Construction of a Multi-family in Los Angeles
Pacific Palisades, CA · Member since 2015 · 9 posts · 0 votes
Due to rent control laws and the difficulty of buying a vacant multi-family I am considering buying a house zoned for a multi-family. The only way any multi-family in LA could fit the 50% rule is by building a multi-family unit which would be owner occupied. (forget about the 2% rule all together, I think that is nearly impossible to fit in this kind of market).
My question mainly centers around if anyone has ever converted a home into a multi-family and how much it cost them per unit / sq foot. I know the price varies depending on location but I still think it's worth a shot asking. Also what unexpected issues did you face?
I am glad to help anyone in return. I am constantly looking at various properties in LA, multi-family units and homes. I also know the expected rent for various places as well. My day job is in digital marketing so I am happy to help you on that end as well.
Thanks everyone, hope you have a happy holiday!
Right now I'm actually converting a multi-family into a single family home in Chicago in a nice neighborhood and it's going to run me about $100 PSF. Keep in mind this is going to be a high end 4,000 SF home with Wolf and Subzero appliances, custom cabinetry and millwork, etc. If you're looking to do mid-level rentals with appliances like Frigidaire or GE, engineered wood flooring or laminate, and the mechanicals are in good shape (electrical, plumbing, HVAC doesn't need to be replaced), you're probably closer to $50 PSF.
in los Angeles I did something similar and I cut a lot of costs and still couldn't get below $150 sqft build...La has so many hidden fees and every year the code gets more restrictive and costly. For example new builds require rain barrel and fire sprinkler...That alone will run anywhere from 5 to 10k. Soil test required? 5k min. Engineering and plans? 15 to 20 or higher...Then don't forgot you'll need to get new gas and power meters put in the request your first day as that takes months and ladwp will absolutely mess up and cost you money as they are basically legalized organized crime.
The project was A second house on a large SFR lot before they basically put a moritorium on "granny flats". It was one hell of an experience...We had the front house renovations done rented it out, then built second house in back. Two addresses. Two sets of meters, two everything. The kicker is the front house got evicted by the end of the project...But it worked out because we finished and they moved and we sold it a couple weeks after.
In all honesty going from SFR to multi was a very good margin but the time headache and capital I tied up to this learning experience basically could have been better spent on me buying more cash flowing properties in South la or long beach or finding flip deals as the time we did this there were reasonable opportunity to do so... Purchased oct 2014 sold March 16
Right now I'm actually converting a multi-family into a single family home in Chicago in a nice neighborhood and it's going to run me about $100 PSF. Keep in mind this is going to be a high end 4,000 SF home with Wolf and Subzero appliances, custom cabinetry and millwork, etc. If you're looking to do mid-level rentals with appliances like Frigidaire or GE, engineered wood flooring or laminate, and the mechanicals are in good shape (electrical, plumbing, HVAC doesn't need to be replaced), you're probably closer to $50 PSF.
Hey Robert, thank you for responding and I am sorry not to get back to you earlier. Is it still running you around 100 PSF? All of the estimates I have gotten hover around $200-$250, do you suspect it is because I am in Los Angeles? I can't imagine it being that different than a high end home in Chicago. Again, I am sorry for not responding earlier- I just got my pre-approval letter today so I am back in the loop.
in los Angeles I did something similar and I cut a lot of costs and still couldn't get below $150 sqft build...La has so many hidden fees and every year the code gets more restrictive and costly. For example new builds require rain barrel and fire sprinkler...That alone will run anywhere from 5 to 10k. Soil test required? 5k min. Engineering and plans? 15 to 20 or higher...Then don't forgot you'll need to get new gas and power meters put in the request your first day as that takes months and ladwp will absolutely mess up and cost you money as they are basically legalized organized crime.
The project was A second house on a large SFR lot before they basically put a moritorium on "granny flats". It was one hell of an experience...We had the front house renovations done rented it out, then built second house in back. Two addresses. Two sets of meters, two everything. The kicker is the front house got evicted by the end of the project...But it worked out because we finished and they moved and we sold it a couple weeks after.
In all honesty going from SFR to multi was a very good margin but the time headache and capital I tied up to this learning experience basically could have been better spent on me buying more cash flowing properties in South la or long beach or finding flip deals as the time we did this there were reasonable opportunity to do so... Purchased oct 2014 sold March 16
Hi Alex, thank you for responding and I am really sorry for not responding in such a long time. If you don't mind me asking what costs did you cut to get it down to 150 sqft and what area of LA was it in? I know I am in way over my head since this is my first investment into real estate.
I feel like you are a trove of valuable information since you have experience in dealing with LA from building from start to finish. Is there anyway I could take you to coffee to chat a bit? My profession is digital marketing SEO/SEM and would be happy to lend a hand if you need some help in that area.
I don't see it going less than 180. That's just build. Costs does not vary by location, it varies by finish, government fees vary by location. If it is zoned correctly, someone already beat you to it, if it didn't sell, something is wrong with it, 50% or 2% rule does not exist in CA generally speaking, not in SoCal, not in Bay area.
Hi Manolo, I am sorry about the delayed response and thank you for responding to my initial post. I see that you are a contractor and I have started to look at homes. Would you mind DM me your info so when I have a property in mind I can show you for an estimate?
You're probably all over this but buying a tear down is very different from developing raw land. I help clients with one small part of raw land development, helping them get through the regulations related to biological resources and endangered species. It's a whole different ball game. If you're doing a tear down you at least have a sewer and one water meter plus you don't have a lot of the issues and cost you face developing raw land.
thanks for the note, one of the key things to bring your cost down is to essentially be your own contractor.. hire the vendors directly and get bids, put terms in that doesnt pay them up front and pay them by the job not by the hour. negotiate everything. Go to the wholesalers directly and buy directly. the other items with the city are all going to be based on your architect and engineer which youll need to find through network/interview they can really help save you or costing you if they dont have experience.
I am actually living in houston TX and i invest almost exclusively in los angeles or else i would glady join you for a coffee. my father inlaw is the "boots on the ground" and we have partnerships on our deals. we mainly have a team of people we go to for the various jobs required for build but one of the biggest cost savings for us was building on an existing site because we basically were able to extract value from the front house - we used the same land twice essentially. it doesnt have to do with your build costs but it helps in scale
Hi Kent,
Conversions are always tricky as new codes come into play when changing SFR to multi-family. Cost will be dictated by what the existing conditions are, what you NEED to do in order to make this a multi-family, and how nice you want these units to be. Send me a PM as I'd love to discuss further on your endeavor.
Thanks,
Min
You're probably all over this but buying a tear down is very different from developing raw land. I help clients with one small part of raw land development, helping them get through the regulations related to biological resources and endangered species. It's a whole different ball game. If you're doing a tear down you at least have a sewer and one water meter plus you don't have a lot of the issues and cost you face developing raw land.
Hi Lee,
Thank you for responding. The way my loan is structured, due to my inexperience, I would need to buy a habitable home, pull the permits and then refinance / a construction loan and then start developing. I will definitely reach out to you though if I happen to get into purchasing raw land! Thanks again : )
Kent Newmark We don't plan on working with residentials unless it is a full gut with full plans.
Hi Manolo,
Thanks for the response. It would be a SFH with at least a significant addition (depending on the existing SFH structure) - I would need to build out at least 3 more units. Would that be something you may be interested in?
@Kent Newmark As long as you have full set of approved plans and finish schedule, and depending on when you are doing it, we might be, put me on the list. I have a new superintendent that just built a 4-plex ground up, so you'll fit right in.
thanks for the note, one of the key things to bring your cost down is to essentially be your own contractor.. hire the vendors directly and get bids, put terms in that doesnt pay them up front and pay them by the job not by the hour. negotiate everything. Go to the wholesalers directly and buy directly. the other items with the city are all going to be based on your architect and engineer which youll need to find through network/interview they can really help save you or costing you if they dont have experience.
I am actually living in houston TX and i invest almost exclusively in los angeles or else i would glady join you for a coffee. my father inlaw is the "boots on the ground" and we have partnerships on our deals. we mainly have a team of people we go to for the various jobs required for build but one of the biggest cost savings for us was building on an existing site because we basically were able to extract value from the front house - we used the same land twice essentially. it doesnt have to do with your build costs but it helps in scale
Hi Alex,
Thank you again for responding to my post, I really appreciate your knowledge and experience. If you don't mind me asking, what architect and engineer did you use / do you use for the LA area? What kind of strategy do you follow, it sounds like this one was a semi flip?
I am looking to follow the BRRRR strategy, to me it seems to be the most profitable long term in such a competitive market. However not everyone is following that strategy. Do you think it is because of the amount of capital that is tied up in the rehab? Or the about of time spent on rehabbing and managing tenants? Maybe because LA has rent control? I would love to hear your input on the topic.
Would you mind putting me in contact with your father in law? If that is over reaching I completely understand. Would you mind chatting on the phone? If not then I will PM you my info.
Thank you again for your advice.
Hello Everyone! I am a Realtor in LA and this is my first post at BP.
I am in touch with a developer who is interested in selling a lot (which currently has a building on it) and the permit to build condos on it in West LA.
I am more familiar with residential and resale, and still need to learn more about new development.
My question is, how do you value a deal like this? What would be a reasonable price?
Given few new condos in the area and few comps, how would you adjust age of the building when there are only much older comps around?
A potential buyer believes it will cost them 300/sqft to build. Is it an over-estimation on the building cost?