I want to share with you all a quadplex deal I closed back earlier this year in East Los Angeles.
About the Deal:
Property was listed on the MLS for $615k. Each Unit was 700Sqft with 1 bed/bath. The property also had a detached 4-car garage and a laundry room. I initially put in a offer for $630k, but was outbid by another all cash buyer and placed as back-up offer. A week later, the first offer fell through and they accepted my offer! When I first visited the property, I can tell the owner had neglected to keep the property updated and let the tenants run things. The owner was 80 years-old and had the property all paid off(dealing with a very motivated seller). All units were rented well below market rent and I realized this would be a great value-add opportunity. I ended up negotiation the purchase price to $595,000.
The next day, I went knocking on each of the tenants door notifying them I was the new owner and giving them a 60-day notice for an increase in rent. I ended up having one tenant leave one month at a time. This was great for me since it allowed to renovate each unit one at a time without making me pay the entire mortgage payment each month. Overall, I spent about $40k in renovations and have brought all units to market rent. All the tenants now living at the property have been screened by me and are absolutely wonderful. I am now collecting $5k in rents per month ($1350,$1350,$1100,$1200). Currently cash-flowing $1,645 a month with a 20% down payment. My cash-on-cash return is 11.2% (which I believe is great in the LA area). I hope this deal show folks that it is possible to invest LA. I bought this property at 23 years-old working as a full-time financial analyst in Santa Monica. I also have my real estate license. Please reach out to discuss more!
Please see below the property analysis:
@Ryan Rodriguez great job ryan keep up the good work.
Sweet, that's a good buy and hold in LA! =)
would you be willing to share your excel sheet? I have a similar one that I have been working on, but I like your clean look.
No real data in it of course.
Great find and nice cash flow!
Welcome to BP!
Awesome breakdown of the numbers, those are sexy. Getting 11.2% COCR is outstanding in LA... doublecheck the numbers though. It's great seeing real estate change hands from a motivated 80 year old to a 23 year old hustling in the city. Nice job getting that real estate license. I'm guessing you bought MLS? Any plans on keeping the pipeline flowing to add more to your portfolio?
Couple of ways to improve the accuracy of your numbers:
Consider adding vacancy as a % (typically 5-10%) because it's impossible to keep all unit 100% rented
Need to add CapEx for your future big costs (roof, HVAC, etc)
Considering adding a reserve for any other unexpected expenses.
Keep up the good work!
This gives me hope in LA! Good job!
May I ask what was your experience with raising rents on old tenants? Was the property rent controlled?
@Ryan Rodriguez YEAH! Thanks!
Great job on being patient and methodical and getting a deal done. You might be a little optimistic on your numbers, but still a good start. Congrats!
You are right. It's not possible to make have 100% occupancy at all times. However, my analysis was based on the assumption that all my current tenants will for at least a year (which they have communicated to me) . Can add some vacancy costs for a more conservative assumption. Also, I should of put that $200 in CapEx instead of repairs. I have renovated all units making them tenant proof and fortunately have had zero repair costs (knock on wood!). Appreciate the feedback and will add some more costs to be prepared for any hiccups :)
I did buy the property through the MLS. I would like to buy as many deals as possible, but finding a roadblock with coming up with the financing. Considering to do a HELOC/Cash-out-refi down the road. Current comps are supporting a $700,000 property value, which would allow me to pull some cash out. Would re-invest that money for another down-payment. Also, thinking about doing direct mail to find owner-financing. I am finding it difficult to find a deal like this one with the market being really hot right now. My goal is to at least get another buy and hold deal next year.
@Francine Biton Property was not rent controlled. It's important to note that this deal would not have happened the way it did if it was. Fortunately, EastLA falls right outside rent controlled areas. Good site to double check for rent controlled areas is ZIMAS.
Obviously, the tenants were not happy about the increase in rent. To my surprise, all the tenants gathered together and asked me to not increase the rent. However, I stayed to my word and told them I would increase it, and if they don't want to pay the increase the rent, I am also giving them the option to leave. Legally, I had to give them a 60-day notice (being they were long-term tenants). One by one, they started to leave except for one. The one tenant that stayed saw all of the improvements I was making to the property, which justified the increase.
Hey Ryan, awesome job! I'm just getting started in LA too, so this definitely gives me some hope!
Could you email me a copy of the spreadsheet too?
I also noticed your comment about having difficulty getting financing. If your open to the idea of partnering, let me know.
@Kuba F. Appreciate the feedback Kuba!
@Ryan Rodriguez congrats! Encouraging to see young guys getting after it. I currently live in SF, so I understand the difficulty of finding deals in expensive markets.
Out of curiosity, how are you getting your 8.25% cap rate? Or is that an established guideline you put in to follow?
Looking forward to hearing about more deals and more accomplishments.
It can be tough to find a deal in LA, but they are out there! We just have to look that much harder.
Would need your email to send the excel file. Will definitely let know if I find a deal that would be great with a partnership
Sounds good. Los Angeles real estate is pricey these days. You are young, so you are in good shape.
Purchase a property every 2 years and you'll be wealthy eventually.*
* Unless you get wiped out by a real estate crash.
Thanks @JP K. !
I calculated the cap rate by adding all the monthly income and subtracting it by all the monthly expenses (not including mortgage payment). Then would times that by twelve to get annual NOI. Then divide your NOI from the purchase price
How did you get such a low rate on a commercial property? Did you have to do a buy-down to get 4.625%? I'm in Van Nuys and would be much more willing to do deals if I have some cheap financing!
Congrats on your deal, let me know if you're looking for partners on future deals, I might be able to scrounge up some money!
@Brian Ploszay Super pricey! Thanks for the feedback Brian
Would like to hit that "freedom number" when I am 35. Planning to make real estate my full-time job down to road to reach my goals.
@Ian Dunross Thanks Ian!
A good credit score helps a long way! I believe rates are still low and I locked my rate in the beginning of the 2017 year. Also, it's important to not that this is technically not considered a commercial property (less than 5 units).
So where did you get the $120,000 down payment and the $40,000 repair budget?
While your story is a nice example of a deal in a very expensive market, it still leaves me wondering how those who don't have large sums of cash laying around can get started there.
This is great. Curious what the 'before' rents were. And even though not rent controlled, were you legally subject to any percentage limitations on the rent increase itself?
Congrats @Ryan Rodriguez , It seems rare to hear about people in L.A actually buying in L.A these days rather than out of state.
Rent control of course makes things more difficult but I know East L.A doesn't fall under rent control..I guess it's an 'unincorporated' part of L.A County.
You mentioned you have your license , did you represent yourself (as buyer) and receive a commission for purchasing the property?
Fantastic @Ryan Rodriguez !! What a great motivating deal! This gives me hope that there are still some deals in Los Angeles / Orange County areas.
Congrats! You just gave me chills and more motivation.
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