I just sold the highest priced L.A. fourplex east of Sunset Blvd.*

At the time of writing, 3335 Cazador St. is the highest priced fourplex ever to sell in Los Angeles east of Sunset Boulevard, other than one famous Rudolph Schindler architectural sold in 2015. The east side of Los Angeles is changing fast, and it’s important to know just how much you can push the market if you can reposition the right property.

The seller of 3335 Cazador and I bought it just one year ago for $1,180,000 and sold it last month for $1,855,000.  What changed in a year? We knew that the rents could be much higher than the current rents, and, one-by-one, the seller paid the tenants to move out so he could renovate and capture high market rents. And believe it or not, the new owners did NOT overpay. They bought the property, fully rented, at a low 12.78 GRM!  You better believe the new owners are making good cash flow on that.

So why did the seller sell? With the equity from the property, he upgraded to a 6-unit building in another under-appreciated area, where he snagged a new deal. We’re currently selling one of his other properties, so he’ll have the equity to renovate his new 6-unit property, and add even more equity to his quickly growing fortune.

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Your Parents’ Money

Your Parents’ Money

A lot of baby boomers are retiring now, and they’re wondering what to do with their savings. I have one thought: your pension is great for you, but you can’t pass it down to your kids.

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GRM vs. CAP?

I’ve gotten this question from beginner investors lately, and it’s worth a quick explanation. What is GRM and CAP and which is better to use?

GRM stands for Gross Rent Multiple and you get it by dividing the gross rent (the annual total rent from all units in your building) into the purchase price (PP/GR). So a $1M purchase price and $100,000/year in gross rent equates to a 10 GRM. The higher the GRM, the less you cash flow, all else being equal.

CAP is your capitalization rate, which is your net income (gross rent minus all expenses) divided by your purchase price (NI/PP). In this scenario, the higher the number, the more you cash flow.

The benefit of CAP is that it provides more information–that is, if the information is accurate. On larger properties of 8 or more units, you’re more likely to get more accurate information because a management company or a more sophisticated investor has better accounting. However, on smaller buildings of 3-4 units I prefer to use GRM because landlords are generally terrible at keeping and reporting expenses (and they’re fairly easy to estimate), so the only real number is the GRM.

In conclusion, GRM is a great shorthand but doesn’t tell the whole story, and CAP will give you an exact idea of income if you are able to calculate it correctly.

In today’s market in LA, a 4 CAP and 18 GRM are pretty common, but I tend only to show my clients better than 5 CAP or 15 GRM, depending on various factors of course. Email me if you have any questions.

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OFF MARKET 4plex – but not for long!

If you have $500,000 cash to invest and you want to make $2,000 cash per month after all expenses (5% cash return, 10% equity+cash return), I have an upcoming fourplex that you may be able to snag if you act fast. Please let me know immediately at davidlbrundige [at] gmail [dot] com.

Here’s the (potential) upcoming MLS description:

Beautiful four-cottage compound property on a gated, half-acre lot in the desirable hills of Glassell Park. This turnkey investment property is unlike anything you’ve seen in Los Angeles with three parking spots per cottage, private yards, shared gardens…the gem of the neighborhood. Each home has 2 bedrooms and 1 bath with original wood floors, character kitchens, and close to 1,000SF each! Three units are already rented successfully at market rent. The owner’s unit, with two garages and covered work area (it’s crazy how much space there is), is delivered vacant. Well-maintained by owner on property, with mostly copper plumbing and improvements such as new HVAC, water heaters, electric, landscaping, gate system, appliances, and more. Cash flow immediately with a still low 30-year fixed interest rate and watch the neighborhood (and all of the roses) continue to blossom.

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Making an Offer & What that Means

Many buyers think that making an offer means you’ve bought a property. In fact, buyers are heavily protected through many steps of the process before you’ve actually exchanged money for title. For nervous buyers, this can help. Let me explain the steps:

  1. Negotiations: You likely won’t get your offer accepted in a seller’s market. When you’re reaching for a good deal, it’s likely that the seller, in a seller’s market, will come back with new terms. When the seller makes a counter offer, your offer is immediately void until you accept or offer new terms.
  2. Earnest Money Deposit (Days 1-3): Once your offer is accepted, you have three days to send in your earnest money deposit (EMD – usually 3% of the purchase price). Before the EMD is sent, it’s very easy to cancel if you have to. At this point, the seller likely hasn’t changed the property status on the MLS, so they will still solicit other offers. Once you send in the EMD, you settle into the escrow/investigation process.
  3. Physical Contingency (Days 1-17): Depending on negotiations, you have up to 17 days (in some cases) to investigate the physical state of the property. During this time, you can cancel if you don’t like anything about the property, and receive your EMD back. (Out of the 50 or so escrows I’ve brokered, only one company charged a $200 cancelation fee. That is not normal.) During this period, the seller delivers disclosures about the property and we receive the preliminary title report.
  4. Loan Contingency (Days 1-21): Depending on negotiations, you have up to 21 days (in some cases) to get approval on your loan. Given the massive amount of loans being processed in Southern California, this process usually takes 21 days or longer unless you have worked with a direct lender to get approved already. Often, the best we do is get a confident nod from the loan officer to go ahead and remove the loan contingency.
  5. Appraisal Contingency (Days 1-21): Depending on negotiations, you have up to 21 days (in some cases) to get an appraisal on the property for the price that you offered. If the appraisal comes up short, you can invoke the appraisal to cancel the deal.
  6. Removing Contingencies (Day 21): Once you’ve removed all of your contingencies, your EMD is promised to the seller. That said, if you can prove negligence on the seller’s part, an arbitrator may not grant the seller your EMD. During this time, you work with your loan officer for final approval. You still have not paid your down payment, and that is still protected, in most cases.
  7. Funding (Day 30): Once your loan is approved, you sign loan docs, and you transfer your down payment, you can still shout STOP and the escrow company cannot move forward with the deal. If the other party doesn’t agree to cancel and refund your money, you will likely go to arbitration to settle claims.

In conclusion, it is preferred to be confident in your offer. But if you’re nervous as a buyer, rest assured that signing your first offer doesn’t necessarily mean you’ve made your most important real estate decision. Usually, that comes when you remove contingencies.

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“Bullish on Drones”

Los Angeles Magazine wrote a piece on drones which features Yours Truly. The funny thing is, you’d be surprised how many listing agents won’t shell out for drone footage. Of course, all of my listings get drone videos for free, if requested.  Here is the paragraph in the article about real estate:

Comparatively inexpensive aerial footage is also changing the way real estate agents market properties, whether palatial estates in Beverly Hills, starter homes in Echo Park, or condos in downtown L.A. “It’s not like every buyer needs a drone video, but you don’t want to alienate anybody because they feel you weren’t selling them hard enough,” says Coldwell Banker realtor David Brundige. He’s so bullish on drones that he formed a company last year, DroneMyListing.com, with a former airline pilot.

Of course he didn’t quote the part of my interview where I describe the value of videos in marketing a property. The truth is, certain properties are served better from drone footage than others, depending on what that drone footage reveals. I’ve even used a drone to scout the roof of a property for a buyer. That could reveal good things or bad things. When you market a property, it’s always about what you want to highlight. Drones provide a special angle, and one that can pay off if used correctly.

Here’s the article. Here’s a video for my listing that sold for $130,000 over what top agents at my brokerage considered an ambitious listing price:

 

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