UPDATE on 6/19
Looks like we played our cards right, because we got into escrow without an auction nor a duel! Upon hearing the good news, my client asked when he had to deliver the OMD.
“You mean, the EMD?” I asked.
“Oh, sorry, I guess you don’t know the band OMD. Generational gap.” More than just a generational gap, my friend.
My client just emailed me this video to clarify:
Read MoreA Unique Preliminary Inspection
With income property, you, the buyer, often cannot inspect the subject building(s) before the seller accepts your offer. The reason is that people live there, and the owner doesn’t want to disturb her tenants with serious and non-serious buyers alike traipsing through their homes. Understandable. You can read about this in my entry Subject to Inspection.
A good listing agent will schedule for us to see the interior of the property the same day or day after your offer is accepted, and before your earnest money deposit (EMD) is due. That way, he doesn’t have to open escrow and take the property off the market if, for some reason, you hate the interior and want to cancel escrow immediately.
Well, the listing agent I’m working with now has taken this idea one step further. He’s asking his top two offers to do our preliminary interior inspection before our offer is even accepted. This could be okay, but it isn’t preferable. My first concern with this preemptive inspection is that there may be something wrong with the interior that the seller is extra worried we’ll balk at. Secondly, having the two top buyers and the seller in one place is very strange (and a little tactless). Perhaps the listing agent hopes we’ll hold an auction at the property, bidding each other up? Or maybe he’s just buying time, expecting another offer to come in higher and with more favorable terms while we’re checking for water damage.
While more than likely this is a good faith measure, this unique inspection feels a little Old West to me, and my buyer and I are bringing our figurative guns. Because the seller will be there, my buyer is bringing his EMD check, and I’m bringing our offer on good old-fashioned paper for the seller to sign. Oh, and a quill and ink bottle. Should be fun.
Read the UPDATE!
Read MoreRent vs. Own
A very important question in Los Angeles real estate is whether it’s better to rent or own your building. The answer is that it depends on what area you want to live in.
I almost never advise my buyers to look at buildings in Santa Monica, Venice, West L.A., Beverly Hills or West Hollywood because rents there just don’t justify purchase prices. You’ll almost never cash flow with an apartment building in those areas. What does that mean? If you want to live in an apartment building in that area, don’t buy it, rent it.
However, if you want to live in East Hollywood, Mid-City, Echo Park, Silver Lake, or even farther east, buying is your best bet. Rents in certain pockets are just as high as Venice and Santa Monica, but they can sell for half as much.
So what if I want to live on the west side but I still want to buy a building? Simple: buy on the east, live on the west. The west side is a renter’s market. The east side is a landlord’s market. While there’s a certain pride of ownership in owning property in your favorite westside neighborhood, it’s not the most financially sound decision.
Read MoreCountering Best & Final
Nowadays, with so many buyers, we’ll often see multiple counters requesting “best and final offer.” This is an interesting negotiating strategy because it’s basically saying: we’re too lazy to request something tangible from you, so just tell us what you’ll pay now that you know how many bidders there are. Then we’ll pick one.
When I get this kind of counter I know the seller is not a business person, but rather someone who wants to be done with their property. And that makes my job easier and harder at the same time.
On one hand, my negotiating ability is taken away…mainly because the agent is not negotiating. So I can’t do what I normally do and read the agent to steal the deal for my client. On the other hand, the offer falls on my client’s lap now. What Moses says is: Decide what price you will be happy to walk away from and bid one dollar less than that.
At this point, I go over the spreadsheet with you, look at comparables, and help you figure out what you can afford given the property’s pros and cons. Then, the number is up to you.
Read MoreDocusign
I imagine if I had been in real estate 10 years ago, I would be doing a lot more driving. I write up, on average, 2 offers per day, and getting signatures and initials on all of these offers would mean adding many more miles on my car than I use now. Yes, gas would’ve been cheaper, but I would have used more of it with a less efficient car. Either way, Docusign has helped the environment. Docusign is a website that allows you to sign a document simply by clicking. I upload the offer to the site, tag where you’re supposed to sign, and you just click away. It definitely helps when you have to send in offers ASAP in this market.
Read MoreRedfin
There are pluses and minuses to my clients using Redfin as a source. The plus is that sometimes they find properties that they like personally, but that I wouldn’t think to send them. (Take, for example, my client who sent me the South Central fourplex we closed.) The problem that often arises, however, is that the data is usually inaccurate and always incomplete. The listing agent will post info on the MLS, but it will take a couple days to propagate the Redfin channels, and by that time, it may be too late. Additionally, on Redfin, you’ll never get the listing agent’s private remarks, which is the good stuff.
Search real listings here.
Enter the MLS’s Home Central Search. The name is clunky, but it’s actually a great portal that allows my clients to search specific criteria directly on the MLS – the website that agents use. For some clients, I’ve even programmed the portal to email them new listings based on their personal criteria on Sundays, twice a day, or every four hours, depending on how ambitious they are. Since I’m looking for the best deals all of the time anyway, there isn’t always a need for this. But you never know. Sometimes I might overlook something, or simply not know my client’s taste well enough. A client-agent relationship is really a learning, growing one, and the more interesting properties we show each other, the better I get to know you and your needs.
So if you’re using Redfin to shop for properties, stop. There’s a better way, direct from the source. Just ask.
Read MoreLand
Land is not income property until it’s developed upon. When you buy land with the intention to hold it, you’re gambling. You’re gambling on how valuable that parcel will be to a developer in the future who doesn’t exist in the present. You’re betting on how attractive this neighborhood (and this particular stretch of the neighborhood) will be when monorails and zip lines and hover crafts transport us around Los Angeles. Either that, or you’re hoping to one day come into money and become a developer yourself.
Either way, when you buy land you have to think like a developer. If it’s a 7,500 sq. ft. lot zoned R3, how can you max that out? Here’s what you can do “by right,” with that parcel:
- Build 9 units
- Must have 1.5 parking spots per 1-bedroom and 2 parking spots per 2-bedroom unit
- Can build as high as you want
- Normally, your total square feet cannot exceed a ratio of 1.5:1 with your land size
With a population density bonus for building affordable housing units, you can:
- Build 13 units
- 1 has to be “affordable”
So when you’re considering buying a property, it’s good to consider the underlying land value. You may think you’re buying a duplex, but a developer sees that duplex as rubble she’ll have to clear. This may give you some peace of mind when you’re paying asking price in a hot neighborhood. The seller may not have considered the land value that you now understand.
Read MoreSpecializing
When I started out in real estate I took on any clients who would have me. A condo here, a single family home there, and a units-hunter who demanded the finest property for his FHA deal. Then, when I could start to tell the difference between serious clients and dabblers, responsive clients and procrastinators, realistic clients and dreamers, things naturally fell into place. The clients who have time and again closed the fastest are those who know what they want and can act fast when they see it. Not every client has a clear plan when we have our first meeting, and that’s totally fine, but in the Los Angeles real estate market, decisiveness is key.
Now, I can afford to specialize. Unless it’s for a friend, I primarily work on 2-20 units in Los Angeles, unless a big deal takes me to Orange County or the Inland Empire. This allows me to stay on top of the best deals, build relationships with other agents in my specialty, and work with clients I understand. Because an agent divides his time among clients, his girlfriend, baseball season, and household chores, specializing also conserves time and energy. And a happy, motivated agent makes happy, successful clients.
Read MoreHello, I’m David.
When you write a blog like this and the stats report 20+ views a day from the same sources, you start to wonder who these people are. Some of you are from TheEastsiderLA or Curbed or Trulia, some googled “Income Property Los Angeles,” and then there are my Facebook friends. You all are interested in a new perspective on real estate and I hope I’m at least providing that. If you feel like reaching out and letting me know how you found the blog, send me an email at david@adaptiverealty.com. (Part of the reason there are no comments is because there’s so much spam I gave up filtering through it all.) I’d love to hear how you found me and what you think. Or just keep reading anonymously. That’s always good, too. 
Neighborhoods & Appreciation
A client of mine emailed to ask how he should research L.A. neighborhoods to best guess appreciation. This is how I responded:
Honestly, everyone has their own opinions on the future. I like Highland Park, Atwater Village, certain parts of Glassell Park, and Mid-City for units. I like Montecito Heights for single family houses. I think Eagle Rock and Mt. Washington have already been mined. Lincoln Heights and Boyle Heights have the longest to go, but they can be had for cheap and will get there eventually.
I’d recommend going to lunch on a Sunday in each of these places and driving around. Take a look at the parks, the major streets and see what kind of stores are there. What you won’t be able to see on those tours is nightlife, but, relatively speaking, nightlife is sparse in these areas. You have Verdugo Bar in Glassell Park and The York and Johnny’s Bar in Highland Park, and Atwater Village is well developed. However, Mid-City is a short distance to Miracle Mile, West Hollywood, Hollywood, and Culver City, so it’s valuable at minimum for its proximity. Also, Paper or Plastik café is a new cornerstone of culture and gentrification in that neighborhood on Pico just east of Fairfax.
While market trends are a good indication of what the future holds, you have to get a feel for these neighborhoods yourself and, ultimately, your own gut is the best to trust.
Read MoreAbout the Author
David Brundige (DRE#01926420) works with Adaptive Realty, Inc., a real estate development company and brokerage in Los Angeles.