why is this property so cheap?

[Ross Kane]

hi guys

can you figure out why this property is so cheap and nobody's buying it?

2629 S Garth Ave, Los Angeles, CA 90034

[Eric Fernwood]

Hello Ross,

I can't speak to this specific property, but I can share why properties like this are sold by investors. In over 17 years, I have never—not even once—seen an investor sell a performing property. They only sell because it's losing money, usually due to deferred maintenance or ongoing tenant issues and they see no way to turn the situation around.

According to Redfin, this property was built in 1940. Typically, that means you'll have to replace:

• The electrical system. For a 10-unit building built in 1940, expect to pay $200,000 to $350,000 for a complete rewire (Las Vegas numbers).
• Replace the interior plumbing. Expect to pay $120,000 to $220,000
• Replace the roof. Expect to pay $60,000 to $120,000.

Do not trust anything the listing agent or anyone else tells you. For example, I was evaluating a 4-plex property for a client. The listing agent told me that all units were rented at $900 per month each. His maintenance cost the prior year was less than $1000. And all the tenants have been in place for at least three years.

I started by interviewing the tenants. The first tenant I spoke with was clearly dishonest about paying $900 a month. I offered the second tenant $50 for information, and he revealed they could pay either $900 by check or $600 in cash. To the best of his knowledge, all tenants were paying $600 per month. When I asked how long he'd lived there, he said about two months. I tracked down the maintenance company, and the owner estimated around $18,000 in maintenance for the prior year.

No one gives away money. If the property is cheap, there is a reason. Be VERY careful and trust only what you verify yourself.

Another question to ask yourself: "Will this property meet your financial goals?" If your goal is long-term financial independence, the critical requirement is that rents have consistently increased faster than inflation over the last 10 years. If not, you won't be able to sustain financial independence—rents rising slower than prices means your purchasing power decreases over time and you will have to get a job to make up for the loss in buying power.