New Investment Opportunity + Feedback

Multi-Family and Apartment Investing
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New Investment Opportunity + Feedback

Jay Williams
Rental Property Investor · Los Angeles · Member since 2018 · 32 posts · 17 votes

Hey Everyone,

Anyone who follows me knows as a newbie investor I've decided to stop only researching and add some action to my plan. My new borrowed phrase (shout out to @Erin Wincombe) is that I'm committed to crushing it in 2019.

I have a property I just came across and I'm looking for the right partner to invest and some guidance.

It's a 4 plex (2bds, 2bth) in Compton CA in a very low income neighborhood and will need lots of repairs - I'm in the process of estimating how much. I have very little liquidity and will offer to split the deal with an investor. I'll plan to manage the property on the deal in exchange for the capital to get this deal going. It's not listed yet but believe it will list for $580-$600k but obviously will need to be adjusted for repairs. ARV will also be about $600+, rents min. $1300-1500/mon per unit. Let me know what you think! Any advice for structuring the deal? Thinking of using the BRRR strategy however not sure if this makes the most sense. I know that I would be able to refinance but the cost of the loan and the repairs concerns me.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
7y

@Jay Williams

Doesn't seem like your plan produces positive cash flow if financed, doesn't produce an attractive ROI if all cash, and doesn't produce any "instant" equity; is in a very rough area with heavy property management going to be required.

The guru set, and some well meaning but unaware investor wannabes offering advice, tell you that passive investors are lining up to provide money for your deals, 50/50 split, etc. This was somewhat true 5 years ago, though usually quite exaggerated. In today’s market passive investors can go online, sit back in their favorite comfortable chair, and research investment offerings from large syndicators, providing professional management, all types of residential and commercial properties, either historical and continual cash flow or value added higher return investment, in growing and or top notch stabilized areas. All offered to provide the passive investors with 100% ownership, with a preferred return before the syndicator is cut in for his profit participation. Now you have to ask realistically, what are you offering that will compete with that?

The smaller investors that are successful attracting passive capital either are able to show a track record of success, or are able to find a money provider who lives in a vacuum and isn’t aware of real estate crowdfunding or who will only invest in situations where his name is on the deed of trust and he personally controls the investment. The truth is that in order to attract this individual the deal would have to be a whole lot better than the one you’ve presented.

I’m not intending to discourage you, but you need to understand the investment and investor marketplace.

Please don’t be mislead by people with no or limited experience giving you an attaboy.

Private Mortgage Financing Partners, LLC
WebsiteView Page
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  • Tyler Kaye
    Rental Property Investor · Vancouver, WA · Member since 2014 · 113 posts · 29 votes
    7y

    To me that seems to be priced really high for the rents you would be getting.  I don't know that market but where I am at, I don't think anyone would chase that deal.

    1Reply
  • Jay Williams
    OP
    Rental Property Investor · Los Angeles · Member since 2018 · 32 posts · 17 votes
    7y

    Thanks @Tyler Kaye for the feedback. I agree the price at face value seems high. Could you say more about what would you be basing your decision on (in terms of purchase price and deal undesirability)? 

    A few things: 1) The asking price is what they'd be asking, not what I would offer or even make a deal for and 2) ARV does seem to justify the asking price after the repairs were made, thinking this presents lots of opportunity for value adding for this working class neighborhood 3) no rent control, most of the units will be delivered vacant.

    0Reply
  • Chase Louderback
    Real Estate Agent · Luray, VA · Member since 2016 · 459 posts · 293 votes
    7y

    Hi @Jay Williams

    So are you planning on flipping this property or holding it?  Also, are you saying they will list it for ~580k and be worth a little over 600k after renovations?  It seems like an extremely tight spread for a flip if that were the case. Cash flow seems like it could be tight for a buy and hold at $580k as well with the rent comps.

    1Reply
  • Jay Williams
    OP
    Rental Property Investor · Los Angeles · Member since 2018 · 32 posts · 17 votes
    7y

    @Chase Louderback thanks for the feedback! This will be a buy and hold. I plan to negotiate the amount of repairs into the price. Ex: $100k in repairs, purchase at $470, only an example, not actual numbers. Besides spread, what else should I be looking for on a buy and hold?

    0Reply
  • Tyler Kaye
    Rental Property Investor · Vancouver, WA · Member since 2014 · 113 posts · 29 votes
    7y

    @Jay Williams I would be looking at the turnaround time.  You say a 100K in repairs.  That sounds it would a long time before it is the right condition to rent.  The more it costs for repairs, the longer it will likely take.  That increases holding costs which will quickly cut into the amount of expected return.  From a capital budgeting standpoint, the costs of capital and time to generate cash flows, doesn't justify the tight margin of cash flow if there is any.

    1Reply
  • Matthew Baltzell
    Rental Property Investor · Denver, CO · Member since 2018 · 183 posts · 172 votes
    7y

    @Jay Williams How far away is this from the new football stadium? Also, how are the comps in the surrounding are? What are is the historical occupancy rate?

    I know Compton is a pretty rough area and has lot's of crime. Is this in a good location? 

    I know LA is very pricey and have heard of a lot of investors investing arounds Palms, and Jefferson. Those are up and coming areas.

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Jay Williams

    Doesn't seem like your plan produces positive cash flow if financed, doesn't produce an attractive ROI if all cash, and doesn't produce any "instant" equity; is in a very rough area with heavy property management going to be required.

    The guru set, and some well meaning but unaware investor wannabes offering advice, tell you that passive investors are lining up to provide money for your deals, 50/50 split, etc. This was somewhat true 5 years ago, though usually quite exaggerated. In today’s market passive investors can go online, sit back in their favorite comfortable chair, and research investment offerings from large syndicators, providing professional management, all types of residential and commercial properties, either historical and continual cash flow or value added higher return investment, in growing and or top notch stabilized areas. All offered to provide the passive investors with 100% ownership, with a preferred return before the syndicator is cut in for his profit participation. Now you have to ask realistically, what are you offering that will compete with that?

    The smaller investors that are successful attracting passive capital either are able to show a track record of success, or are able to find a money provider who lives in a vacuum and isn’t aware of real estate crowdfunding or who will only invest in situations where his name is on the deed of trust and he personally controls the investment. The truth is that in order to attract this individual the deal would have to be a whole lot better than the one you’ve presented.

    I’m not intending to discourage you, but you need to understand the investment and investor marketplace.

    Please don’t be mislead by people with no or limited experience giving you an attaboy.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    2Reply
  • Jay Williams
    OP
    Rental Property Investor · Los Angeles · Member since 2018 · 32 posts · 17 votes
    7y

    Thank you everyone - @Matthew Baltzell, @Tyler Kaye, @Chase Louderback and especially to you @Don Konipol

    @Don KonipolI appreciate your candid feedback and it is not discouraging. I want to have real success and am trying to understand this business and learn as I go. It does seem a bit like the chicken and egg argument however I will figure it out. 

    Looks like I've got enough feedback to determine thin margins and low ROI makes this deal not so attractive. Thank you. Back to the drawing board. @Tyler

    0Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 294 posts · 150 votes
    7y

    @Jay Williams depending on the condition the market rents will be closer to $1500-1600 and I believe the ARV to be 600-700 (mostly based on market rents). Depending on repairs, at $600k it would cashflow with a FHA loan ($30k down), which tells me that if it hits the market it would make even more sense for a conventional buyer. The X factor seems to be repairs, doing your due diligence ahead of time tells the seller that your serious and points out things that they cannot "unsee" prior to putting it on the market. I know Compton well as I lived there as a kid and we have a family multifamily property there that I'm trying to develop. If you want to BRRR cost to rehab, a more precise ARV, and your ability to qualify for new loan and LTV needed become your homework. Good luck and feel free to reach out for any further info.

    1Reply
  • Jay Williams
    OP
    Rental Property Investor · Los Angeles · Member since 2018 · 32 posts · 17 votes
    7y

    @Clarence Johnson thanks! I've gotten an update, ARV is closer to $700 for this area. Still concerned about rents - how are you determining those?

    Repairs are loose estimate and contacted a local contractor who will give me a better estimate by week end. Truly appreciate your feedback and assistance. We plan to buy and hold and if this deal makes sense, we would like to pursue. Still trying to make that determination now. 

    In your experience as a real estate professional, do you believe the value will hold in this area or since we plan to hold for a long term and keep it occupied, should we not weigh too heavily on that part of the evaluation (all prices will rise, right?)

    0Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 294 posts · 150 votes
    7y

    @Jay Williams, Check Zumper.com to assess market rents, we have a building there and I look at multifamily listings all day, my figures are typically on the conservative side.   I think if rates continue to climb prices will soften, but if your strategy is buy and hold it wont matter as LA rents will not dip.  If you wait until rates rise and prices fall your monthly payment will likely be higher, but it will feel like a deal lol.

    0Reply
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