Many of the challenges we face today are part of a historic cycle – nobody knows this better than Bob Kevane. As two-time President of the San Diego Association of Realtors, past President of the San Diego County Apartment Association, apartment building owner, developer, and CPA, Bob has a rich knowledge and history of investing in real estate. He enlightened me one afternoon at his La Mesa office.
Rental Owner: Robert ‘Bob’ Kevane, CPA
Company: The Kevane Company
Unit Count (Owned): 200
Notable Quote: “I never give up.”
Doug: When did you enter real estate?
Bob: 1966—I was 22 years old. Where I worked, one of the guys was buying a lot of units in North Park and Normal Heights. He got me excited about two-on-ones, so I took some real estate courses at SDSU.
Doug: What were prices like in 1966?
Bob: The first one I bought in Normal Heights cost $12,000. Our payment was $100 and we rented the back unit for $85. At that time, the eight units across the street were built and sold for $60,000.
Doug: What was your background?
Bob: I was becoming a CPA. I got into development and was buying raw land. I bought a 20-acre parcel across from La Costa for $95,000.
Doug: Where in San Diego County did you invest?
Bob: In 1995 I mapped and built a 78-unit condo project in Santee. We had planned on selling the individual condos, but the market was terrible. The Navy needed housing, but they had a lot of requirements. It took three weeks for my partner and I to resolve their issues, but got it done. We did another project in Lakeside that I had mapped and was approved for 72 units. Then they put in a school moratorium so I went back and remapped it. I got it approved for 112 units. Then they had another moratorium, and another. They were trying to stop growth. I got it approved for 327 units. I sold it to the Navy and they built 290 condo units.
Doug: Why moratoriums on building back then?
Bob: The County of San Diego didn’t want to approve any more mobile home parks. They were trying to stop development.
Doug: How long did it take to build from start to finish in the 1960’s when you started your career?
Bob: 12 months. You didn’t have all these hearings like you do now. If you were zoned correctly, you could build by right; meaning if you met the requirements, they couldn’t stop you. It’s what they ought to be doing now but it’s never going to happen because government bureaucrats demand control.
Doug: When did things change for the apartment industry & market rate affordable housing?
Bob: After the 1986 tax reform act. The market was soft in the early 80s. Reagan came in and his Presidency allowed you to write off buildings over fifteen years. That’s the reason we had plenty of housing. You could offset your real estate losses against your ordinary income. That was the main motivator that got me into the business. We were out there doing the work and effectively writing off the sweat equity. I was underneath buildings, fixing toilets, if somebody called at 11 o’clock at night, I was there. It’s good that you do it yourself because when you hire people later in life you’ve done it all.
Doug: What are your thoughts on the repeal of Costa-Hawkins?
Bob: The people who want lower rent probably don’t understand why the rent is where it is. It’s been created by the politicians. They’ve put so many fees and delays in the path of developers. Could we build units today for $350,000 a unit? I think we might be able to build them for less if government would get out of the way. I’m doing a project — four single-family homes — I’ve spent about $800,000 and we haven’t touched the property. I’ll be lucky to get my costs and get zero for the land. I’m on the board of my condo HOA. We’re trying to replace the windows that have been in there 45 years. The city wants us to do energy calculations to get the building permit. In addition, they required a licensed engineer to sign off on the plans. The quote to do energy calculations for a ten-window demonstration project is $19,500.
Doug: Will you pay it?
Bob: I’m going to try to find a hole in that ordinance, it makes no sense. I’ve never given up when things make no sense. I never give up. I write hundreds of letters per year to elected officials and their staff, explaining problems, with solutions. We have changed many ridiculous laws over the years.
Doug: Has that worked for you?
Bob: I’m here today and things have gone well, but I probably work 70 hours a week. We have a couple hundred clients that we service. You don’t get to this point unless you work a lot. I don’t know anybody that’s gotten it easy. It doesn’t work that way.
Doug: What advice do you have for new investors?
Bob: My advice hasn’t changed since I gave it to myself when I was 22. Don’t buy any property unless you’ve looked at 200 properties. Buy one new property at least every two years. When you’re 60, you won’t have to worry about “having” to work any longer.
Doug: How much in reserves do you recommend?
Bob: Set aside 7% or 8% of your rents for the unexpected. When things have to be fixed, you have to fix them. If people think they can get by having a $1,000 in the bank, they’re out of their mind. Live on 50% of your income. The other half goes to pay off debt. Buy the low-profile house, the low-profile car, live without fancy furniture. You cannot start out at age 25 living like you’re 55. My clients with $500,000 in student debt, have averaged paying off in four years.
Doug: What’s the biggest problem you see in the business today?
Bob: We haven’t brought the entire society along together. We need everybody to be part of it and we need to keep the cost of housing low. It’s not just inflation, it’s government intervention. If people really wanted housing, we could cut costs in half tomorrow. Everybody should be able to buy a house and if you don’t want to buy a house, you should be able to afford to rent a place. Society gives lip service to wanting affordable housing, however, they really don’t want it.
Doug: What difference do you want to make?
Bob: I would love to get this state on a course where we could be the 5th largest economy in the world, if we were a country. And I’d like to get rid of homelessness. There are things that have to be done. We need to help everybody who needs it. However, I am for the “hand-up” vs. “hand-out” society. In our business we’ve housed many homeless people, we’ve housed many Section 8 people. If we all work together we can solve this.
Doug Taber is a rental owner advisor with ACI. Learn more about Doug at www.YourApartmentBroker.com.