All Forum Posts by: Jack Zhuang

Hello BP community. 

I am a foreigner that is currently looking to invest in the Los Angeles real estate market to hold for cash flow. I would appreciate any form of information regarding the current Los Angeles market regarding recommendation, strategies, real estate agents. 

I would also like to know if bank financing is available to foreigners and how would that work? If I choose to rent my real estate or eventually sell it, how would the tax work? Who can I consult regarding this matter. 

Thank you very much! Any help is appreciated.

Investors love fourplex’s because they are easier to finance. When you buy 1 to 4 units you can get loans that are lower down payment, reasonable interest rates and long term (I.e. 30 year loans). When you get to the 5+ unit sizes you have to get commercial loans which tend to have higher down payments and are short term loans (I.e. 10 year 30 year amortization with a ballon payment in 10 years).

If you come from a finance background or have previous real estate investing experience it may be worth it to go the commercial route. If you don’t have either of those experiences I would suggest you go the fourplex route. Less moving parts and it’s easier to find a good PM company that manages “residential” properties than small commercial multifamily properties. When looking at properties don’t just look at your cash on cash return but also look at the potential tenants of your rental home. You want to buy in the B neighbors and maybe the C+ neighbors. Better to pay a slight premium on a property with B tenants than C tenants. Trust me you will thank me later.

@Jack Zhuang One thing which has not yet been mentioned is the advantage with larger complexes to add value which will affect all tenants much easier. For example, if there is one or two entry points on a 16 unit, only one or two keyless fob system is needed versus 4-4 plex with say 8 entry points total. Or being able to add value or better present a nicer front communal area of a 16 unit, if present, which will affect every person entering the building versus having to add same value 4 times for each 4 plex. 

Vending machines in 1 easy location versus 4 locations, etc. This could be lumped into the economies of scale grouping, but worth the mention as the appreciation of the value add for the money spent is the main advantage. I like the book "Crushing It in Apartments and Commercial Real Estate: How a Small Investor Can Make It Big" by Brian Murray where he covers these advantages/disadvantages quite well.

@Jack Zhuang the main reason you should go with properties of 5 or more units is that they are valued by the net income they generate. Because if this, you can force appreciation by increasing your income, decreasing your expenses or a combination of both. 

We are in the process of adding $40,000 to our net income by renovating a 16 unit complex we own. At a 6% cap rate, that equates to adding almost 700k in value. 

Economies of scale are important, yet I have invested in many single family rentals.  I had superior performance with these types of investments - better tenants who stayed longer.

Four units are often bought by the smaller investor. Also, I believe they can be financed using conventional mortgages / FHA types of loans. So you have a different buyer pool. Also, these types of deals are more common on local MLS listing services. Larger buildings are often not listed on CoStar and Loopnet. Call some local commercial brokerages. It is common for them to not share their listings with outside brokers.

A larger building has the advantage of scaling your business.  But keep in mind that multi-family pricing is at a historical high;  I can't find many good deals.  I see many California people make the mistake of overpaying for out of state assets because they look cheap, compared to their local real estate.  California has a severe under-supply of housing stock.  

Since you are not a large landlord, both the four units and larger buildings are reasonable for your next purchase.  I'd focus on the market you want to be in and become an expert.  And then find superior product within that market.  

@Jack Zhuanghi Jack.

Congrats on becoming a pro.

We have both duplexes and multi family out of state. We were excited to get into multi family and found a 5 unit and a 24 unit. We also have 6 duplexes out of state. I’d say it depends on your property manager and the deal. There is definitely more to learn with multi family and the loans are different. I think it’s nice to be able to stick w/ conventional loans. We are currently doing better w/ the duplexes. It’s all in the deal you get. We have a lot of transition in the multi family. Depends on the area as well. I would not recommend a lower class part of town in either type property. Learn the area!

@Jack Zhuang first of all residential (4-plex) and commercial properties are evaluating differently. 

Price on Residential property is based on comparison of similar properties in the area, where is Commercial properties evaluated based on income it produces and Cap Rate in the area. 

If the 4-pieces locates right next to each other and can be purchased or sold as a package it would be the same as commercial property. 

If your question is more on how to start investing, go for the biggest property size you can afford. it is important remember to keep some cash in reserve as with any new purchase you may need to do some repairs in the first few months. 

Let me know if that answered your question, or if you want to clarify something. 

@Jack Zhuang - If you're pulling out 500k you could invest in some larger deals as a passive investor to learn how multifamily at scale works while still getting 7-8% preferred return and a piece of the upside.  You could also help a more experienced investor bring down their deal by providing capital for the general partnership.  In this way you could also get active experience and higher returns (a portion of the general partnership in addition to your capital contribution).  500K could be spread over 5-10 multifamily investments with a combined active/passive involvement.

All my investments are out of state as well.  Feel free to message me if you want to talk about that specifically.