Income Property Los Angeles

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  • Boyle Heights Fourplex

    2038-Hollenbeck2038 Hollenbeck came on the market a couple months ago at 475K, and was bought last week for 455K. Part of the reason it lasted that long is because people aren’t sold on Boyle Heights yet, the way they weren’t sold on Echo Park ten years ago.

    One thing I know about 2038 Hollenbeck is that it borders a beautiful park called Hollenbeck Park. Most park-bordering property in L.A. isn’t prime real estate, but this park is more like a New York or San Francisco park, with small streets bordering it, and the buildings all directly facing it.

    Actual rents were $800 each, with three 1+1s, and one 2+1. It would have been perfect for an owner-occupier who could move into the underpaying 2+1. If you moved out in two years and rented it at market value, that would turn the deal from a 3.5% annual return to a 9.5% return. Things to think about.

  • 827 E. Edgeware Rd. Offer

    827 E. Edgeware Rd. Offer

    I found an interesting fourplex in Echo Park / Angelino Heights just off Sunset. Listing price was 890K, in great shape, two vacant units, and the other units were renting for slightly under market at about $1450. A great recipe for a buy and hold deal with about 8% net cash return.

    We put in an offer for my clients and soon learned that an all-cash offer was accepted that same day for close to $1M.

    Why buy all cash in a loose money economy? Because interest rates are so low, all the competition is certainly driving prices up. Why not save your cash for a period with higher interest rates when cash speaks louder and you can get better deals?

    The answer is simple: Echo Park and Silver Lake real estate is hot right now. This is L.A., after all, and money follows the next big thing.

  • How low can I go?

    $40,000.  The lowest reasonable amount of cash you need in L.A. to buy an apartment building is $40,000.

    Now, you’re not going to get a “nice” apartment building in a “great” neighborhood, but you can buy a cash-flowing building in a soon-to-be up-and-coming neighborhood.  We’re talking Boyle Heights and Lincoln Heights – the areas just outside of downtown that haven’t quite felt gentrification yet, but are destined to.

    Here’s the math:

    $400,000 contract price (average 4-plex in those areas)

    3.5% down = $14,000

    Closing costs = $4,000

    Tenant Relocation = $10,000

    Renovations = $10,000

    Reserves = $2,000

    TOTAL = $40,000

    Now, there are 2 catches:

    1) The reason you can put just 3.5% down is because this is a FHA loan. The FHA insures risky mortgages (down payments below 20%) so you have the opportunity to own your first home – not income property. Home. That means they expect this to be your primary residence for at least two years. The good news is you can buy up to 4 units. And you have the right to move into one of the units with certain restrictions (I’ll post about this later).

    2) You have to prove that you made an average income of about $5,500 per month for the past two years. This varies, depending on the property, but that’s about the bottom line for Los Angeles.

    I’m in this boat and I have hope. So can you.

  • Why buy?

    In most good income property deals these days, you can expect to make between 5-8% on your money, if you can afford a conventional loan. If you put down $100,000 cash (20% of purchase price), you’ll get between $5,000 and $8,000 cash back every year. That’s pretty nice on its own.

    The exceptional thing about buying leveraged property is that your rents are also covering your mortgage, so in addition to the cash in your hand, you’re earning equity in your building. That means in 30 years, you’ll have earned an additional $400,000 bonus in your building.  And that’s not counting appreciation.

    {Next post: What’s the least cash I can use to buy an apartment building?}

  • Sweet 2-4 Units

    You might be thinking “why limit myself?” And you certainly don’t have to. If you have a lot of cash and you plan to flip your property, buying bigger buildings is a great way to invest.

    However, the reason I recommend buying a 2-4 unit apartment building is because of the financing options.  Right now, with a 2-4 unit building, you can get a 30-year fixed mortgage with around 3.5% interest rate, depending on your credit and when you read this blog.  If you have 5 or more units your building is considered commercial property and you’ll likely be stuck with a 7-year adjustable rate, and who knows where interest rates will be in 2020.

    If you’re on the cusp, remember that the same rule applies for your future buyer, who will be looking for his/her own financing options to buy your property. The more options, the more available buyers, the higher the price. If you don’t care about the resale value, you can pay off your loan fast, and you plan to collect rents into your grandchildren’s retirement, then 5-10 units may be more interesting to you. If you have any questions, contact me or click the “read more” button to leave a comment.

  • Kagan’s Blog

    Kagan’s Blog

    If you really want to know about the income property business, take a look at Kagan’s Blog. Moses Kagan taught me almost everything I know about real estate, and the Essential Reading section of his blog is worth its weight in gold, if digital words could be weighed.

    While Moses focuses his time on buying and renovating apartment buildings for his fund, I work with him at Adaptive Realty to help people like you buy your own income property. What’s the difference between the properties he buys and the ones you will likely own? He buys rundown pieces of junk, spends tons of money renovating them and sells the updated property (like the beauty in the picture here) for a large margin. That takes a lot of risk, time, gumption, and cash. What most people like to do (and what I encourage) is to buy a property with decent leverage, one that needs little rehab, and then collect rents and watch it appreciate into your retirement.

    We know how to do all kinds of deals depending on the kind of buyer you are, but 2-4 unit residential income properties are our sweet spot. Follow my blog to read about the kinds of deals that we do at Adaptive Realty, and what you can do with us.