Help me analyze this Los Angeles Duplex

[Kai Soremekun]

View report

*This link comes directly from our calculators, based on information input by the member who posted.

My first time trying to analyze a deal... be gentle. :)

I actually really like this property. I've been looking at properties since last April.  This is the first one I'm digging on.
4b/2b duplex + basement
Cannot legally rent out basement as live-in space, has low ceilings although weirdly there's a bathroom down there. It is raw, unfinished. Kind of weird and unusual in LA. Thought, with minimal clean up, maybe I could rent out to peeps for storage. Did not calculate this in my numbers.
detached 2 car garage (possible ADU?)
1 unit delivered vacant comes with the garage (move-in ready, could be updated a bit but totally livable as-is)
other unit under market rent $975/mo no parking
A nice bit of backyard with three fruit trees

My scenario:

I live in Hollywood and would like to stay local despite this being a crazy friendly tenant state.
I'm leaning towards rentvesting because I live in a rent stabilized huge 1b/1b, pay $590/mo and I love my neighborhood.
I've also managed the building I live in for the last 8 years so have experience and would manage the duplex myself. But did put something in the calculator for managing anyway.

I have 500k.
I'm an artist and could not get approved for a traditional loan. (last year was not good income wise except for getting the 500k :)
Have great credit score... teetering on 800
Found a low doc loan product requires 30% down if primary resident, 35% if investment + 24 month reserves. Current rate 6.5% | 6.375% if I do auto payments with their bank.
No penalty for refinancing down the road.

I eventually want to move my mom down (maybe in two years) and into one of the units but I can't charge her market rent. Fixed income, coming from Canada where exchange rate is going to be brutal.
Will probably ask my 2 brothers to contribute but no guarantees there.

So the numbers will become worse unless the other unit becomes vacant.
I can cover what's left on the mortgage for a couple of years with leftovers from my 500k barring a major disaster.  My income should increase to help with that too.
But it's LA so cash flowing out the gate seems challenging especially when looking for a neighborhood you feel comfortable putting your 80+ year old mom in and that is reasonably close to me in Hollywood.

I had a really positive emotional response to this property.  First time since I've started looking at properties. But I know you can't make business decisions based on that. 

Other thoughts wondering about mid-term airbnb or making it my primary residence while still keeping my apartment and doing short term airbnb's where I can go stay at my "office" when it's rented out. But not sure I'm going to enjoy the labor of that. Of course this is just until my mom arrives but looking at it as an alternative to doing am eventual tenant relocation.

Open to any thoughts, creative ideas on this or in general given my scenario.
I have never owned real estate... so I'm a tad freaked out.
I'm sure I'll learn a lot from any input offered.

Would also love to meet any local real estate agents who have personally invested in small multi-families in Los Angeles.

And finally...
I know there will be some, given my cash, who recommend out of state but I don't think I'm emotionally up for that as a first investment especially as I prepare to care for my mom in her final years.
And I have no interest in leaving Cali

[Jeff Nash]

@Denver McClure

[Matt Giacinto]

Hey Kai, I'm also in the Hollywood area. Would love to connect with you more since I'm a commercial agent, in case you haven't started working with one yet. It looks like the report shows negative cashflow, which isn't always bad; however, I don't see it getting better given the future circumstances you listed. I would re-evaluate a bit. Looking forward to connecting

[Allen Duan]

Hi Kai, I like all the ways you're thinking through this. I'm in a similar situation where I want to househack but my current rent is so low that any property I find will raise my housing costs significantly. I'm new to real estate investing too so I'm looking forward to hearing what others have to say, but here are a few of my thoughts.

- Mid term renting the vacant unit is a great idea. I have a business managing MTRs in LA and I believe any 2 bedroom or smaller unit is worth MTRing instead of LTRing. I'm happy to help you analyze the MTR rates for your property/location.

- I don't know the regulations off the top of my head, but if you're considering making the vacant unit your primary and STRing it, make sure the city ordinance allows it. I'm not sure if the property is under LA's ordinance, but they allow a cap on the number of days each year you can STR the unit. The best strategy would be to take 30+ day bookings and use the STR allowance to fill the vacant gaps between the MTR bookings.

- Perhaps its worth trying cash for keys for the occupied unit. Many properties I've been looking at have under market rents. Since I want to do MTR in any properties I purchase, I've been factoring the cost of doing cash for keys for the current tenants. Not sure how well that would work though since I haven't done it before.

- Is there enough parking outside for the tenants without using the garage? I've heard of new-ish companies that let you rent our your garage space for storage to others in your area. It could be another source of income until any kind of ADU is built.

[Sherril Coonfield]

Sounds like an interesting scenario.  Usually units are based on market rents in the area.  A cap rate for the area would be a good place to start especially since you are looking to rent it out in the future.
Take you market rent and calculate it based on those numbers.  Since the rent is usually what is allowable in the area multiply it by 12 and calculate what the expenses would be minus the mortgage of course and allow for a 5% vacancy.  If you need further assistance at arriving at a price email me and I will get the exact info for you and then go from there.
sherrilcoonfieldconsultant@consultant com

[Kai Soremekun]

Thanks so much for your thoughts.
@Allen Duan sounds like we are on similar paths. I'm never going to complain about having low rent but it does boggle the mind a bit and kind of humble you when you go out into the market to buy something. lol
Would love to stay in touch and definitely learn more about how to do MTRs.
Love all your suggestions.

@Sherril Coonfield thanks for your thoughts and offer of help.

I decided to pass on this property after digging into what the deal was with the occupied unit.
A family of five has been in there for 15 years and not interested in being given a relocation fee for obvious reasons.
Plus, not sure how this could be, but the second unit is only 500 sq ft. wondering what that small a 2b/1b unit looks like. ¯\_(ツ)_/¯

Every situation helps me learn more.

Onwards...

[James Carlson]

@Kai Soremekun

Awesome that you're taking the plunge on your first deal. I don't know LA, so I'd defer to other agents/investors in that area, but if you're considering the medium-term rental space, I'd second that. We have MTRs in Denver, which is an attractive city like LA, so I imagine you'd have success with it. (And it seems like @Allen Duan agrees.) 

If you go that route, you might pick up Erin's Guide to Midterm Rentals. She's got a bunch of checklists, product recommendations and tips on how to set up and operate an MTR. 

Good luck with your first one. Don't overthink it. It's not super hard. And fhe first one is where you learn most of the lessons anyway, not before you buy. Cheers!

[Jen Day]

Hello Kai, congrats on being ready to purchase your first investment property, and in Los Angeles of all places! Good for you girl! I purchased a multifamily property in LA as a house hack rental, and it was definitely a learning experience.  Just a couple thoughts to consider:

1. Rent control is great if you're a tenant, but not if you're a landlord. There are several cities within LA county that have their own landlord/tenant laws and do not have rent control. My property is in Hawthorne, and because there is no rent control, I was able to raise the rents on ALL tenants I inherited by 30% (with the legal amount of notice) and they all happily stayed because I took care of all the repairs they had been complaining about to the previous landlord for years. If you buy in the right location with good tenants, you may be able to keep them & still make the numbers work.

2. I was able to increase the rent revenue for my units by renting out the 3 bedroom by the room. I furnished the house (very basic) and now I rent each room to traveling nurses & professionals for short term rentals (3-4 months). I was able to get higher rents and these types of tenants really just need a quiet place to sleep so they pay on time without complaint. Shared living is not something every landlord or every tenant can handle, so I'm happy to share some tips.   

I am an Agent in LA and I specialize in small multifamily properties. I am also a property manager so I have experience dealing with many landlord/tenant situations.  I also LOVE analyzing deals, so I'd be happy to take a look at some options for you and offer my opinion on whether I think it's a good investment for you based on your criteria and goals. Looking forward to hearing from you Kai!