[Calc Review] Help me analyze 4-plex in L.A.

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

Hello, I'm trying to look into the possibility's for house hacking in Los Angeles, CA. This property is a 4-plex with two 2+1 and two 1+1. I know the area is not ideal for investing, and the numbers i'm getting seem a little to optimistic. The areas I am most concerned with are the loan fees, the total gross rent, and the utilities (or lack of). Again any info or insight as to what might be wrong 

Your report has some huge problems in it. First, the rents that I'm seeing on the Redfin listing are $4,005, far less than half of what you've got. If you were to get all the units vacant, renovate them and rent them ($200,000 in repairs) you could expect to get more like $7,000/mo. I don't know where you got $8,400.

Second, monthly expenses in LA are basically never 50% of gross income. They might be that high in a poorly managed building with master meters, but the rents are a lot higher than other places so the expense ratio falls.

For an apartment building here you need to build a pro forma with actual expenses for utilities, property taxes (1.25% of purchase price), insurance, etc.

With a rent controlled building you need to know that you may or may not be able to get the unit vacant. If you do, it will probably cost you money in a cash for keys deal. Then you have to renovate the unit. It's expensive and you need to have a lot of cash on hand and then refinance afterwards. If you don't fix up the unit then there is the chance that the next tenant could get in the unit and not leave for 40 years. If that happens, the extra $400/mo compounding at 3% per year is a lot of money left on the table.

Thanks Seth, I found the rent on Zillow Rents (Rentometer was acting up) but though it looked suspicious. As for the utilities I've been hitting a wall trying to find average costs for the area, the county websites seem to avoid listing actual numbers. Do i just need to call the utility's department for that area and ask direct or am I just not searching correctly. 

Next the monthly expenses. I'm assuming your referring to the fixed and variable land-lord expenses, and that you are saying that I have over estimated the monthly expenses despite not having any utility's in the report.

Finally With California being a rent controlled state, would it be easier for someone of my level to try and find a single family house with an extra room or two and Airbnb them?

Thanks for taking the time to respond. 

Originally posted by @Corey Knauss :

Thanks Seth, I found the rent on Zillow Rents (Rentometer was acting up) but though it looked suspicious. As for the utilities I've been hitting a wall trying to find average costs for the area, the county websites seem to avoid listing actual numbers. Do i just need to call the utility's department for that area and ask direct or am I just not searching correctly. 

Next the monthly expenses. I'm assuming your referring to the fixed and variable land-lord expenses, and that you are saying that I have over estimated the monthly expenses despite not having any utility's in the report.

Finally With California being a rent controlled state, would it be easier for someone of my level to try and find a single family house with an extra room or two and Airbnb them?

Thanks for taking the time to respond. 

 In that neighborhood a renovated apartment will rent out for about what Section 8 pays... you can find that information online.

Utilities. You need to triple check what is metered. Typically in a 2-4 unit building the water will be master metered. Once you replace the faucets/showerheads/toilets and lock the hose bib your water will run about $25/unit/mo. Trash is included in the tenant power bill. Usually buildings have individual electric meters (but check anyway).

I recommend looking at buying a house and adding an ADU in the backyard. The numbers are a little better if you buy a gut rehab 2/1 and make it a 3/2 with a 2/2 ADU in the backyard. That's what I should have done with my current project.

also,  Los Angeles is HUUUUGGGGEEEE! There are identical square foot, type, amenity places in Los Angeles that can rent for $600-2000 month in Watts or South Central, and then $1600-6000 in Hollywood or West LA. I often see impossible pro-forma numbers, that manipulate this reality.

5 miles can be a world of difference as far as potential tenant pool, too.

electric can vary depending how close to the beach, it can be 10-15 degrees cooler in the summer when you are 2-3 miles or less from the beach 5-10 degrees cooler 3-10 miles from beach, and maximum hot summer further inland... so air conditioning use can vary  depending on this.... also, if the heat is electric vs natural gas and the stove too, since NG is much cheaper than electric.

that's my 1.5 cents

Thank you for the advice, and sorry for taking so long to respond I'm currently getting up to speed in a new job and trying to find a more permanent solution for housing rather than my car and the occasional couch. 

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