How To Analyze an Apartment in Los Angeles
Hello!
I am a new investor looking to purchase an apartment complex in Los Angeles area and I am trying to figure out the best way to analyze a property. LA is unique in the sense that the cap rates and cash on cash is very low so most of the times unless you get a unicorn you will be buy to hold for appreciation. While I have seen a lot of videos on analyzing they always seem to be in midwest where they focus on high cap and high CoC, which is not the case in LA generally.
Is there any source or anyone or anywhere I can go to find more LA specific analyzing? The properties I have been seeing are of course all rent controlled where the caps are like 3% and the CoC is 1% and you have to put down 45 to 50%.
Nothing seems to make sense but I spoke with an older investor who told me that nothing made sense when he was buying in the 70's and 80's but the properties he passed on that were "overpriced" at $300,000 are not priced at 5 million. His point being that you are not going to really cash flow in LA but you will make money in appreciation.
With that said I'm still trying to find a way, a system to analyze LA properties. I have learned red flags i.e. high insurance rates, bad areas, old windows, retrofit, COVID tenants etc but really feel still like a ship in the dark without navigation equipment.
Any advice from Los Angeles apartment investors would be amazing!
I'm looking around in LA as well. I'm surprised by the numbers you posted
> 45%-50% down
What's happening with that? I would expect the usual 20% to be the expectation. That's what sites like Zillow and Redfin show.
> CoC 1%
If I saw a property like that, I would consider it. The CoC return I see for properties in LA (west LA) are -10% to -15%, yes, minus! A -5% looks pretty appealing to me lol
Quote from @Gastón Silva:
I'm looking around in LA as well. I'm surprised by the numbers you posted
> 45%-50% downWhat's happening with that? I would expect the usual 20% to be the expectation. That's what sites like Zillow and Redfin show.
> CoC 1%
If I saw a property like that, I would consider it. The CoC return I see for properties in LA (west LA) are -10% to -15%, yes, minus! A -5% looks pretty appealing to me lol
Thats the going rate now 45% on average. Unless you find an apartment in Compton that has high cash flow I've been told there really isn't anything else thats below. This is commercial not residential where you can put 20% down.
That's definitely a tough ask on analyzing LA multifamily as it's been in flux over the past 2 years. I'd turn to CBRE cap rate surveys or Marcus Milichap's MFR circular for 2022. Even then, these are lagging behind the current market out here. Happy to send you links if you PM me. If you're looking for greater returns while staying somewhat local, try going south more.
I will say that the 45%-50% down payment is far below market. We're still underwriting deals at 80% and up to 90% LTC for value-add or construction for multifamily.