Buy or Build apartments in Los Angeles

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Buy or Build apartments in Los Angeles

Kevin Kozicki
North Hollywood, CA · Member since 2016 · 5 posts · 0 votes

Hello!

New to bigger pockets and just started really looking at real estate as an investment. Looking primarily at getting a piece of property with 3 or 4 units. Potentially able to add another unit without too much difficulty, somewhere within Pasadena/Glendale to stay out of rent control. Being based out of LA is making a lot of searching, really not fit into the 2% rule. But I'm new and still sort of lost.

I've started to look at land parcel's available around these areas and I am just wondering if you can make a greater investment by building vs buying something. It seems if you build it out into a proper modern small set of apartments, you can avoid any big maintenance issues for a long time, as well as making something highly desirable/and therefore priced accordingly. 

I just have no idea on the actual costs of building a home, but it seems if you buy a piece of land you should be able to build something for less than what a lot of the already built houses go for here, it being such a largely inflated priced market. Building also opens the opportunities on location as it avoids rent control all together.

Just wanted to see if anyone else has any info or experience with numbers.

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  • Edward P.
    Investor · Los Angeles, CA · Member since 2015 · 52 posts · 11 votes
    10y

    Hey Kevin. I have not built anything but I can tell you I was going to but the loan company would give us a loan until the property was paid off. 

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Kevin Kozicki Hehe. Unless you have the skillset and own the parcel free and clear, you're not ready for anything close to a build.
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  • Francisco TrejoPro Member
    Investor · Los Angeles, CA · Member since 2016 · 44 posts · 9 votes
    10y

    Hello Kevin and Welcome, I'm also kinda new at this , I just closed a triplex deal on Friday as my first investment,  wictch was great going into 38th birthday  for me.  In the last two years I have added 300 to 500 Sq ft. To 3 different houses, my own my parents and a friend.  I have priced construction, and in in Los Angeles you're looking at $125 to $170 per Sq. Ft. + permits. 

    Best luck , hope this helps 

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Francisco Trejo I don't think an addition is anywhere near the complexity and cost of a new build.

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  • Francisco TrejoPro Member
    Investor · Los Angeles, CA · Member since 2016 · 44 posts · 9 votes
    10y

    Hello Kevin and Welcome, I'm also kinda new at this , I just closed a triplex deal on Friday as my first investment,  wictch was great going into 38th birthday  for me.  In the last two years I have added 300 to 500 Sq ft. To 3 different houses, my own my parents and a friend.  I have priced construction, and in in Los Angeles you're looking at $125 to $170 per Sq. Ft. + permits. 

    Best luck , hope this helps 

    0Reply
  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    10y

    Costs less to buy than build typically unless you are the builder. Especially if you can come across some good off market or bank owned properties. To build some of these homes will cost much more than what you could get them for.  California is probably going to be more expensive though and returns will probably be lower than other parts of the country.

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Jassem A. I don't believe your advice is accurate. Some people build it for cheap, it all depends on how you manage a project. It costs less on the pocket but it's one avenue where you could scale it. For example you build 1 SFR, then you use the income to build a duplex, then 4 plex, then 4 duplex, next time you know it you'll be buying acres for a tract home. Sure it will take 10-15 years of hard work. But it is hard to scale flipping that way. On flipping, you constantly look for deals, but on being a developer, you can find a good land one day and be busy 3-4 years. Going back to commenting, even if it costs more to build, which I doubt is a correct assumption, new builds always pays more than a rehabbed house, in other states, it might be 4-6k but in CA 30-50k is a normal difference.
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  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    10y

    @Manolo D.

    Depends on what kind of discount you can get on a property and it's condition and if you intend to sell or lease.  You could buy a home in a bad part of Cleveland for example for a few thousand but the same home might cost 200k to build.  Or a home in my area I can get for 25-45/sqft versus over 100/sqft new.

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  • Kiersten Vance
    Real Estate Agent · Redlands, CA · Member since 2016 · 253 posts · 115 votes
    10y

    Hi @Kevin Kozicki! I have not found any properties to fit into the 2% rule here in the Los Angeles area. 1% is my rule of thumb when looking. Since prices are quite high right now, you may be better off building. There is a lot of new construction in the Glendale area right now. You definitely need to find yourself a reliable honest builder, but I would say it is worth looking into!

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Jassem A. Not in LA you don't. A stupid land owner can sell his land for cheap just by the way you present your cost. It's all about how much you can strong arm the land cost. Everything else when it comes to expenses is the same. CA is nowhere near any other state, sellers are being offered all cash in more than market prices. So the term cost less to buy than to build is inaccurate at a minimum.

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  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    10y

    @Manolo D.

    I will agree it is inaccurate in high demand and expensive markets like California

    0Reply
  • Kevin Kozicki
    OP
    North Hollywood, CA · Member since 2016 · 5 posts · 0 votes
    10y

    Thanks for the replies!

    Just in my searching, I was able to find some land available in a not terrible location for around 30K. It was fairly graded, but my thought was looking at listings and seeing a lot of what I'm looking for in LA going for around $400 sq/f, totaling roughly a million... Would it not be easier to buy land as part of the cost and then construct a new fourplex that could easily rent out quickly for a good amount. 

    I just don't know if I want to whether the payments on the property during the construction period without any income coming back from it 

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Kevin Kozicki Is it zoned for a 4 unit? If you're talking about a million in build cost, do you have 200-300k (20-30%) as skin in the game to start with? A great build and hold (not LA) is Mike Woods, look for his posts to give you a better idea on how big of a task you are getting into.

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  • Robert Clippinger
    Commercial Real Estate Broker · Laguna Niguel, CA · Member since 2016 · 3 posts · 0 votes
    10y

    Tread very carefully and look at mitigating your downside as much as possible.  Schedule and manage your risks intently. 

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  • Davon Lowery
    Investor · Whitttier, CA · Member since 2015 · 405 posts · 110 votes
    10y

    @Manolo D. Maybe you can shed some light on cost savings as it relates to, retaining 1 part of the original structure (in the event of a teardown-rebuild scenario), where be it, a wall or a prescribed portion of the original structure is retained, per the request of the city/county? 

    I too am beginning a marketing campaign to acquire a tear-down, and erect a new structure, preferably a multi-family new build; here in Los Angeles. 

    I would hope to keep it under MM, as I don't have the capital to command that type of leverage. However, a well thought-out JV is very attractive to me.

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  • Robert Clippinger
    Commercial Real Estate Broker · Laguna Niguel, CA · Member since 2016 · 3 posts · 0 votes
    10y

    Sure, look at all options all the way thru.  Sometimes it makes more sense to start all over with new construction.  Look at the zoning regulations and how it relates to parking requirements and new development taxes for new construction in light of what new construction demands in rent levels verses renovation.  

    0Reply
  • Ray Johnson
    Irvine, CA · Member since 2016 · 545 posts · 614 votes
    10y

    Kevin, I spent a great deal of time in Los Angeles and Orange County as a Project Account for a few large developers, When looking at land or land and construction deals in the area, I know you're going to need to account for a lot more than what you may be looking at based on this question. Different land parcels not only vary in purchase price, you also need to assess the land infrastructure cost which will change based on the property so your construction cost will be different based on each parcel of land you're looking at even using the same 4 unit set of building plans. Cost for the property associated with developing the land before construction will vary based on grading, sewer, electrical, roads, surveying depending on the location of the land, soil testing, etc... The upside is regarding the construction loan is you can capitalize the interest during construction increasing your basis in the project, The downside is you will need to bring a decent down payment and if you don't own the land or have any construction experience, and you'll need a partner with developer experience especially if this is your first project.

    I would recommend a JV with a developer, maybe a reduction on the developer fee in exchange for something on the backend of project completion, there are a few good ones out there that do small projects as well.

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Davon Lowery Since you're in LA, I will answer your question, if it were somewhere else, I couldn't as it will give the wrong info. I just finished estimating 18 unit apartment for a friend, it came out retail at 1.2, that's if he pays for everything, since I would GC and do it for free in exchange for experience, that sheds off 200-300k, that being said, that's a dirt to doorbell. If you want a tear down, that means demo all walls, if you remain 1-2 walls (maintain only the studs) that would classify as a remodel. A tear down takes time to review due to it's classed as new build vs of that remodel. Depending on where you are, it could be a few weeks difference (time is money, specially if you're borrowing hard money). Also, I am not sure but based on simple common sense, new build makes your documents show "2016" as year built vs 1920 if you remodel only. You need to run the numbers on where it will make sense, you can figure 2 months difference in permit delays for both then add the "premium" you'll get for selling a 2016 vs 1920. When I say 1 MM, the build cost is not actually that much different, it's the land/acquisition cost that matters.
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  • Davon Lowery
    Investor · Whitttier, CA · Member since 2015 · 405 posts · 110 votes
    10y

    @manoloD. Thank you. Very good points.

    0Reply
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