Would you do this triplex deal? Help me analyze

9 Replies

Hello BP folks,

I'm shopping in LA and this turn key triplex came up. I was originally looking for value add opportunities but my loan program is pretty restrictive so I dove in but Im a bit skeptical. My out of pocket limits I set for myself were 1500 since that is what Im paying now. But I could use some experienced investors opinion. 

A few things to note, my loan program does not charge PMI if Im below 20% and they cover most closing costs so those are intentionally low. The projected rents are about 100-200 below adjacent markets as the area does not have decent comps.

What did I miss?

Thanks

JT

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If I'm reading this correctly, even if you were to raise the rents $200 on each unit, you're still ~$900 in the hole each month? That makes zero sense to me if there's not a massive value add opportunity here, which it sounds like there isn't.

@Nate Burgher Ill be living in the property as this is my first step in the real estate world. In LA living for free is close to zero so 900 out of pocket is a win. So yes, from an investors perspective this is not great but in LA its way better than paying 2200 for a 1/1. I appreciate your input just this market is very difficult for newbies to break into. Aside from the market specific details was there anything else that jumped out at you?

Two things that are associated... A 3% CAP Rate is crazy low, but maybe that's normal in LA? It's also low because it's turnkey, the two go hand in hand. $900 out of pocket isn't bad at all for LA, I know that much. I'd be curious though if there's a similar deal to this with Value Add Opportunities, and if you're handy I'd live in the worst one first while I rehab it, and then when a lease is up in another unit I'd move into that one and rent out the one I just rehabbed, and keep doing that cycle until all three are rehabbed (2-3 years / lease cycles). By then, you could refinance and pull out some cash, maybe even more than you invested, and move onto the next project. Just a thought. Turnkey's are nice, but they're definitely not where the value is, they're not gonna be turnkey after being lived in for 5 years.

@Nate Burgher the value add is the lot is large enough to add an airstream in back, add a storage locker since two of the units are super tiny, so they aren´t huge, just passable to maybe give me an extra 550-700/month which would almost give me free rent. I agree with living in the worst one and rehabbing them as I go. The front 3/2 is already rehabbed so its the back two units for some value. I understand this isnt a steal, but it gets me in the market in LA. Thats something for anew investor or am I aiming too low?

I understand wanting to get something in the LA Market but this wouldn't be the deal for me. This would be tons of work for a little return. I suggest maybe looking in other area's of the country?

@Jordan Feiner Ill PM you the process Im going through, its not easy but it is proving to be worth it in this market. Also, this is a single loan program, I will not need a second loan. 

@Dennis M. it is crazy isn't it? But between paying 2000-2500 a month for rent OR getting in on thin cap rates, what would you choose? Its a rock and a hard place in Los Angeles. 

@Jerimy Justice I am looking elsewhere I just want to have my rent money going somewhere aside from paying off another investor's mortgage. This will be my only property in CA. Im buying OOS next year.