Why Do You Invest in Los Angeles? (Testimonial for BP!)
BiggerPockets! I work at BP and I'm working on building a landing page for Los Angeles.
Would anyone be willing to share why you choose to invest in the city? What makes it so wonderful? Would you tell others to invest here, if they can?
Development is lucrative in LA. You can still find undervalued deals and develop it into a long term hold property. BRRR also works and deliver a great pay day if you are able to maneuver through RSO and building codes.
We currently have 4 live residential projects going through entitlement that is all ground ups with 19k SF of building footprint. By the time it’s finished, we’ll operate them as 18 unit townhomes spread over Korea Town, Boyle Heights, and South LA.
@Jamie Garcia
Hello ! I'm curious to know if you have ever built an ADU in San Fernando City ....I'm curious about prices and maybe some issues that you have run into during your construction.... thanks !
I like to invest in what I know and what I am passionate about. I wasted 20+ years of my life not living in LA and after six months of living here I'm convinced that this the best place to live.
From a financial perspective, the barriers to entry are high and properties outperform in the long runs. Sounds like a winning investment thesis to me.
@Matthew Forrest
What do you guys think about this?
We've been focusing on adding to our current portfolios by building ADU's on all our properties (the ones that we can build ADUs on) we currently own and so far that's working out.
We're considering continuing to by distressed homes and continue the same model especially here in the San Fernando Valley. Buying distressed to semi-distressed and adding an ADU, refinancing and continuing the process...
I recently spoke with a developer who has close to a 1,000+ units here in Los Ángeles and always building high luxury residential and let him know about my desires and he suggested Multifamily and start with a minimum of 10 units here in Los Ángeles County.
What do you guys think?
Continue the ADU model or the multi family here in Los Ángeles County?
@Jamie Garcia I think you are on the right path and either one you choose will be the right one as long as you are persistent. Your strategy of buying SF, adding ADUs, and eventually refinancing is quite smart and relatively unique compared to other strategies I see. The biggest factor in SF is the risk. Since it is usually one tenant paying the rent (or 2 because of the ADU), it means if they leave, 100% (or close to it) of income is lost.
Multifamily is attractive because it diversifies the risk of losing 100% of rental income if a tenant leaves due to the multiple tenants. However, there are many risks in either SF or MF. I think MF allows someone to scale up faster and eventually get to the end-goal of transitioning to NNN. As a retiree with a solid NNN property, you can sit on a beach and collect a paycheck when you're older. Just my opinion and all strategies can work if you do it right.
Less doors, more risk. Sure it is easier, but it sounds like banking on appreciation alone. That is a lot invested to make nothing. The fact that you live in one door however does make it a huge win.
@Lauren Hogan
I invest in LA because it’s home and what I know. I echo what everyone said above in the thread: weather, locations, attractions, opportunities, lack of supply, appreciation, and overall accessibility because I live in the area.
@Jamie Garcia do you have a meet up group? I am new with this investment business and would love to learn more from the professionals. Thank you.
any investors and realtors meet up group? Would love to join one. Thanks
@Lee Ripma
Why would a low cap be a reason to invest in LA? Just curious of your perspective.
@Lauren Alpert - do you understand what cap rates really mean? They are a measure of risk. LA has very low cap rates due to the fact that LA will always be there and always be in demand. Compare this to a one prison town in Indiana where you can get a 12 cap. Low caps in LA mean that values are extremely high and if you force appreciation (or even better develop) you’ll be very rewarded for that in equity (value) in your building. Low cap rates are the perfect environment for creating a lot of equity. Creating a lot of equity means you have a lot of options. Don’t drink the cash flow cool aid, it’s a very small % of your overall return.
@Lee ripma
A low or high cap rate can mean a variety of things. I purchased a property in South Los Angeles and got plans to build a larger apartment. A lender told me that cap rates were higher in that “part of town” and refused the deal. Ultimately I went with someone else and built the project, increasing the value 4x. I bought this quadplex at a 9 cap and turned it into a 9 unit modern building at a 4.5 cap. Would I have wanted to purchase this brand new building at a 4.5 cap as a new investor in Los Angeles? Probably not.
You can have low cap rates anywhere, but what differentiates Los Angeles is the strong and well established economy, shortage of housing, diverse urban community, etc. I have found the most value potential somewhere in the middle.
This story is very different for new investors in LA, too. It’s difficult to grow your real estate investing career early on through investing in low cap rate properties unless you have the funds to tear it down and build it up or dramatically renovate it. You have rent control to reckon with, so even if you are able to renovate, you cannot charge more for rent! Historically we have seen huge appreciation in Los Angeles, but with so many buyers priced out, would you put your money on that continuing for the years to come?
On the flip side, I see tons of reasons to invest in LA. There’s opportunities to develop, with the lessening zoning restrictions. Just depends what type of investing you do. I love LA but don’t love the currently low returns. Just saying.