VP OF OPERATIONS
Mr. Surabi has worked on development projects in many US states on a multitude of residential projects for more than 15 years. He has personally been part of constructing over 100 homes on investment speculation. Right now, Mr. Surabi specializes in building systems and assembling resources to be able to scale the ADU business with a goal of building 100 ADU’s per year throughout California.
Episode Notes:
Narrator This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever-changing real estate market hosted by author, investor, and hard money lender, Bruce Norris.
Aaron Norris  Hey everybody, welcome to The Norris Group radio show, today we continue with the ADU conversation and we have Shara Surabi, he’s the VP of ADU Resource Center, and Shara, maybe you should do a little bit of an introduction for yourself and how you got into the ADU business and then your team and we’ll jump in from there.
Shara Surabi  Absolutely. Thank you for having us, Aaron. So yeah, I’ve been in the real estate space for about 15 years now. Been dabbling with flipping properties, wholesaling, actually got into oil and gas business for a minute, non performing notes And then a few years back, we started building some properties in Florida. Actually, we did some work together. But actually, what inspired me to start a new business was actually you are. You guys. Yeah. So, you, you always have good ideas. I’ve been listening to your podcast and Bruce’s of course for many years. And when you started talking about ADUs how this could be a solution for affordable living. I started really digging into it doing research on that. And I realized that this wasn’t an easy process. There’s a lot of pieces to it. You have to deal with the city, and there’s financing involved and engineered and an architect and construction. There’s so many pieces, and especially initially when this just passed, even the cities were really confused about what they could do and couldn’t do. So, I figured you know what, what’s, what’s a better business to set up to kind of help not only solve this problem, but also help homeowners, homeowners streamline this process. So, we start ADU Resource Center is called Resource Center because we want to put all the pieces together in one, one place, and be able to offer a one stop shop for, for our clients. Now having that said I have Avendis Nalbandian on ther, he is our head designer the ADU Resource Center has designed probably over 208 us at this point. And Ben Benavides is my contractor is with a contractor for over 40 years.
Aaron Norris  40 years, get out here. That’s awesome. Well, you come in at a good time in what areas are you working right now?
Shara Surabi  I’m sorry, one more time.
Aaron Norris  What areas are you working right now?
Shara Surabi  So, we cover all of Southern California all the way from LA down to San Diego. But I would say 90% of the projects are in Los Angeles and surrounding cities.
Aaron Norris  The city of Los Angeles?
Shara Surabi  City of Los Angeles, County, Los Angeles and all the surrounding cities like Pasadena, Burbank, even, even San Bernardino. I mean, we’re all over the place in southern California.
Aaron Norris  I’m laughing because I’m just thinking of all the cities you have to work with and juggle their building departments and stuff. And how has that been?
Shara Surabi  Oh, that’s an awful question.
Avedis Nalbandian  It’s an interesting process, everyone has their own way of approaching things. And it’s just especially when you pick up a new city, it’s a lot of back and forth calls, making sure 100% of the time like they’re, they’re very specific of what they’re requiring. Some cities are a breeze to get through like LA, for example. They’re pretty straightforward on what they want. They just want to plan structural drawings, Title 24 plans given with it. And then unless there’s some specific site condition that’s causing additional plans to be involved, you’re pretty much going in with three consultant drawings, architectural structural type 24, new coming out with permits, they’re a little bit more of the seamless city to do them actually the best city to deal with as far as going with ADU, that I’ve noticed. And then there’s people like LA County that are just taking their sweet time with getting the plans.
Aaron Norris  Now, now, technically, they only have 60 days upon, receiving a completed application to give you your permanent bat. So, are you saying that’s not even your experience?
Avedis Nalbandian  That’s, I mean, so many people are like flipping to that, Oh, it’s COVID we’re understaffed. And this is this is the process right now, during these times because we’re trying to hire back people. So, it really, I mean, you try contacting the HCD and try to complain about their timeline and then HCD is taking the time to get back to you as far as what you’re complaining about. So, it’s dealing with it on both ends of it almost so.
Aaron Norris  I see what you did. I like your strategy. I, because I teach on ADU small complain, call HCD let them know. Because Because technically, you can just be like, Oh, well, let’s just consider approved if you haven’t finished. I don’t know if that’s really a good strategy, because you have to work with the city.
Avedis Nalbandian  Yeah, I mean, it’s everyone’s just using the COVID ON understaffed purpose as like a reason. So, it’s like, what, what can you do at that point? They’re going to tell you HCD did the same thing. HCD is going to come and tell you, hey, they’re understaffed. This is the reason why so. So it’s a little bit weird.
Aaron Norris  What’s a fair timeline? And would you say for LA County right now?
Avedis Nalbandian  Honestly, any project right now we’re submitting, it’s taking about at least four months for them to get even a plan check fee sent over, so far backed up, it’s it’s not even funny. And then you call them and they’re like, ‘yes, sorry. This is what is if you have a complaint, call and, call and complain, but this is what it is.’
Aaron Norris  Oh, wow. I’m just curious. Have you guys ever gone to city council members and let them know and written letters, letting them know the timelines?
Avedis Nalbandian  We have not. But it’s something that we’re noticing like even we’re getting LA County clients, it’s something they already know to expect. We’ve had like multiple clients that we’re dealing with right now in LA County. By the time I could get the words out of my mouth to let them know, it’s it’s about this much of a timeframe. They’re like, yeah, we know we’re dealing with it. We’ve heard neighbors dealing with it. This is what the process is, were, we’ve just learned to accept it.
Aaron Norris  Is there anything that you can do to expedite and just make it a smoother process of for people?
Avedis Nalbandian  Not that I’m aware of, but I’m sure, do you have some sort of like connection within the county that you can maybe make a couple of phone calls? I’m pretty sure.
Aaron Norris  No, I’m just gonna stick it out unfortunately. Yeah, it is what it is. Geez. Well, on the, on the design side, you’re you’re really working a lot with homeowners, which is interesting. So.
Avedis Nalbandian  Yeah.
Aaron Norris  They’re a lot more emotional about things. Money is very different when it comes to owner occupants. Do they, they’re along for this ride for, how long are they in, in communication with you during this process, typically, how long is it taking to get complete?
Avedis Nalbandian  Oh, the moment they signed the contract with our company to get started, we have one of our team members and myself go out to measure the property. From that moment on were in communication, as far as developing the preliminary plans, were, we’re sending them an initial layout, they’re getting their approval on that layout, and we’re producing the full architectural set, getting another set of approval on that prior to even going on to engineering. And what we’d like to do is usually set up zoom calls with clients that way, we’re showing our screen, they’re seeing live on, on their screens, what we’re doing on our software, and we’re making any changes right there. And it becomes a little bit more of a personal process rather than you sit back, we’ll handle it, we’ll deliver you the plans, and then you tell us what you want after the fact.
Aaron Norris  Well probably makes it a lot faster, because their input is in earlier as well, so.
Avedis Nalbandian  Yeah.
Aaron Norris  How often are you guys building something that you already have plans for?
Avedis Nalbandian  What, sorry, what do you mean?
Aaron Norris  Like on your website, there’s quite a few plans, are you building off of a lot of plans that you already have, and you’re just making small tweaks or you…
Avedis Nalbandian  It’s usually like a foundation, kind of to what the plan is going to become. So, they say, Hey, we like this, but we want to tweak this kind of a bit here and there. There’s been very few cases where they kind of take those exact particular plans, because every site is different, every personalization too, it is a little bit different. And then it also depends on what their goal is, is there going to be a family member living there just for rental purposes. So, things start shifting around as we go about the plan development.
Aaron Norris  You know, that’s a good point. Why are people building these? Are they in for income? Are they just wanting more space?
Avedis Nalbandian  It’s funny, you mentioned that we were actually just talking about it prior to this. What’s, what we’re commonly seeing, it’s probably I want to say about 30% family purposes, 70% rental income purposes that we’re seeing. It’s got a fair amount of people building for family. They’re like, Hey, we got this guy that’s, especially with today’s Real Estate rates, like it’s insane. And like a $500,000 house that was selling about like two or three years ago, it’s not bought for $800,000. So, it’s what’s the better route of going. So, you’re doing construction for about what? 250 to 300 square foot, you’re done by the end of the day, and then you’re, you got yourself a new house pretty much.
Aaron Norris  We’ll focus on the design stuff for a while we’re here we might as well dig in a little bit. What on average, are you seeing people build because on the website, I see everything from a, you know, a studio to a three bedroom, two bathroom so they can go up to 1200 square feet. So, what are homeowners using the bill?
Avedis Nalbandian  Well, garage conversions are a hot item, because it’s been given, convert the existing space and get on with the kind of deal. Then next up in line, I would say we’re looking at about 800 square foot radius. That’s the kind of median that we’re seeing everyone’s going towards, because one you’re not too big, you’re not too small and you’re still getting two bedrooms, two bathrooms out of that kind of square footage.
Aaron Norris  Okay, that’s good. So, everyone seems to gravitate towards the two twos.
Avedis Nalbandian  Yeah.
Aaron Norris  Huh. Interesting. And unfortunately, anything over 750 square feet, it triggers all those impact fees. So, is there a, two bedroom plan that you got that’s a 2/2?
Avedis Nalbandian  Yeah, we do, 750 is actually a really nice area to be for a two bedroom. Anything under 700 with starts getting a little bit tighter, but we can kind of do two ones, two one and a half. And it just depends on how efficiently how much room we have to work with. Is it an existing structure we’re converting and we’re doing an addition to? What the site condition is, like how much room they have to work with in their backyard? Is there any powerline easements that we’re dealing with? Any oak trees on the property that we got to avoid? So, all those things factor in and it lets us understand how we’re going to be, I guess, providing proper functionality to that square footage. And then we start planning, putting the pieces to the puzzle together to form it a layout.
Aaron Norris  Shara, you might not know this, I didn’t tell you this. I was doing some research. And there’s the HH fund that LA put together back in 2016. So, they raised $1.2 billion to, they’re supposed to build 10,000 affordable housing units. And I think they’ve only released a little over 1000. And everything that they’re building is on sleep. It’s around 600,000. That’s where, they’re going to end up being at by the time this was done. So, not very, not cheap. Not at all. The Turner School of housing and things that’s Berkeley, they came back with a report with numbers for ADUs for I think it was less than a city of Los Angeles, I think. But they’re blowing away those numbers as far as people who want ADUs. And they found that for a large part, owner occupants are driving the demand for ADUs, which is really exciting and surprising, a little bit that homeowners are savvy enough to get through this process, especially during COVID Because it’s certainly gotten a lot more difficult. Anyway, what are some of the features that are really attractive to people, what are must haves an ADU?
Avedis Nalbandian  One thing that we’re seeing is just stackable washer dryers, no one wants to have need to go up to a local laundromat and do their laundry for their tenants over there. It’s something that’s making their units, something that’s marketable for when they’re trying to pull rent from it. The other thing is just bedrooms that are just comfortable size, not little cages that people are going to be sleeping in pretty much. So, you’re pretty much providing a minimum what we try to aim for as a minimum 10 by 10. That’s your standard bedroom size, anything smaller, you can do yes, it will fit but do you really want to go that route that makes it a desirable a unit for people to rent and people that are coming in are constantly asking us to keep the bedrooms at a size where it’s going to be something that the person who feels comfortable can breathe in. And then the last thing I want to say is a comfortable kitchen size, that it not necessarily meaning a large kitchen, but one that works as far as efficiency, or providing the minimum of like a refrigerator, stove sink and then in replacement of dinner tables to maximize the space of the unit we’re doing kind of like a peninsula that comes off with a wall that, that serves as their dinner table. So, it’s, it’s more about like, the more desirable thing is how we’re maximizing that potential space even though it may be a smaller unit. I’m not sure if you’ve seen our Glendale ADU that we were using as a demo. But that had, that same functionality to it where it was a peninsula served as a dinner table and capitalized on the space that we had for the open floor plan for that unit.
Aaron Norris  How important are, is outdoor space to an ADU?
Avedis Nalbandian  I would say varies. I want to say we try to pitch it to a client where maybe we have like a trellis covered extension. Or we use those setbacks whether if it has like a five yard, five or five foot setback or a six foot setback depending on easements for the powerlines. The back does end up getting utilized. But I think it’s, it, it varies from client to client. We’ve, we’ve had clients where we come in and they say oh, the backyard spaces. We want to have like a private backyard space for this ADU. And then we have clients I just want it specifically dedicated to what’s inside the ADU and then briefly what we’re most.
Shara Surabi  Yeah, we try to educate them, especially if it’s gonna be rental property we want to we usually try to tell them, look, some that backyard space for the tenant is, is important. They’re probably going to like that is probably going to help you rent out the unit and find a better tenants. So, we pitch it, obviously it’s their choice under the day, but.
Aaron Norris  What about parking? It makes me cry a little bit thinking about a whole much of ADUs in Los Angeles without parking because it’s so terrible already. How are you addressing that?
Avedis Nalbandian  Um, well, we’re looking at the they had the rollout at some point. I know some cities started to remove that enforcement of the half a mile away from a bus stop or any public transit.
Aaron Norris  Really? So, they just did away with it?
Avedis Nalbandian  Yeah, some cities actually, we were, what we always do on our plans, we usually put a city map that shows what were the addresses and the nearest bus stop or nearest public transit, showing that it’s within a half a mile at least that way we avoid the parking requirements. So, I forgot what city was that we dealt with recently they said, this no longer applies. We’re no longer using this. We just don’t require parking anymore.
Aaron Norris  Oh, wow. So, so, just so everybody’s clear the state, the state mandate is that you have to be within a half a mile of public transit. And in code that they wrote for SB 9 and 10, they actually got a lot more specific what that means and what a quality transit corridor is, and all that so but it doesn’t mean that the cities can’t be more flexible. So, another example of that is cities that allowed tiny homes to count for ADUs, because tiny homes fall under DMV regulation, you know, not Title 24, which is House Bill 25 is manufactured housing. This is personal, personal property. It’s not even real estate. So, sometimes your cities can get a lot more flexible. So, that’s the first time I’ve ever heard that they’ve just, they’re like, ah, who needs parking? Wow.
Avedis Nalbandian  Yeah.
Aaron Norris  Well, do you, let me ask it this way? Do you recommend that they not make parking easier for their future tenants?
Avedis Nalbandian  Um, that’s, that’s a hard thing to approach, I guess. Because it varies. It really depends on what their street looks like. Because then, you go on some streets, they have like, an ample amount of parkings, and crazy parking everywhere. And then you go to another one where it’s like, you gotta park two blocks down to meet the client. And then you already know what they’re going to go through once they provide that ADU with no parking. So, honestly, I don’t I honestly don’t know what my point of view with that on that would be. But it’s obviously great to not have to provide it, especially whenever you have I want to say an alley access where it maybe you can have an inset parking for that ADU and get away with it. But I think it’s a great benefit. To say the least one obviously, kind of be biased from the business standpoint of it, being in ADU business, but also as a homeowner, because if if you’re stuck and you can’t provide parking, then you’re pretty much out of luck with it.
Aaron Norris  Yeah, you’re stuck. Right. And Mike’s are taking Uber everywhere. So it’s interesting. What’s your favorite lot like when somebody calls and they what is a good size look like? And when do you know you’re going to run into trouble? What does the lot look like?
Avedis Nalbandian  I think the best lots are the ones that have the detached garage in the back. Those are, those are my favorite go to because they’re quick and easy. As far as going through LA, the only time that you see it being an issue is when you do a change of use to a detached garage, even if you’re just converting an existing space and not doing anything else. It triggers DWP, and then going through that DWP process right now is about a three month course, even a formal process.
Aaron Norris  Oh.
Avedis Nalbandian  Yeah, that’s, it’s, they’re saying about three months. And so it’s just things like that, whenever I see it, it’s a headache to deal with. In some cases, when there is no power lines, to create a c plus deal with about I want to say 8000, 9000, square foot lots, maybe even less. With that detached garage, or even an attached unit itself works. The ground up structures are great too, have a nice back, and nice big backyard. You don’t have to worry about any fire separation issues or anything like that. Clear of trees and everything. So, we’re not dealing with any removals of trees, but then you start triggering LID- low impact development. It’s been a little bit of a slow process, but I feel like they’ve been picking up with their performance lately.
Aaron Norris  Wow, so start to finish, what’s the average timelines on these things these days?
Avedis Nalbandian  It depends. I think we’re seeing about an average of four or five months, typically. And that’s, that’s I want to say like ground up structure, garage conversions coming quicker. Because you’re dealing with less clearances, and it really depends on what city you’re dealing with.
Aaron Norris  Does that include like the pre, when you’re seeing when the permit comes back, it’s, it’s four or five months?
Avedis Nalbandian  Yeah.
Aaron Norris  Okay. So, that’s still, yeah, that’s what we’re experiencing in the construction world. Well, how have you guys been juggling, like all the supply chain disruption because of COVID I mean, I can’t imagine were the only ones in Florida who were like, appliances windows. Geez.
Shara Surabi  Maybe taht’s a question for Ben.
Avedis Nalbandian  Yeah.
Ben Benavides  It has been crazy. Fortunately, we’re kind of posts, the pandemic kinda we’re on the tail end and things have lined up a little bit, prices have come back down, which is good to see. We were a little nervous about you know, quoting jobs when the material costs were going up and down like crazy. But the things are, you know, I’m not gonna say getting back to normal but they’re, they’re, they’re getting more you know, the supply chain has more available it’s not taking as much time to get product anymore like it was before. Everything used to be, you know, floating out on the ocean in ships, cargo ships. That was it was a very frustrating time. But it is getting, it is getting better. And the timing is perfect for us because we got a lot of projects coming out of plan check ready for permit issuance. And so the timing is good for us in that regard.
Aaron Norris  When you guys are ordering materials like well, while it’s in permitting?
Ben Benavides  No not, not while it’s in permitting, but right. when we know we’re about a month away, then we then we started gearing up for that sort of thing. And we advise our clients on the products that they might want a special order and get those go, you know, go ahead and get those ordered, so that when we need them, we have them.
Aaron Norris  Wow.
Shara Surabi  One thing that we’ve been doing on the appliances, is we don’t usually include appliances in our construction bids. So, what we do is when we start a construction, we ask them to basically order the appliances, just in case there’s a delay, they’ll probably have it by the time we complete the project.
Aaron Norris  Okay, that’s fair, huh? What percentage are homeowners compared to investors would you say Shara?
Shara Surabi  I would say 90%. Most of them are homeowners, we’re marketing to homeowners currently.
Aaron Norris  That’s surprising. Honestly, it surprises me. How are, how are homeowners finding out about ADUs? How are they finding you?
Shara Surabi  Well, we have a, my my partner Vache is he comes from a marketing background. So, we do a lot of marketing. We generate about four to 500 inquiries a month of homeowners that are interested in building ADUs. So, a little bit about our process. Basically, they contact us, we talk to them over the phone, if we feel like they’re serious, and they actually mean to build an ADU, we schedule the time. We have 10 ADU specialists, we call them specialist ADU salesperson, people, technically, we had a free consultation, we go out we meet with the client, we explaine the process, the timeline, and estimated cost of, of what it can cost. And if they like to move forward, we get them to sign a contract. And we start architectural phase. And we also prepare them for if they need financing, we connect them to a financing department. I mean, it could be Meredith that was on your show. She’s, she’s one of our financing partners. So, we get them pre approved. And a month or two before the plans are approved. We let the client know to basically start the process for the financing. So, that the money is ready when the plans are approved. About a month before the plans are approved, we start sitting down with the clients and discuss the construction where and if they ready to go we sign a proposal with them. And then once the plans are approved, we sign an actual contract to actually get started the process.
Aaron Norris  Interesting. Homeowners are just a lot more challenging. They’re not a real estate investor. They don’t know what to, what the experience is like. How have you found working with homeowners in general?
Shara Surabi  You know, surprisingly, it has its pros and cons. You know, they’re, they’re not you would think they’re not as involved as investors are, investors like to be very hands on, they’ve done this before. They want to know all the details, the ins and outs, how we’re doing things, they want to learn the process. So, there’s pros and cons, a lot of homeowners that just you know, they find the company that they trust, and they kind of hand it over to us as long as we keep, keeping them updated on the progress and we have good communication with our clients. It’s been a pretty simple process. Honestly, they haven’t been giving us our time so far. And most of that has been pretty smooth.
Ben Benavides  Yeah, I believe, you know, I mean, ad use are just a win-win. And the homeowners, most of them find themselves in the place where they just actually need the ADU a lot of them for family purposes. And then there’s those that see the advantage of rental income and additional income. And so that and then I you know, the ADU that we do I tell people, they’re like many custom homes, and that gets people excited, and it’s true. And most of the, most of the ones that we do, if you think about it, they’re on track homes, and now they get a chance to build a custom ADU. So, you know, we design it to fit their lot their size, the inside everything. So, the homeowners get pretty excited about doing that.
Aaron Norris  What percentage assigned to take some extra money out and upgrade the primary home at the same time?
Ben Benavides  Yeah, they do. They do that that triggers that actually we have several projects Next, we’re doing ADU in the back full on detached ADU. And then they want to remodel their kitchen. So, we ended up going in and, you know, not only remodel their kitchen, but we do remove some walls and we do some new space designs. And so yeah, it becomes a real positive experience.
Aaron Norris  So, they’re gonna pull out money with Meredith and she doesn’t really care, you know, where it’s going to as long as they’ve got the equity but just, you know why why build an ADU, that’s going to be nicer than your primary home as well. I’m thinking. Now, just to clarify, you do have to have solar. That’s the new builder code. So, all new detached ADU is have to have solar, correct?
Avedis Nalbandian  Yes, and I’ve used that basically trigger a complete new roof. So, for example, we did an ADU in Venice. That was a garage conversion, we turn the entire roof into basically a rooftop deck, because it was like a tight backyard and they needed the area to expand the backyard up onto another level since the ADU was eating up space. And then, because of the new roof area from that deck, it basically triggered the need to put solar panels above. And so what we did was we installed basically like a pergola type of structure that’s on that deck. And then the solar panels went above on tha, so.
Aaron Norris  That’s very creative. So, you’re just deciding to go up with living space. So, that’s great. So, they didn’t lose anything. Now was the living space for the the owner or for the ADU.
Avedis Nalbandian  So it was a little bit tricky. So they were, they were initially going to be using it for the wife’s parents that were going to come and live into the unit. But then they decided, hey, why not just make this something we can rent out and then have deck outside above for my parents. So, the parent’s use, so it was there, I’ve had units where the client comes in and says, Hey, I don’t need this big of a house in the front. I just need my ADU in the back built. That’s why going back to what you were saying about why some clients want to build a nicer ADU in the back versus the primary dwelling. They build it for themselves, and then they just move to the back unit maximize their rent from the front.
Aaron Norris  I’ve heard seniors doing that. They’re like olive and navy, you don’t need this big of a house. So, out to a family upfront, make…
Avedis Nalbandian  They’re like, my kids got married, my kids moved out. My wife and I don’t need more than 400 square feet or 800 square feet. This is more than enough for us. So, that’s what they do a little bit of back.
Aaron Norris  Wow.
Shara Surabi  Yeah, that makes that makes really perfect sense. Do it we have a few that are doing that.
Aaron Norris  What percentage of the homes are using do separate utility and sewer lines for the ADUs as opposed to splitting them?
Avedis Nalbandian With a sewer line, they’re required to be separate as far as being disconnected from the property and going out and it’d be connected just before it hits domain. But as far as utilities, I want to say I’ve seen about 50/50 on my end. I don’t know. Maybe on your own you’ve seen a little bit the same way.
Ben Benavides  Yeah, the utilities I, you know, if people want to use the ADU for rent, they obviously want to get separate meters. But there’s, there’s ways around that and I give them the option, you can always get separate meters, but you have to go to your utility provider. And we have no control over that how much that cost, how much time it takes. And so you can you know, there’s other ways for the water meter for example, you can get a separate meter to calculate the water usage. And they even have ways to divide the electrical meter although the electrical meter is easier to get than, than the water or the gas.
Aaron Norris  Hey, that’s gonna do it for this week. You can find out more information. We’ll leave the links in the show notes about aduresourcecenter.com. And we’ll see you next week.
Narrator  For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.