Income Property Los Angeles

Category: Real Estate Blog

All things real estate.

  • In Escrow Again

    Sorry for not posting in a little while, but I just got into escrow with a client on an awesome fourplex in Virgil Village near Silver Lake.  This is a FHA client, which makes me even prouder of our accomplishment!  My client was aggressive in his offer and we were patient in our hunt.  That’s how you make FHA deals happen.

    While I’ve become the go-to agent for FHA deals at our brokerage, I don’t know if this is quite my future. I do love a good challenge, and while helping those with less cash is something I feel passionate about, the amount of work to get into escrow is about three times that of a conventional loan, and probably ten times that of cash buyers.  And because FHA buyers in L.A. all look at the same deals, it’s hard to take on more than one buyer at a time.

    Meanwhile, my broker Moses Kagan is writing up a storm over at kagansblog.com – check out some of his latest posts, too.  And tell him I sent you.  😉

  • Good Deals Scarce

    While interest rates have dropped back down to a respectable 4.5% for investors, there just aren’t that many good deals out there.  I’ve seen a few 8-unit buildings with around 11.7 GRM, which can be a decent investment, but nothing that screams goooooaaaalll or home run or whatever sports metaphor you like.  If you’re interested in making around 6% on your money and you have about 250K-300K to invest, let me know because there are some decent deals.

  • Interest Rates UP

    Red percentage symbol with an arrow up.Well, the end of an historically low interest rate era has come. My recent client in escrow just locked in a 3.75% interest rate, but he’ll be the last for a while. Rates for FHA have climbed to about 4% and for  investors at about 5%. While this might change our game plan, it also means a lot of middling, half-interested, opportunistic investors have dropped out of the market. That will make prices drop and opportunities for committed, patient buyers rise.  I’m excited to see how the market reacts and I’ll keep you posted.

    http://www.forbes.com/sites/nextavenue/2013/06/24/smart-money-moves-now-that-interest-rates-are-rising/

  • 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:

  • A Unique Preliminary Inspection

    duelWith 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!

  • Rent vs. Own

    east-vs-west-buy-vs-rentA 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.

  • Countering 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.

  • Docusign

    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.

  • Redfin

    should-i-use-redfinThere 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.
    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.

  • Land

    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.