In escrow on Cypress Park Duplex

19 Replies | Los Angeles County, California

Hello everyone, I've been frustrated over the years about how expensive the LA market is so I came here with questions on what the best way would be to get into a property.  Buying a Duplex came as very common advice and so now I'm officially in escrow on a duplex that needs ALOT of work.  

Does anyone have any opinions or advice on Cypress Park in Los Angeles? What attracts me is the opportunity for appreciation due to area revitalization. There are a lot of new developments happening and along with the LA River revitalization, it seems to be a great opportunity.  This duplex is one block away from the River. Any thoughts on this area?

The Duplex was made in 1928, so as you can imagine, it needs tons of work. Each unit is about 450 sq ft   each, which is pretty tiny.  The price is 410k.  2661 Alice St Los Angeles, CA90065

So since this is my first property, I'm pretty nervous and am seeking some advice and guidance from these great forums.  It seems like a good way to start off my investing career but wanted to see what you all thought before I take the dive.

There is an investor who just moved his family into the lot next door. He is doing a pretty big rehab on his house, which would make my lot look nicer. 

Also, there is a three car garage in the back,which I'd like to convert into a loft eventually and rent out both units.  There would still be enough space on the lot to build a three car carport so I'm thinking it could work.  Any thoughts on this?

Cypress Park is very close to Downtown LA, which might give me a huge location advantage. My plan is to try Airbnb instead of a traditional lease. I heard I could make more that way.  We have rent control in the area, so that's another reason why I'd like to avoid leasing until the area starts to thrive more. 

Also, my real estate agent has an amazing track record in finding homes for some of my friends and co workers in the revitalized north east LA area, Highland park, etc. So because of this, I feel grateful and comfortable with him. He has his own inspector and contractor that will look at the property for any serious issues. Should I appoint my own inspector though? My brother is telling me that I should. 

 My agent is a flipper and says he will walk me through the rehab on the duplex. So from an educational standpoint, this could be golden.  I'm sharing this with you all because I'm new and I'd like to see if my line of thinking on this property is wise.  Your thoughts on this would be greatly appreciated!

Thanks!

mario

I'm curious what your numbers will be. You're buying for $410k. How are you financing it? How much are you putting into it in renovation? Is this a flip or buy and hold? ARV? How much will each unit rent for?

Sorry, I didn't fully read your post. I see that you intend to AirBnb it. So this is a buy and hold. I'm from Orange County, so I don't have much knowledge on LA. But when I Googled the address, the Zillow photo that comes up shows bars on the window...it makes me wonder about the demand for short term rentals in the area...

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@Eric G.
Im putting 5 percent down
This will be buy rent and hold [forever)
Im not sure how much itll rent for but 1 bd apts in the area are going anywhere from 1200-1500. Since mine are small im thinking 1200 range. If i rent one and live in one, ill probably pay a little less than what i currently pay for rent $1565 after tax benefits, which would be great.

I have a contractor who will give me estimates in a cpl days when we walk through so im not sure how much renovations will be. But my agent says it might be in the range of 60k

@Mario

@Mario F. I higly recommend the

The Book on Estimating Rehab Costs by J Scott. You can have a better understanding when walking the units with your contractor. Have you use the biggerpockets calculators to analyze the deal? I suggest using the calculators and downloading the pdf form and posting here. we can better help analyze your deal once you do some work

I had that property saved in my favorites! Are you able to satisfy the multi-family's self-sufficient rule for FHA? I like your plan for the property. Good luck!

@Fay Chen Haha, I'm putting down 5% using FHA. But there is another problem with the unit. There is a very old lady living in one of the units who doesn't look like she's going anywhere. The seller is assuring me that she will leave if I pay her 18k. So I'm up for the idea but somehow I feel like she still won't leave. What'd o you think? I might just drop the deal.

Hmmm...a very old lady, you say...can you wait her out? ;p Joking aside, this is one of the main reasons I gave up on multi-family in LA. Rent control just kills a lot of deals for me. I like the idea of AirBnB, but I think that may be rent control too. So make sure your tenants don't book a long stay. And I heard the city is in the middle of trying to make AirBnB hosts pay hotel/resort taxes if the room is filled more than a certain number of days/year. If you are familiar with the regulations, I think there are a lot of opportunity because rent control turned away a lot of competition for you.

Oh here's a little calc I built to calculate house-hacking expenses. I'm still trying to figure out if it's accurate. I ran an estimate using your numbers. Let me know what you think.

House Hacking
Property Price $ 410,000  
Down Pmt 5%  
Term 30 years
Rate 4.00%  
Down Pmt $ 20,500  
Closing $ 4,000  
Total Initial Inv. $ 24,500  
Monthly Expenses    
Mortgage $ 1,860  
Princ. Paydown $ (582)  
Int. Deduction $ (319.35)  
Prop. Tax $ 444.17  
Maint. $ 60.00  
Insurance $ 100  
HOA $ 100  
Utilities $ 100  
Internet $ 80.00  
Total Exp. $ 1,842  
Rental Income $ 1,200  
Rent Equivalent $ 642  month
Out of Pocket $ 1,543.70  month

@Fay Chen  My lender estimated that my monthly payment for interest/principal, mortgage insurance, taxes, and insurance will amount to around 2600 per month. That doesn't include utilities so I'm assuming the total cost will be around 3k.  If I manage to renovate the two units, I could probably get 1200 per month if I went the leasing route.  So I'm thinking my total monthly payment minus the tax benefit would be around 1400. That sound right?  

Seems like the biggest problem with these multi units is somehow managing to get them  vacant. The next door neighbor has the same issue with their property. Purchased it and the tenants aren't going anywhere. 

I didn't know there were new regulations being passed on Airbnb rentals.  How would rent control work on an airbnb rental?

Fay, Since you've given up on getting a multi unit in LA, what are you looking at now?  What are the options?  Have you purchased anything yet or are you in my situation? Still looking to get in.   

Thanks!

mario

@Mario F. I believe that I/we walked that property, couldn't remember with who. Don't put your hopes up on that loft, it might not pass building and safety easement requirements, I suggest you do a little research before considering that option. 450 sf is a bit small for 1200-1500, double check your figures. I remember one person here on BP taught me something I couldn't forget, do a little more digging if something is fishy, to me, your agent is a flipper, and he is not biting on the deal, so to him, the deal might not be worth it, think long and hard of that agent and the deal. A bunch of agents will promise you the moon to get you to sign, the old lady is one hint in my opinion. Inspector should be coming from you, not from anyone, you can use the reports from someone, but be careful.

@Mario F. first of all congrats on your first pull of the trigger. Sometimes the best decision is the one to go against your first decision. There are many hairy deals with hidden gems that you get paid well to uncover and give them haircuts. This deal for a first timer seems like too many variables (rehab, tenants, rent control, zoning changes, potential loft). I would stick to a more straight up deal that you can be in more control of the variables. If your agent is willing to jump in on the deal possibly and partner than maybe there is more likelihood of all of your variables coming together. The cash flow after all of your expenses looks a little more like a tax write off than a great investment.

All the best!

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Thanks guys, this could have been the biggest mistake of my life!  I was excited to get into a deal. The numbers seemed great. Potential was all there. But the reality sunk in and I'm glad it did. Wow. 

These duplexes in rent control areas don't seem like a great deal to me anymore. I might just need to buy a condo for 200k in the suburbs and start there. Any thoughts on that?

mario

Hello. Congrats! Nonetheless you are making moves. One thing you have to understand for buy and hold is your customer. Who is your customer? Who are you serving? Rentals will serve a different customer than a typical 1 year lease on the unit. Serve those people. Second, why are you investing for? Cashflow or appreciation? Maybe you want the tax breaks or are confident about appreciation. Analyze the deal wisely. From my experience, (I invest out of state for cash-flow to lower income families) this deal looks like it won't cashflow, and you'll have some out of pocket costs to remedy operating expenses and debt. Due you due diligence wisely and never skip property inspection. This will give you more negotiating power when inspection comes back saying foundation problem or major plumbing repair needed. Good luck!

@Carlos Altamirano   Thanks Carlos!  This property seems to be a wise investment for appreciation since there is a lot of development happening in Cypress Park. I see it as an opportunity to get into the market before it starts surging.  Cash flow won't really be good for me but at least it will get me out of the renting situation for about the same price after tax write offs are factored in.  The only problem right now is that both units are not vacant. If the seller can manage to vacate the last unit, then I will probably go in. 

thansk!

mario

Hey Mario,

Not sure if you're pursuing this at all anymore but read some of your other forum posts as well and it all seems to be talking about this same property. Everything about this screams at me to stay away. I just recently purchased a multiunit in LA so I'm definitely not a veteran but I did do a ton of research. In terms of the airbnb idea, there have been some major changes in airbnb regulations and there's still a bunch of changes happening now in the la area so I'd definitely read up on it. It's getting extremely heavily regulated for people who want to do airbnb as an investor like what you have in mind. They're planning to regulate and limit a ton of things for hosts so I'd double check on how you'd go about that. 

Also, LA rent control is no joke. You really don't want to get involved in going against a protected senior citizen resident in a rent controlled unit. If all these real estate professionals are trying and failing you should definitely take heed of that. I'm glad you're using bp as your well of information since there are a ton of people that give you a ton of advice (I've received tons of help already). Hope you update us with how things turned out since I'm also very interested. Cheers.