Buy adjacent R3 zoned duplex?

2 Replies

Hello BP community!

I was hoping to hear some feedback and opinions on this question.  

I currently own a fourplex in the city of Los Angeles that I purchased about 3 years ago.  It is in a nice part of town, all four units are rented.  The land is about 7,000 SF, zoned R3. 

There is now the possibility to purchase the adjacent duplex which is fully rented, but at about 40% below market rents, the land there is about 7,500 SF, zoned R3.

I am interested in purchasing the adjacent duplex not necessary for immediate cash flow but potential development in the future (with combining the fourplex). However, I'm not sure if the numbers make sense as the duplex has an asking price of $600K (2.50% CAP rate). I would be OK with just breaking even with 25% down and holding onto the property but at the current rent controlled rents and that asking price I would be about negative $1,397 a month.

- Does anyone in the biggerpockets community have experience with R3 zoned apartment developments? 

- How would I ask the tenants to leave their units if I wanted to demolish and build new apartments (I believe with both lots, approximately 14,500 SF, I would be able to build 18 units total)?

- What does R3 zoned land in LA sell for? I looked at some comps but they didn't make sense...

- Or do developers price the land by how many units they are able to build, any idea what price per unit developers usually pay for in a not great but not horrible, up and coming neighborhood?

- Is construction costs (soft and hard) of $175 PSF for a new apartment building sound reasonable?  On grade parking.

THANK YOU for reading this and any feedback is appreciate.

1. If / when you are ready, you can use the Ellis Act to evict the tenants. Depending on age / income, you're looking at a few months to a year and payments of $8-19k / unit.

2. Developers will look at the per unit price of the land, but also qualitative factors like lot configuration, access to alley(s), etc. Legally, the duplex land could be 9 units by right, so you're looking at $72k / unit (assuming you can fit all of the parking). Whether that's a good deal depends very much on the neighborhood.

3. I think construction is more like $200 / sq PLUS whatever you're going to pay to build the on-grade garage area. 

I would agree with @Moses Kagan

however it is possible to build at $185 psf hard costs.  I'd give extra value to a piece of land that also gave you an additional access point (eg. a corner).

Best of luck,

A

Medium asg logo bAllan Glass, ASG Real Estate Inc ® | 213.973.8637 | http://www.asgreinc.com | Podcast Guest on Show #98