Need advice for a great triplex opportunity

9 Replies

Hi BP,

I have a great opportunity to purchase an off-market triplex in Inglewood CA at a very low price and would love some feedback. I'm hoping to BRRRR this property, but I'm not sure if it makes sense yet. Here are some details:

Purchase price: $550k

Estimated rehab: $20k

ARV: $900k

Projected gross monthly rent: $5,700

Permanent financing details post-rehab:

$580k loan amount

5% interest rate

$3,886/mo PITI [$3,114 P&I, $573 taxes(1.25%), $200 insurance]

$1,881/mo expenses (8% vacancy, 8% maintenance, 7% CapEx, 10% PM)

Total Cash Flow: -$67/mo

All utilities are metered separately and paid by tenants. It seems like a great deal, but from my analysis it doesn't pencil out as a good cash flowing rental. Is my budget for expenses too conservative? Not including vacancy, maintenance and CapEx it would bring in around $1,200/mo and I can't see those expenses running that high, but it seems like most investors on BP estimate these 3 expenses at around 23%.

If I can't make it work as a rental I think it'll still be a great flip, but I really want it to work! Any advice would be greatly appreciated. 

Thanks! 

@Dennis M. It's a negative $67/mo. So yes, based on my analysis it's definitely not going to fly as a rental. I'm really just hoping someone can provide input on my analysis and budget for expenses to see if I'm being too conservative or not. 

@Kevin Luttrell , no way this works as a rental. 

No, you're not being too conservative with your numbers. Over time you will likely spend 23% of GSR on CapEx, Repairs, and Vacancy. You are forgetting water/sewer and lawn care.

I don't like using a percentage to estimate taxes. You have to actually look this up. Also, taxes are going to go up after the renovations, so plan for that.

As a flip, sure. Could be great. Make sure you're darn sure about that ARV and reno budget. Adding $350k of value with only a $20k renovation sounds ludicrous to me, but stranger things have happened.

@Jaysen Medhurst Thank you very much for the input. The water/sewer is metered separately and I was conservative with the taxes. Current taxes are $2,000/yr (current owner has held on to it for a while) and in Southern California generally the taxes get reassessed at the new purchase price when there's a change in ownership with the tax rate varying between 1%-1.25%. 

In California (and SoCal specifically) it's extremely hard to cash flow. It seems like the play here, if I hold on to it, would really be appreciation - Inglewood is becoming more and more desirable and values are shooting up. 

I'd really hate to bank on appreciation and prefer to invest for cash flow, so I guess the decision I have is whether to make a quick buck on the flip or bet on the appreciation.....

@Kevin Luttrell 8% vacancy seems high to me but I don't know that market. Also aren't the Rams building their new stadium right there in Inglewood? Numbers don't lie if the numbers are right then yeah this is not a great deal. Also how did you figure 900k ARV that seems high. If you see comps that support it then you would be fine but make sure you could get a bank to loan at that value or you will end up with cash in the deal and no cash flow.

@Kevin Luttrell Yeah I definitely wouldn't hold that property lol. All that equity is gonna go buh bye if the market finally does what it's supposed to in Cali. 

But it's a sweet flip if you think 20k will really get it to appraise at 900! I know appraisers don't love seeing a previous purchase price of 550k, then giving you a valuation of 900k with such a short window of time between the two.. but I don't know appraiser behavior in your market. And in inglewood, they'll probably work real hard to find low supporting comps (which may exist since it's a working class neighborhood).

My assumption is, if it's really only in need of 20k of work, it's probably worth a whole lot more than 550k today. I've wholesaled a lot of small multis, and I would speculate that if it's really worth 900k after that little work, I have to imagine someone would be willing to pay 700-750 for it as-is, or more if you have the right pool of buyers at your disposal. I would try to slang this thing for 800k as is and not hold it! I don't know how feasible that is.

You've got a lot of options with a 350k equity position :) 

I would agree, it sounds like a better Fix/Flip than BRRRR opportunity. Either way however, it sounds like a great deal. Inglewood is definitely an interesting area to keep an eye on with the Hollywood Park development coming soon.

If you don't end up buying it, I have investor's that may be interested.  

@Elliott Elkhoury You're absolutely right about the appraisal, they definitely don't like valuing a property significantly higher than the purchase price in a short period regardless of what the comps show. Wouldn't matter for a flip, but as a BRRRR it'd be a concern.

@Tyler Gibson  @Michael Carson Thank you very much for your input. Your comments got me thinking about running this as a short term rental instead of long term due to the proximity to LAX and the new Hollywood Park/stadium that's coming. I ran this through AirDNA online and they're projecting about $41k per unit in annual income as a STR...very interesting. That would be over $10k/mo in gross revenue, making this extremely profitable to hold. Gotta do some more research now!