Is there any good multifamily properties in southern California for sale?

Question

Hello every one,

Is there still any good multifamily deals in Southern California ?

Rob K. · Answer

In evaluating multi-family, like any other real estate investment, I look at income, appreciation potential/inflation hedging, tax benefits, use of advantageous debt and whether I am comfortable with the property I own. Some may have a flipping mindset, but to me, a long term multi-family investment has as its primary focus the potential for permanent tax advantaged net income that increases over time as rents increase faster over time than operating and financing expense.

So in the sense that low property taxes in California from long term investments help increase net operating income, sure, that plays a part.

I get it that return on equity for long term buy and holds decrease as cap rates contract and debt gets paid down, but that does not bother me any more. If one is caught in always selling to increase returns on equity to take advantage of perceived market conditions, it usually means increasing debt in a new investment to get it done and incurring transaction costs. Real Estate is not a frictionless market. Once a multi-family property is producing good net income for me, I let it keep going and look to improve it. In this market, it seems everyone is hungry for yield. If I sell what am I going to replace it with that produces a steady, permanent tax advantaged return that I can control through my own efforts? Certainly not another 4% cap and I have no need to try to forecast when similar opportunities will be available at a higher cap rate. I'd rather have the income on my current investments.

Rob K. · Answer

I own multifamily and my thoughts are that I would never buy at a 4% cap, but I don't want to sell at a 4% cap either. I suspect that there are a lot of property owners like myself who have owned for a long time, and that might explain at least in part the current low inventory situation.

Matthew Nixon · Answer

Account Closed

If you have little to no capital, experience, or network (relationships), the chances of breaking into this market is very low.

If you have two of the above I'd say you can make it happen. Multi-family is capital intensive so that's not the niche I would focus on if you're starting out.

Account Closed · Answer

For all of us who live and invest/want to invest in the SoCAL market, what are your thoughts on the current state of said market? It seems like, as someone else indicated, if the cap rates are right around 4% or so, and the deals for value add flips are being snagged up by higher net-worth investors, that the potential for breaking into the market is low, no?

Com M. · Answer

@Chris Reeves I live in the Inland Empire. I didn't notice rent rolls rising double digits!! Are you talking after forced appreciation through upgrades being able to raise rents 20%?

Chris Reeves · Answer

Boy is it fun to bring back a thread like this from the dead - look back over the last twelve months and see that rents popped something like 20% in the Inland Empire  - people got both cash flow and a whole lotta appreciation.

As for the next twelve months - who knows. . .

Matt R. · Answer

@Nooshin  Detches It is not going to be easy in the high demand aeas. Off market or other alternative methods and strategies vs MLS could help. I hear about deals done by bp members once in awhile and some even off the mls. There were over 10,000 seller financing deals in Cali last year. I think some were probably good deals. But overall it is an extremely competitive market that is not easy to navigate. If you can drive a couple hours out of the city centers the competition is perhaps more normalized. But that is a double edge sword. House hacking 4 plexes with FHAs seems like one way someone could make it worth it to start out.

Many look at the high demand as a positive investment factor.....some may see it the other way. Some of those ladder folks curiously have something to sell you eleswhere one soon discovers. Nothing wrong with that except it is not always transparent on public forums.

The top five cities where landlords made the most money on SFRs since 2009 are SJ, SF, LA, SD and Riverside. Those are also the top five for the nation. I don't have multi info but it might coincide. The multi investors I know of are selling the lessor area properties and focusing on quality locations moving forward.

Good luck with your search!

Justin R. · Answer

I've never gotten comfortable with this topic - I too am not interested in buying in today's retail market, but not interested in selling either.  I haven't sold anything I originally purchased with the intention to hold.  I know this is primarily because I see the tax advantages (IRS in the first ~10-15 years, comparable property tax basis after), but also because of the hassle to sell and as you noted, what else would I do if I sold?

Of interest to me is the distortion effect this has on the market.  For liquid investments, I feel like I can be disciplined to both buy AND sell at the right value.  For real estate, I honestly don't know how to be disciplined enough to sell when I should.  If the same is true for (many?) other investors, and those people also need an external forcing function to actually sell, it seems only some external stimulus would force (many?) folks to sell.

I get the "it's working well for me so why change it" approach.  No issues with that.  But, real estate is nothing if not cyclical, and I haven't figured out how to evaluate when it's prudent to take money off the proverbial table.

Justin R. · Answer

Just curious @Rob K. why you say you "don't want to sell at a 4 CAP either."  I'd like to hear a little more on your mindset.

In a frictionless market, you'd theoretically sell your property(s) if you thought the market was overvaluing them.  Assuming you've owned for a while, do low prop taxes play into your decision?  The hassle of selling?  Other things?

Anthony D'Angelo · Answer

It's possible if you get lucky, I have clients ask me that question all the time, here in San Diego, and it hard finding anything that makes sense (if you're talking about cash flow) I've been looking for myself also and was able to snag a 5-plex just as it hit the market, but haven't found anything as of lately. Good luck on your search!

Is there any good multifamily properties in southern California for sale?

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