Real Estate Agent · Fullerton, CA · Member since 2016 · 140 posts · 103 votes
I have a property that I bought with owner financing. It is currently a laundromat that I also own. The property was recently re-zoned to R-4 with a Q condition that seems like it effectively makes it an R-3. Assuming it is zoned R-3, I can build up to 6 units on the property.
My goal is to get this small apartment complex built on the property. Would anyone be willing to point me in the right direction towards some productive first steps toward accomplishing that goal? I haven’t found too many books, blogs, or podcasts about building multi family housing, nor have I met too many people building small apartments in LA at the meet ups I’ve been to. I’m feeling stalled out at the moment and could use a jumpstart.
Much obliged.
Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
7y
First of all this is a big project in terms of dollars and time. You can read books but I wouldn't rely on the knowledge you obtain from it to spear head the project yourself.
First of all you need to know what you are able to build for example 1000 sqft x 6 units
Based on that you need to have a rough idea how much it will cost to build a 6000 sqft.
Lets use a hypothetical scenario
Lets say it costs $250 sqft for an B class building/units so your construction cost is $1.5m and another $100k for soft costs, development fees, permits etc.. and your acquisition cost for the land is $400k.. So you are $2m in
Sorry $400k for land cost is way under but just this is hypothetical
Last I seen the cap rate for multi family in LA is around 3.5-4% on B class
Based on that cap rate you need to make sure the units can net you an NOI between $70-80k.. If you cannot get at least $2000 a unit per month it wouldn't be worth doing because you are essentially paying $2M to build a 6 unit that is valued at $2m..
I would only build if I am gaining equity. This case you are breaking even..
Then again I am not familiar with LA rental market but I bet for 1000 sqft new built rental you should be at least $2500 so if that's the case its worth building..
a lot of numbers here. I hope I didn't confuse you but still a lot of other variables involved
In terms of guidance and approvals. We have planners in Toronto that can do a lot of the work in terms of approvals, hire architects etc.. I am sure they have planners in LA as well
You need to hire an architect to draft the building plan to submit to city hall.. But before you do that you need to know if its worth building
Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
7y
First of all this is a big project in terms of dollars and time. You can read books but I wouldn't rely on the knowledge you obtain from it to spear head the project yourself.
First of all you need to know what you are able to build for example 1000 sqft x 6 units
Based on that you need to have a rough idea how much it will cost to build a 6000 sqft.
Lets use a hypothetical scenario
Lets say it costs $250 sqft for an B class building/units so your construction cost is $1.5m and another $100k for soft costs, development fees, permits etc.. and your acquisition cost for the land is $400k.. So you are $2m in
Sorry $400k for land cost is way under but just this is hypothetical
Last I seen the cap rate for multi family in LA is around 3.5-4% on B class
Based on that cap rate you need to make sure the units can net you an NOI between $70-80k.. If you cannot get at least $2000 a unit per month it wouldn't be worth doing because you are essentially paying $2M to build a 6 unit that is valued at $2m..
I would only build if I am gaining equity. This case you are breaking even..
Then again I am not familiar with LA rental market but I bet for 1000 sqft new built rental you should be at least $2500 so if that's the case its worth building..
a lot of numbers here. I hope I didn't confuse you but still a lot of other variables involved
In terms of guidance and approvals. We have planners in Toronto that can do a lot of the work in terms of approvals, hire architects etc.. I am sure they have planners in LA as well
You need to hire an architect to draft the building plan to submit to city hall.. But before you do that you need to know if its worth building
Full disclosure... architect. However huge fan of mixed use and small lot developments. Also have some REI of my own. We are up and down coast, and offices north and south of LA, but do some work there (rehabbing a 6unit around the corner from the Helms bakery).
Anyways, new apartments in LA are awesome, because they are not yet in rent control nightmares. New is often more returns than flips based on rent control and strong demand.
R3 with only 6 units... must be small lot? We are seeing apartments that can handle more sqft but not density doing things like dual master units (two couples split unit) to help drive up returns... or even co-op housing. In LA and all of California, it’s time to get creative!
PM me if you want to grab a coffee and run some options... sounds like you bought in the right neighborhood to take advantage of over lay zoning. Be careful of construction costs... things are crazy out there right now!!
Real Estate Agent · Fullerton, CA · Member since 2016 · 140 posts · 103 votes
7y
@Hai Loc thanks for the input. I’ve run all the numbers and they look good, I’m more trying to figure out how to take next steps. I appreciate the in-depth response!
Real Estate Agent · Fullerton, CA · Member since 2016 · 140 posts · 103 votes
7y
@Mark Creason there shouldn’t be any environmental issues with a laundromat. Dry cleaners are a different story, but laundromats run pretty clean, no pun intended haha
Specialist · Dallas, TX · Member since 2017 · 18 posts · 7 votes
7y
@Jordan Berry, what’s the lot size and FAR with the zoning that you just mentioned? I’ve been in development for 12 years. Happy to guide you thru this.
Specialist · Dallas, TX · Member since 2017 · 18 posts · 7 votes
7y
To piggy back what @Hai Loc was saying, another way to look at the deal is look at it as an Airbnb model if your location allows you. Your RevPar should be greater than your traditional leases.
If your total cost is equals to around $2m to the current value based on market rate rent, meaning you are not gaining any equity value, then you should Airbnb it via the short term rental method, and crush cashflow.
There are lenders out there now that will let you refinance your property based on Airbnb income.
I have a consultant who can do a proforma for you if you are interested.
Real Estate Agent · Fullerton, CA · Member since 2016 · 140 posts · 103 votes
7y
@Tommy Ishida it’s not a great location for AirBnB. Plus, cap rates for a new building in this area are in the sub 4 neighborhood so I’m not too worried about the numbers. I don’t really think there’s a need to get too creative with this property. It’s fairly straightforward in terms of what to do with it to maximize the value. I’m more getting lost in the nuts and bolts of actually getting the thing built.
To piggy back what @Hai Loc was saying, another way to look at the deal is look at it as an Airbnb model if your location allows you. Your RevPar should be greater than your traditional leases.
If your total cost is equals to around $2m to the current value based on market rate rent, meaning you are not gaining any equity value, then you should Airbnb it via the short term rental method, and crush cashflow.
There are lenders out there now that will let you refinance your property based on Airbnb income.
I have a consultant who can do a proforma for you if you are interested.
@Tommy Ishida it’s not a great location for AirBnB. Plus, cap rates for a new building in this area are in the sub 4 neighborhood so I’m not too worried about the numbers. I don’t really think there’s a need to get too creative with this property. It’s fairly straightforward in terms of what to do with it to maximize the value. I’m more getting lost in the nuts and bolts of actually getting the thing built.
What are you seeing in terms of cost to build per square foot in L.A these days ?
Joseph,
That number is all over the place right now, depending on site cost, and complexity of project. Sticks and Bricks, 2 stories wood construction, down and dirty, you should be under 200$ a square foot. Custom, nice finishes, no economics of scale... you could be 600$ plus a square foot.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
7y
@Scott Martin , thanks , I know construction costs are crazy right now in L.A . I've been looking at some of these new hip looking homes people are building in Indianapolis in Bates Hendricks area and selling retail at like $150 sq ft..their construction costs much be very low to buy the lot or house, build and sell at $150sq ft and still make a profit.
That is interesting about rehabbing the 6unit around Helms bakery. I used to live not too far from Culver City , and was there the other day and it was pretty amazing with the big project near the metro. Ivy Station. I had read it'll be geared towards people that work in DTLA but don't want to live in DTLA.
Definitely not the sleepy town it was back in the day...