Need help Analyze on potential first property

8 Replies

Hi BP,

I want to purchase this rental multifamily property because the number work out pretty well, at least for Southern California area, but I am not sure if I analyze it correctly. Can someone help or advise if this is a good purchase

I use BP calculator and here is the number on it.

The property is 3 units, 

A: 2 beds 1 bath, and a small den => rent for about $1350

B: 1 bed 1 bath => rent for about $1000

C: A studio with 1 bath, no kitchen => $650

Total Gain = 3000      Total Expense = 2600

The house is on MLS for 535K, but it was sold on July for 335K. It was basically a flip, and the flipper wants 200k for his work. He didn't add any units. He did repaint everything and did the flooring, and fix the roof. I am not sure what he did with the interior of the house. 

Everything is remodeled, and ready to move in, if I offer 485K then I would make around $400 dollars a month, I do have 5% vacancy, and 10% cap-ex, 5% maintenance, which yield 5% CoCROI. Interest rate is around 3.5 to 3.8.

My concern is that the room is not that big, all the units are small houses. The studio has no kitchen so might be hard to rent. This area is not very industrialize, the house was build in 1944, and the neighbors is more like B to C tenants.  

And I have a feeling 200k for a flip is too much to ask for, but I don't know if he fix anything inside the house. 

@Lan Nguyen - a good local realtor will be able to help you determine if this is a good rental

I would be concerned about the unit with no kitchen.  Is there no kitchen because that unit is illegal?  That is why houses in my area don't have them

Hi @Brie Schmidt , yes the local realtor did the number with me and we approximately earn 400 dollars/month after all the expenses. I couldn't find anything this high for a more than a month so this one seem to be a good one.

About the no kitchen unit, it was built next to the garage, image below

I don't know if it was legally build or not, but i was thinking of attaching a portable cooking station outside the house. Still it is not very comfortable. 

@Lan Nguyen

Have you checked the last appraisal?  It should indicate 2 units or 3 units.  Do some research in county records to find what legal appraisal is.

Agreed, I don't know your local laws, but your agent should.  In my area if you add an illegal unit the city issues you violations to tear it down.  If you don't clear the violations they put it on title and you can't sell it to anyone getting financing. 

I see, this is very good to know, let me ask my realtor for the last appraisal. I just checked my county accessor and there is only 2 units, so the studio must be illegal. 

You're considering committing $485,000, for just $4,800 (less than 1%) net return per year?

(Yes I know, YOU would be getting all of 5% for YOUR input - but still, really?)...

Hi @Brent Coombs , yeah it is almost impossible to apply the 2% rule here is Southern CA, or even 1%. The rent is not even making 4800, the rent only comes out to be 3000. And the house is tiny, actually the 2 units combine is only 1653 sq ft. 

House pricing around LA area is just insane, but interestingly there are tons of cash buyer around the area. 

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