Cash Flowing Multifamily Los Angeles

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Hi All, I have been looking at some properties in Los Angeles (Long Beach) and I keep coming up with calculations that yield me barely any cash flow. [they are 3-4 units] My question is, is this to be expected in LA? My realtor seems to think that most investors don’t cash flow until a few years in , but I have also talked with others and they are definitely finding properties that cash flow especially when the markets below rent. Am I on a wild goose chase for cash flow or is my agent right about having to take loses or break even for a few years? I am guessing many of you will say it depends, but I am just trying to level set. Thanks!

Hello Wiley, Yes its hard, almost impossible to "cash flow" in our area. That doesn't mean there aren't any successful investors here. Some of the most successful investors are in expensive markets (LA, NY, SF, etc.)

You just have to understand its a different approach. Investing here may offer a lower ROI as seen in "cash flow" or "cash on cash", but there are other pillars and pathways to wealth. Investors in these areas typically focus on capital appreciation, equity pay down, or an escape plan. One example would be purchasing a "value add" commercial or residential dwelling, increasing performance through management/rehabilitation, and selling at a higher price/ lower cap.

Principal pay down is your friend. Basically at these rents and valuations you build equity every month. Eventually you can either sell the building or refinance to get it out.

That said, you absolutely can cash flow a property here, you just need to be very careful and spend a lot of time looking. 

Wiley Strahan - you are right on the money (or actually not...). SoCal is a rare place for cash flow buyers. Most of my friends who invest here either break even or lose some $$$ each year. They are banking on appreciation... Same goes for NY, SF, etc. I live in Santa Monica and this is EXACTLY why I buy multifamily properties in Texas and Florida... 15%-18% IRR and 8% CoC...

It's all about if you want to own property in CA or not or need the cash flow.

I have lot's of CA clients with multifamily. They had strong rent growth each year but now with rent control in some places and talk of vacancy control they are worried that rent growth will severely slow down and expenses will increase.

There is some buyers from China and Japan that care less about the cap rate and more about just getting money here into property assets. Some of those countries they are only seeing 2% to negative returns. The locals here in the states tend to not get excited about the lower caps as much.

My clients are 1031 exchanging out and buying passive NNN retail in other states.