All Forum Posts by: Christian Mkpado

@Justin R. Do you need to manually read those meters, or is there a remote option available? Those meters sound great if I can read them in a wireless manner, but would be a hassle to travel to properties once a month to get an accurate reading. 

@Caleche Ryder

I assume you are talking about the IRS Home Office Deduction? There are two methods that one can use when claiming this deduction, see IRS website below:

IRS Home Office Deduction

IRS Home Office Deduction (Simplified Method)

If you are asking about a local restriction on space that must be used as home living space vs office space, I don't believe there is such a restriction. I know that Snapchat uses SFRs entirely as offices in Santa Monica and Venice. 

@Andrew Robbins Why do you feel that you need a new lease to sell the property?

The reason I ask is that your situation is not uncommon in the Los Angeles area for multifamily properties. The longer a tenant stays in a property the higher probability that over time the current landlord will lose the original lease. 

I invest in multifamily and apartment complexes with 5+ units in LA and consistently run into situations where an estoppel is required because the original lease can not be provided. In those situations, an estoppel is enough to ease my reservations. Basically, a tenant signed estoppel certifies that a set of terms (i.e. terms of the original lease) are correct and valid. 

I suggest you get the tenant without a lease to sign a new estoppel and provide this to any potential buyer. Furthermore, you can also provide the estoppel you received when you bought the property, assuming you still have it. Then, if the tenant later breaks the terms in the estoppel the new landlord will have the right to evict if necessary. 

As @Account Closed stated I would suggest consulting with a lawyer as I am not one, and my advice should be not used in lieu of legal counsel ;). 

Hi Chris, 

I would NOT try to rent the units out via Airbnb. You are opening yourself up to way too much liability. Below are a few snipits of information available on the LA Housing Website. I recommend you read this page (http://hcidla.lacity.org/Removal-From-Rental-Market-Owners) fully before you make a decision. 

• If the landlord intends to re-rent the withdrawn units, a Notice of Intention to Re-Rent Withdrawn Accommodations form (E-7) must be filed with HCIDLA. The landlord may not rent or lease any such unit, except to a tenant displaced from that unit, for a period of 30 days following the filing of the notice.
• Displaced tenants have a right of first refusal on the unit from which they were displaced for a period of 5 years after the withdrawal of that unit from the market, provided they request the offer in writing within 30 days after the landlord has filed the Notice of Intention to Re-rent with HCIDLA.
• If a withdrawn rental unit is returned to the market within two years of the date of withdrawal, the landlord is liable through a civil action for both actual and exemplary damages to any tenant displaced from that unit. In addition, the City may also initiate civil proceeding for exemplary damages.

A few months of income is not worth the legal and monetary repercussions that may arise if you try to re-rent the units. Just wait a few months, develop the project and enjoy a brand new, non-rent controlled building.

Best,

Christian M. 

@Matt Kautz

With that price I was thinking this was an Silver Lake / Echo Park / Atwater Village property. I think you need to get sharper and more confident in your numbers before you pull the trigger. I would suggest doing the following: 

1) Put together a spreadsheet of at least ~30 on market duplexes in the 90039, 90026, 90027, 90029 area codes. If you can find more than that, even better. Redfin is a good source for data if you do not have access to the MLS, I find Zillow does not usually have info on current rents or expenses. I add the variables below in my spreadsheet:

Raw Variables:

• Asking Price
• Building Square Footage
• Lot Square Footage
• Current Rent Roll
• Expenses

Calculated Variables:

• Price / Unit
• Price / Building Square Footage
• Price / Lot Square Footage
• Down Payment Required
• Cap Rate
• Gross Rent Margin
• Principal 
• Taxes 
• Insurance 

After I get all of these in my sheet I look at key variables like Price / Building Square Footage, Cap Rate and Gross Rent Margin. You should be able to see very quickly which properties are a better value. This is a much better method than just eyeballing comps. 

2) Get sharper on what the market rents are in those zip codes. Go on Craigslist, Zillow, PadMapper, HotPads and WalkScore to see what the market rents are in the property area. You made a comment about how your "aggressive rents are much further above where the rent are now". I would argue that the current rents do not matter at all. The only variable that matters is the current market rent in that area (i.e. the property's potential). Again, make a spreadsheet with variables to compare other rentals to yours. 

3) Scheduled time to view rentals that are currently on the market in those areas. See the property in person. Take note of the price, unit amenities, finishes, square footage, wakability of the area, etc... This will help you understand your competition and what level of rehab the your units will need to compete. Also, this will give you more confidence in your rent estimates. 

Note: If this property was built before 1978 there is very good chance it will fall under LA Rent Control. If this is the case you can only raise rents by 3% a year which may kill this deal for you. There is a way around it however... If you decide to move into the building you can kick out one of the tenants for the unit you will be living in, furthermore you can also kick out the other tenant for a family member to live in the other unit (they must occupy the unit for at least 2 years before you rent it on the open market again). You will still need to pay the tenants you are moving out a relocation fee which ranges from $8K - $18K depending on a number of factors (e.g. age, income, children, etc...) although this sounds expensive if the rents are far under market it can actually be very good deal (at a 5% Cap $1K in increased rents is worth an extra $20K in property value). If you use this strategy you could get rents up to market in ~2 years (and pay money towards a mortgage instead of rent). 

Hope that this helps!

Best,

Christian M. 

@Matt Kautz

Could you give more information on the location of the property such as a street name or zip code? That would help in determining the quality of the deal.

Given my knowledge of Los Angeles and the areas that would command ~$1M for a duplex, your baseline rents seem on the lower end, especially if you are going to put in ~$25K in to each unit. In my opinion this indicates 2 possibilities: 

1. The purchase price is too high, and this is not a good deal. Could post your spreadsheet of sale comps in the area? This would help in determine if the purchase price the seller is asking is reasonable? Is the property off market or is it listed on the MLS? If this is an off market deal, make sure that you are shaving at least 6% off what you think the property would be worth on the open market as this is what the seller would have to pay a RE agent if they did list. Also, seeing as you said the seller needs to unload quickly make sure you shave off a few more percentage points given you are willing to move quickly.
2. Your rent comps are too low. Could you please post what you are using as rental comps? Could you also post the Sq. Ft. of the units? Your aggressive rents seem more in line with what I would expect to get for a ~$1M duplex in a nice area of Los Angeles. 

A final parting thought: There are areas in Los Angeles where it is almost impossible to cash flow given the strength of the market and the amount of buyers who are buying purely on appreciation potential and don't care about cash flow. If this is one of those areas, you might consider flipping this deal. That being said, if this is in a great area and if you can get the numbers to break-even, I would much rather hold a break-even piece of RE in a great part of Los Angeles, CA than a cash flowing property somewhere else in the country. In the long run, strong markets (e.g. Los Angeles, San Francisco, New York) have outperformed the greater United States when you account for cash flow and appreciation combined. A word of caution: Do not purchase the property if you will need to dump cash into it every month, this will hamper your ability to scale your investing going forward. If you can answer the few questions that I posed above, I may be able to give additional thoughts. 

Best,

Christian M. 

Hi BiggerPockets Community,

I have been utilizing BiggerPockets for the past few months while building the knowledge to start my own investing career. I feel it is about time that I come out of the shadows and introduce myself! My business partner and colleague @Glen Gunawan have started a real estate acquisitions and investment firm based in Los Angeles, CA. We are open to suggestions and comments as we are new and looking to improve our strategy as we push forward. Below is a short introduction into what my partner and I aim to achieve over the next ~9 months:

Direct Mailing Campaign:

We will start sending out mailers next week on 9/19. We will mail a list of approximately 1,500 owners once a month for 9 months. Our mailers will cycle through the following mail types: professional letters x 2, handwritten letters x 2 (not yellow letters; cream colored letters, not lined, with a logo / letterhead), postcards x 2, professional flyers x 2, zipletter x 1. We have decided on the above mailers based on research indicating that multi-family / apartment owners in Los Angeles, CA tend to be more sophisticated and respond better to more professional mailers. We will also experiment with cold-calling the more attractive property owners on our list.

Property Criteria:

We are focused on acquiring 4 - 12 unit multifamily / apartment complexes in Los Angeles, CA. Geographically we are focusing on the area north of Exposition, east of S La Brea, south of the Hills and west of the Downtown. It is a large area, but we are casting a wide net to increase our chances of success.

Investing Strategy:

Our primary purpose of undertaking this direct marketing campaign is to acquire properties for our own portfolio. We are aiming to acquire assets that have deferred maintenance, under market rents, and/or poor management. We will force appreciation through rehabbing units, bringing rents up to market and controlling expenses. We are aware of LA rent control and will be paying tenants to move out when necessary. After we have re-positioned the property we will refinance to pull out equity and repeat the process.

We plan on using the BiggerPockets platform to learn, grow and connect with other RE professionals:

• Flippers / Rehabbers / Investors: Given that we are undertaking an extensive marketing campaign we will most likely have deals that don't fit our criteria or have too many deals to execute ourselves. Although we cannot execute on these deals that does not mean that they will not work for someone else!
• Real Estate Agents: Many of our leads may be more interested in selling their property on the open market. We hope to connect with local real estate agents that specialize in multifamily / apartments / commercial assets for any deals that we cannot close or wholesale ourselves.
• Lenders: We will need various types of financing (hard money, private lenders and bridge financing) while executing deals. My partner and I have stable incomes and will be able to support large interest payments through the duration of the project even without income from the subject property.
• Equity Partners: Although we would like to execute on every deal that we source, it is inevitable that we may run into situations where we do not have the financing available to undertake a high cost project with great potential returns. In the event of this situation we would rather share a great deal rather than risk letting it slip away.

I’m looking forward to embedding further with the BiggerPockets community in the future and I hope to connect with many of you soon. We will continue to update the community on our progress as we begin this journey. Happy to clarify any questions anyone might have.

Best,

Christian M.

Hi BiggerPockets Community,

I have been utilizing BiggerPockets for the past few months while building the knowledge to start my own investing career. I feel it is about time that I come out of the shadows and introduce myself! My business partner and colleague @Glen Gunawan have started a real estate acquisitions and investment firm based in Los Angeles, CA. We are open to suggestions and comments as we are new and looking to improve our strategy as we push forward. Below is a short introduction into what my partner and I aim to achieve over the next ~9 months:

Direct Mailing Campaign:

We will start sending out mailers next week on 9/19. We will mail a list of approximately 1,500 owners once a month for 9 months. Our mailers will cycle through the following mail types: professional letters x 2, handwritten letters x 2 (not yellow letters; cream colored letters, not lined, with a logo / letterhead), postcards x 2, professional flyers x 2, zipletter x 1. We have decided on the above mailers based on research indicating that multi-family / apartment owners in Los Angeles, CA tend to be more sophisticated and respond better to more professional mailers. We will also experiment with cold-calling the more attractive property owners on our list.

Property Criteria:

We are focused on acquiring 4 - 12 unit multifamily / apartment complexes in Los Angeles, CA. Geographically we are focusing on the area north of Exposition, east of S La Brea, south of the Hills and west of the Downtown. It is a large area, but we are casting a wide net to increase our chances of success.

Investing Strategy:

Our primary purpose of undertaking this direct marketing campaign is to acquire properties for our own portfolio. We are aiming to acquire assets that have deferred maintenance, under market rents, and/or poor management. We will force appreciation through rehabbing units, bringing rents up to market and controlling expenses. We are aware of LA rent control and will be paying tenants to move out when necessary. After we have re-positioned the property we will refinance to pull out equity and repeat the process.

We plan on using the BiggerPockets platform to learn, grow and connect with other RE professionals:

• Flippers / Rehabbers / Investors: Given that we are undertaking an extensive marketing campaign we will most likely have deals that don't fit our criteria or have too many deals to execute ourselves. Although we cannot execute on these deals that does not mean that they will not work for someone else!
• Real Estate Agents: Many of our leads may be more interested in selling their property on the open market. We hope to connect with local real estate agents that specialize in multifamily / apartments / commercial assets for any deals that we cannot close or wholesale ourselves.
• Lenders: We will need various types of financing (hard money, private lenders and bridge financing) while executing deals. My partner and I have stable incomes and will be able to support large interest payments through the duration of the project even without income from the subject property.
• Equity Partners: Although we would like to execute on every deal that we source, it is inevitable that we may run into situations where we do not have the financing available to undertake a high cost project with great potential returns. In the event of this situation we would rather share a great deal rather than risk letting it slip away.

I’m looking forward to embedding further with the BiggerPockets community in the future and I hope to connect with many of you soon. We will continue to update the community on our progress as we begin this journey. Happy to clarify any questions anyone might have.

Best,

Christian M. 

@Glen Gunawan