights on this property my

expectation is now that we have permits

on this we're finishing up on another

project uh which will be done in about a

couple weeks and then we're gonna

knock this place out maybe even turning

it into an airbnb who knows but there

are a lot of options here we could sell

it although if we'd be selling it we'd

be selling it right in

january february maybe not a bad idea i

think we could probably get 2-2 for it

which uh you know if i put 300k into it

that's 1-6 minus selling costs off at

the 2-2 call it 2-1 uh that'd still be a

500k upside which is really really good

but again you have to balance that with

opportunity costs which i always say

that but i still diversify into real

estate because you never know you know

stock value compressions they could they

could go flat for three years we've had

some insane growth so still like real

estate and it's a good thing to

diversify into but anyway

with that said make sure to check out

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one thanks so much