Los Angeles opex rules of thumb?

Question

Hi all,

Angelino new to the LA market here. After focusing out-of-stage, I'm determined to make the LA market work for me!

What percentages do you LA investors use when estimating opex while underwriting a property? I typically use 10% for maintenance/repairs and 5% for capex in cheaper markets, but I feel like those percentages must be lower here.

Any input would be appreciated. Thanks!

Best,

Jon

Jon Schwartz · Answer

Thanks, @Lee Ripma. Your argument for equity over cashflow has had an impact -- I'm all about LA now! Let's build that equity, baby!

Lee Ripma · Answer

@Jonathan Schwartz

As others have pointed out it depends on how new your construction is. Brand new construction or down to the studs rehab is very different from a 1940s original plumbing. This is why you want to do actual numbers on capex. This many water heaters that last this many years. This many roofs that last this many years. Etc. there is actually a real cost rather than a percentage. Percentages can be very misleading.

Lee Ripma · Answer

@Jonathan Schwartz - YES! Love that equity. LA is a great market for equity but you don't have to do it here. Forcing appreciation by increasing the NOI works on commercial properties in lots of markets.

Jonathan Taylor · Answer

@Jonathan Schwartz welcome to the market. As those are good standard numbers it depends on your project. I recently did a studs Reno on a fourplex and ran 5% vacancy and 3% repairs and no capex for the first three years because I replaced everything that would break. Then I return to 15 across the board once stabilized at 3 years.

This has proven correct as it’s the first year operational. For starters stick with 15% for capex repairs vac and see.

It’s a tough market. Good luck

Los Angeles opex rules of thumb?

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