Castaic, CA · Member since 2016 · 2 posts · 0 votes
I understand cost paid per unit can vary greatly by the location in which you are buying. I live near Los Angeles and have an opportunity to buy a 4-plex building that I would REALLY appreciate feed back on from seasoned investors.. is this a 'good deal' or not? I have heard Brandon Turner say he wants to hit $100 per unit in monthly cash flow, for property in/around Los Angeles, is that a good target?
Here are the facts that I'm needing advice on...
4- 2bed/1 bath units. (no immediate required repairs, all units rented).
$656,000
owner pays:
electricity - $60 per month
Sewage/water - $320 per month
Insurance - $125 per month
Taxes - $500 per month
Garbage - $60 per month
P & I - $2570
At these variables, (not including assumptions such as vacancy rate, capital expenses & maintenance/repairs) that is 8.23% cash on cash return with $924. monthly cash flow. I don't know how to consider 'depreciation' ...
Any thoughts from anyone on this would be a good starter or not?
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
I think I'm totally missing it....did you list the rental income somewhere? Can't do the calculations without that. And as far as including vacancy and repairs and such, you definitely should because those will happen, no way around them. But if you are still getting $100/door with those included, you're doing pretty well for LA. As far as expectation in LA, I'd consider any positive cash flow good. It's hard to even find that. If you do find it, and if it's freakishly minimal (likely), don't forget about the tenant laws in CA which can end up costing you, the landlord, a lot of money.
If you are set on buying in LA, you have to look for at the appreciation play because cash flow isn't much of a thing around here. I've always bought out-of-state because of it (I live in Venice). But if cash flow is your game, you're going to be hard-pressed here.
If you want to shoot over the income numbers (unless I'm totally overlooking them...possible), I'll run some calculations for you and see what I come up with.
Rental Property Investor · Los Angeles, CA · Member since 2015 · 29 posts · 19 votes
10y
1. My experience as a landlord here in L.A. is that your maintenance and repairs will be an average of $100 per unit per month (on an old property like my duplex). Some months or even years, nothing: then $1,000 or even $9000 all at once. It will vary depending on whether they're at market rent or enjoying a low rent rate (they ask for more piddly repairs when paying high rent. My tenants who I could charge more, they try to fly under the radar and don't ask for much). Anyway, never assume you'll have no repairs, it's the road to ruin.
2. Check your tax estimate. I pay $500 a month in taxes on a property I got for a lot less than $656,000. Isn't the tax here 1.25% with a 1.25% raise per year? even at 1%, your tax based on the purchase price would be more than $500.
3. 8.23% ROI before vac, cap ex and maint. is a risky margin. But your other benefits might make it worthwhile, in your particular case, as you mention. Ask your tax lady. And ask her this too, remember all the depreciation benefits you take over the years, you have to 'pay back' when you sell the property. I learned this to my chagrin this year.
Castaic, CA · Member since 2016 · 2 posts · 0 votes
10y
thanks for the replies !!
Tim, $60 a month of electricity is what the landlord pays (4 outside lights that come on at night and the electricity in the laundry room for a washer & dryer). all units have their own gas/elec meters and they do pay their own utilities.
In my request for advice, I realize now I didn't state my question very clearly. The current income on the building is $4600 total. (Each unit varies a bit, but totals $4600).
If I include 3% vacancy, 5% maint/repairs, and 3% Cap Exp... My monthly cash flow could be as low as $100 per unit.
If $100 per unit cash flow isn't such a good deal (even when funding vac, maint/repairs & cap ex, what is the per unit/per month $ I should be looking for? I won't be needing to 'live' off the cash flow from this building and I have zero experience with what depreciation will do for us...??
Beverly Hills, CA · Member since 2015 · 38 posts · 10 votes
10y
Hey @Account Closed said, our property tax in LA is about 1.25% Ad Valorem, meaning it's based on the value of the transaction. Your figure seems low, so maybe it's the tax the current owner pays which will be reassessed upon transfer, or perhaps there is some tax incentive such as historic preservation?
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
I think I'm totally missing it....did you list the rental income somewhere? Can't do the calculations without that. And as far as including vacancy and repairs and such, you definitely should because those will happen, no way around them. But if you are still getting $100/door with those included, you're doing pretty well for LA. As far as expectation in LA, I'd consider any positive cash flow good. It's hard to even find that. If you do find it, and if it's freakishly minimal (likely), don't forget about the tenant laws in CA which can end up costing you, the landlord, a lot of money.
If you are set on buying in LA, you have to look for at the appreciation play because cash flow isn't much of a thing around here. I've always bought out-of-state because of it (I live in Venice). But if cash flow is your game, you're going to be hard-pressed here.
If you want to shoot over the income numbers (unless I'm totally overlooking them...possible), I'll run some calculations for you and see what I come up with.
Investor · Fair Lawn, NJ · Member since 2014 · 384 posts · 189 votes
10y
Assuming the numbers you provided are representative of reality (specifically the taxes) and adding my more conservative assumptions for vacancy, repairs and capex (10/10/5). This place would still cash flow as long as you don't put property management in place. Once you do, you're likely to be under water.