Norris Bruce
Aug 04, 2017

Bruce and Aaron Norris Join IE Builder Alex Serrato on the Norris Group Real Estate Radio Show #550

Bruce Norris is joined again this week by Alex Serrato. Alex is a local builder in Riverside who he has partnered with on many deals. One of the reasons Bruce wanted him to come in is they have had a good experience working with each other, and his niche is one that might be an advantage to other investors. It is hard for them to find deals right now, but working from scratch might be another niche they can employ.

Episode Highlights

      • What is his process for finding lots and buying a piece of land?
      • Has he done a mailer to landowners, and does this work?
      • What is a percolation test, and how essential is this to a home?
      • What are the pros and cons of dirt roads and paved roads?
      • How do you receive and work with grading permits?
      • What protected species are there in Riverside County, and how can you find out?
      • What is Megan’s Law, and how does this help to check for crime in a neighborhood?

Bruce started by asking him what his process is for finding lots and how he typically ends up buying a piece of dirt. He said it started with him looking at the MLS service. If he found something interesting, he would take a drive and look at the land. Lately, he has been getting phone calls from agents who inform him when they have a listing in which he may be interested. It is becoming easier since he has 3-4 agents who feed him an inventory of land.

Bruce asked if he has ever done a mailer to land owners, which he said he did once a long time ago. He sent 30 mailers, and it worked. He got 3 or 4 calls from it and got a fixer-upper. Bruce said he did the lot mailers himself, and the response rate is way higher, especially if it is a bad time. Bruce had bought 20 lots in Quail Valley through one mailer.

Bruce asked what kind of warranty comes with a lot purchase, which Alex said is actually very little. He then asked what kind of disclosures are required by a lot seller, which he said is very little. Bruce was making the point here about how investors will think this is a great idea, run out to buy a piece of dirt, and find out it is worthless. You need to find out what is happening.

When Alex goes to look at lots, he first looks at how to eliminate it completely for a very specific set of problems. Alex said you look at pros and cons, starting with utility tie-ins. You would need to look at your electricity and see if it is nearby, overhead, underground. You would also need to look at whether you are in a propane area or gas area. Alex said he has not dealt with this before, but he knows someone who does and seems to be okay with it. However, it costs $6-$8,000 for the propane and could eliminate a big crowd of buyers. There are people who do not like this, and it is expensive to refill the tank every so often, as much as $4-$6 a gallon.

Your main concern is to look for utilities, such as where your closest fire hydrant is. You are supposed to be within 600 feet of a fire hydrant. Another factor to look at is whether you have septic or are on a sewer. All of those utilities are important. If you are at the county rural area, you would also need to go through percolation and drill to test the soil. Bruce said what was interesting about his lots in Quail Valley is they once passed a percolation test, but they changed the test. Now, they do not meet the new requirements. Conditions are changing, and the departments will adapt and have stricter rules.

For the viewers, a percolation test is when you have a septic system and a leech line that deals with your secondary water waste. What is supposed to happen is half of it evaporates while the other half goes down to the ground. If your dirt does not allow for seepage, you will create a mess from it flooding. Another issue is it could flood too quickly, so you have to find a balance. If it goes into the groundwater, you are contaminating the neighborhood.

Aaron asked what happens when something changes from perking to not perking. Bruce said you own a piece of the earth that holds the rest of it together. You could grow Christmas trees or have the greenest grass ever and keep cutting it.

Bruce asked if there is anything you can do about a lot that does not pass percolation. Alex said there are different sewage methods. One person Alex works with said he can make any septic system work, but it will cost you. Sometimes a city like Quail Valley is on a moratorium and you cannot build there. The percolation is bad enough that they are contaminating the lake, so they have done a moratorium where in 2019, they will connect the sewer. There will be an area that literally goes from nothing to sewer, which is right around the corner from happening.

Bruce next asked about the pros and cons of paved and dirt roads. Part of the issue is the unknown, looking at a road and thinking how you are going to pave it. As far as bringing in the utilities when you do not have asphalt, that is an easier process. When you pave a road and are having to bring in the utilities, it gets very expensive. This is one good thing. There are a lot of buyers who live in areas where they like the dirt road. Where Bruce has done it is acceptable, such as Norco, Woodcrest, or Temecula. In these areas, buyers have a specific mindset towards this.

Bruce next asked about water drainage. He asked if he could look at it and see a problem, which he said absolutely. You would then need to see if there is a solution. He will take a picture of the land, then go talk to an engineer and ask their opinion. Bruce asked when there would not be a fix for it, which Alex said he has not had an issue with this. However, you would need to look at where you are going to direct the water. Sometimes the fix that needs to happen can be very costly.

Aaron asked him about when he deals with infill lots and if a lot of these problems are easier to solve or are already fixed. Alex said at the city level where you have curve and gutter, it is almost rare to have a drainage issue. However, at county you have to be careful, especially with the outskirt property. Bruce asked about what would happen if the former owner moved dirt around on their own. Alex said you will have to re-compact and get compaction tests done. Bruce wondered if sometimes there is a problem where you are not able to reach the finish line, but Alex said there is always a solution. You have to have an engineer certify the pad; they will probably want you to remove or re-compact the dirt. Finally, they have to verify that it has been done correctly.

Bruce next asked about grading permits. To receive one, you need a soils report and a grading plan. Bruce asked if there is soil that does not cut it sometimes, although Alex said the quality and condition of the soil determines the structural footings of the house. The soil will also dictate how far you excavate. You could go down three feet and start compacting from here, or you could go six feet. It all comes down to cost.

Bruce is trying to help people understand that you cannot really know how your project will work out until you know all these things. Bruce asked if he became interested in some lots today, what would be the timeframe to be comfortable with the finish line. Alex said they never really get 100% comfortable since there are a lot of unknowns. You have to do your percolation test during escrow because if it does not work you need to bail. There are a lot of categories like this where you would want to bail if it does not work. Secondly, you would need to have your soils report and know what you are studying. Aaron asked if he is talking about environmental or the quality of dirt, which Alex said it is the latter. Aaron asked if they do environmental in case there is anything strange on the land you do not want to deal with, but Alex said they do not unless there is a red flag. This could include unlawful waste or dumping.

Bruce asked about the level of the dirt as far as access to the street. Bruce said the first time he ever dealt with dirt was in Cathedral City when he did a mailer. He bought a lot of lots off the mailer, way more than he could use. He got the idea to build on some and sell the other lots, but he did not understand this could be a problem. When they got to the building, they found out they had lots that were too low. He only paid $3 grand for the lot, and it took $9 grand of dirt to get to use it. However, you can also have it too high. With all the experience, you are taking for granted it is an easy process since you have done it in prior years. However, there is a lot to look at and realize you need to bring in an expert.

Alex said he would rather have the problem of the lot being too high, then too low. When you are low and have already built the house, you have to ask where the water will go when it rains. This is something that should be identified early on; but if you missed it, you need to figure out what you are going to do with the rainwater. Bruce asked if the city would allow this to occur, which he said if they do it is not intentional. Everything seems to fall on the shoulder of the builder.

Bruce said he had an interesting situation in one of the homes he built. He successfully sold it and made a profit on it. Alex mentioned the experience he had with blue rock, which is so difficult to deal with and to break. Alex found the guy who works with rock cracking, and essentially, they dig a hole five feet deep and put in a low charge explosive. What was funny about it was how they had to stop because of the noise complaints. Next, he found a different solution with a powder. You drill the hole, but you put in a powder that expands and cracks the rock. All they are trying to do is make the rock smaller so they can move it. They are heavy, and you cannot fit them into a truck.

What ended up happening was after they removed the rocks, someone else needed those very rocks for another project. They transported them at their expense and got rid of them. Bruce wanted to bring this up because in their arrangement, Alex and Bruce each have a side of the responsibility. Bruce puts up the money, and Alex does everything else. If you are on the money side, you have to expect surprises. 100% of the time there will be something he will not have found out, and he has to go with the flow and go to solution mode. When you partner with someone who is a builder, you must realize that as good as they are they will still get surprises. If you are going to be a good partner with somebody, get on their side of the table and solve it. Unfortunately, Bruce has seen a lot of business relationships become combative. This is a waste, and you will not accomplish anything this way.

Bruce and Alex next went on to talk about protected species. There are areas that are known for this. Riverside has the kangaroo rat and boreal owl, while Perris has the owl as well. You can find this information out through the county. Go to Land Use, and they will give you a list of requirements. They will identify whether they are in the zone of the kangaroo rat, which almost all of the land is as well as other endangered species. If you are building in the city of Riverside, then you would not need to go to the county. The city and county have their own department. The beautiful thing about the city of Riverside is they have recently consolidated their departments. If you go to the third floor, you will have almost all the departments on one floor.

The county is a different story. You have to go to 6-7 different buildings and across town. You just have to ask questions and make sure you are satisfied. Bruce asked if there is any assurance to the person answering having the right to what they are saying or even understands. Alex said no to both. A lot of times when you ask the question and don’t feel comfortable with the answer, you have to challenge it. You just have to be really careful.

Bruce has his own experience in Norco where he was sitting, waiting his turn to talk to someone, and at 12:01 someone had been back for the third time just to have a patio slab approved. He had an attitude about it and wasn’t happy when the person had to go on their lunch break. Alex said when you are dealing with the people in the departments, you always need to be courteous and polite. You will get further this way.

Bruce asked Alex what he does to check for crime in the area or other specific things that could be in your neighborhood. He said there are usually disclosures during the purchase process. There is Megan’s Law, and there are disclosures when you go through the purchase contract. They had one incident where one of the neighbors was on one of the lists, and it did not trigger. Apparently, after doing some research they found out that the crime or incident had been committed 25 years back and in a different area, so it was not flagged and they did not catch it. Even after all that, you want to look at specifics and see what could be a problem with the disclosure.

If you go to Megan’s Law and put the address in, it will give you the flags identifying every offender. They are everywhere, and it is difficult not to see one of those flags pop up. Aaron said he would have never thought of looking at this, and these disclosures come up when you are buying the land. When you are buying the land, they will give you the disclosures.

Bruce asked when he has repetitive house plans he uses and if it makes it at least easier to get through the city. Alex said the city of Riverside does give you a repetitive planned credit where they charge you 50%. The county does not recognize that and will start from scratch. Bruce asked how long the plan check is now in Riverside city, which Alex said you are looking at 30 days for the first revision. They take it, and it goes to different departments: building and safety, planning, electrical, fire, and they all have their input. You then get your red lines back and take it to the engineer, draftsman, or whatever you need to fix. They will take 20-30 days, so you then bring it back to the city or wherever it needs to be returned. After that, it is round 2, then after that the revision.

Aaron asked if you are allowed to start on any phase of the project, for example, if the foundation is good. Alex said no, and Bruce even said they will not do a loan until a permit is obtained. Until then, you can be in revision for years. Bruce said you cannot touch the ground without having title issue. You want a first trust deed; but as soon as you touch the ground, there is a lien that has a superior right to the trust deed because of contractors and lien rules. Sometimes one will want a hard money loan to finish a home that is ¾ of the way done. That is a challenge because almost everybody on the project likely did not get paid, so why would they sell an unfinished home? You could have a tenth instead of a first.

Thank you for joining us with Alex Serrato. If you are a premium subscriber to the Norris Group, you can hear the whole interview if you log into the portal and go to the Construction chapter.

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