Los Angeles County · Member since 2014 · 30 posts · 6 votes
Any people interested in multi-family / apartment buildings in California? I see a lot of people on here stay away from CA, but I think it's a great place to invest. What do you guys think?
I use the word game because it really is a game for this aristocratic class of active ultra high net worth commercial real estate investors who collect apartments like children collect Pokemon cards. The higher your net worth, the more you're winning the game, make sense?
Joey is spot on with this colorful UHNW analogy! I have seen schedules of real estate that go on for pages and pages of legal size documents, and entity organizational charts that look like a 20-generation family tree! Multiple $10MM+ residences that sit empty 90% of the year. But if you think of it relative to their cash flow, net worth, etc, some aren't even that highly leveraged (some are). And each of those commercial buildings they buy would be like you buying a $25K house. They need somewhere to park their cash, and like RE/MF as an asset class..
I own a few in so cal. I've been an investor for the last couple of decades and seen ups and downs. It has been very lucrative for me. I've held until values reach a point where I have refinanced and then used the equity to purchase another building.
I'm up north two hours beyond San Francisco. I bought a triplex, now 4plex, up here in 2012. I'd love to get into additional 4's or jump up beyond that if I can swing it. Right now the 4 and under is probably my best bet as I can stick with owner occupy funding, unless I find some partners. Brian Burke has been on the BP podcast a couple of times (3, and 76) he owns a big RE company based in Santa Rosa. They have a bunch of apartment complexes.
I believe California has the strongest and fundamentally sound apartment market. I've invested in dozens of rentals out-of-state in Pittsburgh, Cleveland, Baltimore, Rochester and overall, my experience with multi family in California is a much better investment. Here's my reasoning:
-Although cap rates on the open market are comparatively and seemingly inferior to that of out of state deals, the appreciation and general perceived safety of California apartments far outweighs higher cap rates of multifamily elsewhere.
-vacancy is never an issue.
-Maintenance and operating costs are minimal, comparatively speaking.
-Job growth is eternal.
-apartment properties are relatively new builds (1960s+)
It's a marginal play in terms of cash flow in Cali. So basically, locking in a low interest rates, with immediate pro forma upside is the way to go. Occasionally you get the 10% cap off market deal in an infill location, but those are few and far between... Unless you play the political pocket buyer game with proactive brokers ;)
With in-fill locations like the San Francisco Bay Area, apartment deal flow on the open market is minimal due to such high demand for the asset class. Most retail investors see deals hit the market only after they've been "shopped" to "pocket buyers," which at that point, indicates the deal is mediocre or not great at all. The way it works in apartment brokerage is that when a deal comes available, a broker's closest clients, or "pocket buyers," come to the table with aggressive offers, minimal contingencies and all cash/private funding. Pocket buyers generally are professional investors with deep pockets, or should I say Bigger Pockets? Lol anyway, most good apartment deals in the Bay Area don't ever see the light of day. The same concept applies through most fundamentally sound apartment markets. Because of the nature of relationships with brokers, I use the word political to describe this dynamic. I use the word game because it really is a game for this aristocratic class of active ultra high net worth commercial real estate investors who collect apartments like children collect Pokemon cards. The higher your net worth, the more you're winning the game, make sense?
@Account Closed I used to invest all over Pittsburgh: Natrona Heights, Penn Hills, North Braddock, Turtle Creek, Monroeville. Pretty much every township and suburb.
California is a great multifamily market, but needs to be treated differently that most other US markets. If you are playing in the major cities, it's not a great cashflow market, instead, it is more of a market timing market where you buy, hang on for dear life and then sell.
On bigger deals, you'll find mostly pension funds, insurance companies and large REITs competing for a short supply of assets and driving down cap rates.
In smaller cities/areas, it acts like many other US markets.
Overall, very high barriers to entry, but you can see appreciation that other markets can only dream about.
I'm currently looking to purchase my first multifamily in the Inland Empire of Cali and having a hard time locating cash flowing properties. Asking prices are ridiculously high in Redlands and Riverside. I want to buy in a decent area but don't want to overpay, so I know it might take some time for me to find the right one for me.
hello everyone, new to bigger pockets. Its great to hear that there are multi shoppers in nor cal. I just moved to Napa from east coast. I have been chasing the curve from CT to FL. I have a few purchases over the years living in VA and NC, but when I got to south FL, I couldn't play the game that needed to be played. I have been learning a lot and taking courses on the multi game and I am still after it hard in the SE, but looking to get into my back yard too. I am looking for partners with the time and energy to make it happen. I am always looking to talk with people of same interest. Please contact me and lets talk and help each other be successful
I use the word game because it really is a game for this aristocratic class of active ultra high net worth commercial real estate investors who collect apartments like children collect Pokemon cards. The higher your net worth, the more you're winning the game, make sense?
Joey is spot on with this colorful UHNW analogy! I have seen schedules of real estate that go on for pages and pages of legal size documents, and entity organizational charts that look like a 20-generation family tree! Multiple $10MM+ residences that sit empty 90% of the year. But if you think of it relative to their cash flow, net worth, etc, some aren't even that highly leveraged (some are). And each of those commercial buildings they buy would be like you buying a $25K house. They need somewhere to park their cash, and like RE/MF as an asset class..
Any people interested in multi-family / apartment buildings in California? I see a lot of people on here stay away from CA, but I think it's a great place to invest. What do you guys think?
-Ben
$5 Billion of new construction and about 8,000 new units in an area 7 miles by 7 miles. And this is ground zero of CA for all the naysayers about wacky politics/rent control/tenant friendly laws/unprofitable cap rates!
I'm currently looking to purchase my first multifamily in the Inland Empire of Cali and having a hard time locating cash flowing properties. Asking prices are ridiculously high in Redlands and Riverside. I want to buy in a decent area but don't want to overpay, so I know it might take some time for me to find the right one for me.
Hi Danielle,
Welcome to Biggerpockets. Let's put yourself in the seller's shoes. If you have a performing building and it's pumping out cash-flow, what would make you want to sell that building? Well, there is no reason for you to sell it unless someone comes along the way and pay you a ridiculously high price. Here comes the agents and brokers convincing you that they can get top dollar for your building. That's what you're seeing in the market right now.
If you don't want to overpay, there's no way for you to get in contract. In general, the higher the cap rate, the more ghetto the area. You will have to work hard to earn the higher cap rate where in lower cap rate areas, they are running on auto-pilot because the quality of tenants is much better. There is no free lunch.
I'm currently looking to purchase my first multifamily in the Inland Empire of Cali and having a hard time locating cash flowing properties. Asking prices are ridiculously high in Redlands and Riverside. I want to buy in a decent area but don't want to overpay, so I know it might take some time for me to find the right one for me.
Hi Danielle,
Welcome to Biggerpockets. Let's put yourself in the seller's shoes. If you have a performing building and it's pumping out cash-flow, what would make you want to sell that building? Well, there is no reason for you to sell it unless someone comes along the way and pay you a ridiculously high price. Here comes the agents and brokers convincing you that they can get top dollar for your building. That's what you're seeing in the market right now.
If you don't want to overpay, there's no way for you to get in contract. In general, the higher the cap rate, the more ghetto the area. You will have to work hard to earn the higher cap rate where in lower cap rate areas, they are running on auto-pilot because the quality of tenants is much better. There is no free lunch.
Best of luck.
Thanks for the feedback Minh, you are definitely right! There is not free lunch...definitely not in Cali haha.
@Joey Budkah Spot on in most of the good deals trading off market, or seeing the light of day after its under contract to drum up future buyers and get exposure. There are some sellers that require the listing to be publicly advertised on all major avenues (MLS,Loopnet Ect). It is definitely a relationship business as the goal is to always get more listings, specially if your the one to put the buyers in the good deals.
@Danielle J. What size building are you looking for? Riverside/SB have many different sub markets, As you said if you look at areas like Redlands, Ontario, Upland, Corona, you are going to find CAP rates similar to Orange County. But if you start to get into north of the 210 (SB) or out by Moreno Valley you can see higher returns with obviously the risk of more headaches. I know of some buildings out that way that you may have not seen. If you are interested, please give me a better idea of your criteria or what you are looking for.
Does anyone have experience in self managing 4-plex in the bay area? I am looking to buy and live in triplex/4-plex. Does it make sense vs. buying townhome/condo?
Does anyone have experience in self managing 4-plex in the bay area? I am looking to buy and live in triplex/4-plex. Does it make sense vs. buying townhome/condo?
Kamal,
I manage 2 4plexes, a duplex, and 2 single family homes in the East Bay in East Oakland, West Oakland, and Richmond. So these are probably rougher areas than you are planning on moving, and I don't think any of them are that bad to manage if you're diligent and have a little help. Also, I manage an AirB&B unit (having a meetup there this Thurs eve!). And a unit w/ short-term, partially furnished with international students living in it (in addition to the rest).
I also bought a 4plex for my first property w/ an FHA loan and lived in one unit instead of buying a condo. I THINK IT IS A GREAT FINANCIAL INVESTMENT IN YOUR FUTURE, but you may have to make some sacrifices on where/what you want to live (in) due to thinner inventory, different shared walls, etc...
But you'll money flowing in (or payment at least mitigated) w/ a duplex or 4plex, rather than the monthly drain of payment and HOA w/ a condo, with no one pitching in for your property. Would you rather pay for your own property? Or have your tenants pay for it for you?
Thanks for the encouragement :) . BTW whats a Air bnb unit? Is that something the owner only rents out thru Air BnB? Can you share more about how the numbers work out with that?
Thanks for the encouragement :) . BTW whats a Air bnb unit? Is that something the owner only rents out thru Air BnB? Can you share more about how the numbers work out with that?
Kamal
Kamal, yes, it's just a very small apt unit I rent out on AirBnb.com, the peer to peer housing website. It gets about twice what it would get for a normal unfurnished long-term rental, or more.. A little more up-front cost and management, but well worth it for this one, IMHO. All depends on the situation and circumstances. If you want to live in one of the prime areas of Peninsula in a decked out duplex or fourplex and can afford it, you could potentially do very well with business travelers down there.. But price points are high to get in, and finishes and furniture have to be really nice for those guests..
Thanks for the encouragement :) . BTW whats a Air bnb unit? Is that something the owner only rents out thru Air BnB? Can you share more about how the numbers work out with that?
Kamal
Kamal, yes, it's just a very small apt unit I rent out on AirBnb.com, the peer to peer housing website. It gets about twice what it would get for a normal unfurnished long-term rental, or more.. A little more up-front cost and management, but well worth it for this one, IMHO. All depends on the situation and circumstances. If you want to live in one of the prime areas of Peninsula in a decked out duplex or fourplex and can afford it, you could potentially do very well with business travelers down there.. But price points are high to get in, and finishes and furniture have to be really nice for those guests..
But they pay a lot per night!!!
Thanks J Martin! Thats a new cash flow strategy I learned about!
@Anita Oakley it sounds like you have been successful for a couple decades with your multi family properties. One thing I was curious about- what type of loans and interest rates did you take out on them? Overall rates haven been at least OK since the mid 90's, and of course very low the last several years. I'm sure that played to your advantage. But what if rates shoot up and you have a 5 or 7 yr fixed? That's why I have stuck with 2-4s, as I can get long term 30 yr fixed rates. To me that is the big risk in multi family. In the future, if I go MF, I'd probably opt for 15 yr fixed due in 15...I'll just need the ability to absorb the neg cash flow!
@Benjamin Nichols hi Benjamin. I realize this is an older post, however, I found it googling apartment investing in Ca. I’m curious where you’re at on this journey since you first posted about this? Im looking to invest in apartment buildings myself. Look forward to hearing from you.