Understanding My Investor Clients (especially in SoCal)

[Nihaara Sosha]

Particularly in the hot and supply-tight Greater Los Angeles region, how do you decide whether to buy investment properties, and how do you decide to pass? Obviously, "the numbers have to work" -- but what does that that equal out to?

Are there risks you face that your property seller's and wholesalers don't usually factor in?

[Jonathan Taylor]

@Nihaara Sosha Its hard to give you an exact number to go off of but the best way to know if a deal works from an investment standpoint is basic. Can the rents you collect cover the debts you'd have on the property once it is stabilized? Does the property need a significant amount of renovation? If so, how much would it cost, can it work with the purchase price and timeline needed to complete the reno? Is it rent controlled, how much in tenant buyout will you need?

My experience with SoCal wholesalers are their numbers are wildly inaccurate. For example, I got a listing today for a 4 unit MF in a rent controlled area. Their pro forma rental numbers are $300 over the rental comps I ran AND the property is fully occupied. Its costs roughly $22,000/tenant to buy them out (according to HCIDLA 2020/2021 cash for keys guidelines). None of these numbers were included (no surprise there). It was only 15% 'below market' but when I did the math, anyone who knew anything about the market knew it didn't work for the cost it will take to bring this property back to market. 

Does that help?