All Forum Posts by: Moses Kagan

Your best bet is to drive around looking for buildings undergoing renovation, then go inside and meet the contractors. 

A word of caution, though: If you ask a contractor if he can do something, he will almost always say "yes". Demand addresses of previous projects and contact info for previous customers and ACTUALLY FOLLOW UP AND CHECK THEM.

1. If / when you are ready, you can use the Ellis Act to evict the tenants. Depending on age / income, you're looking at a few months to a year and payments of $8-19k / unit.

2. Developers will look at the per unit price of the land, but also qualitative factors like lot configuration, access to alley(s), etc. Legally, the duplex land could be 9 units by right, so you're looking at $72k / unit (assuming you can fit all of the parking). Whether that's a good deal depends very much on the neighborhood.

3. I think construction is more like $200 / sq PLUS whatever you're going to pay to build the on-grade garage area. 

Three things to consider:

1. Pls do not price "predicted appreciation" into your deals. This is a recipe for disaster; anyone who claims he can accurately predict appreciation is lying to you. Multifam is about trying to pay a reasonable price for a stable cashflow. If you invest in improving areas, you will very likely see appreciation in excess of inflation over a sufficiently long time horizon. But you should not count on it to make your deals work, because prices can go down as well as up.

2. You have to price in the implied rent on the unit you will occupy. In other words, if you're buying a 4plex with four 2 bed / 1 bath units, three are rented for $1,500 and you are planning to live in the fourth, you have to put an implied $1,500 rent for your unit into your number, too. Why? Well, you are receiving the benefit of housing worth $1,5000, so you need to take that into account in your return calculations.

3. For FHA deals, you can live with a much lower cash-on-cash return than you can with conventional deals. The reasoning is as follows: Your loan will be large relative to the purchase price (as much as 96.5%); therefore, you will be retiring a sizeable amount of principal with each payment, relative to your (small) downpayment. So, if you can get a deal to break even, you're doing ok.

I mis-typed... Not $2,000 month. If I had to guess, I'd put insurance in the $3000-3500 / year range.

You can and should ask the seller for all utility bills. However, you should not rely on what he tells you. Instead, you should: 1. Count water, gas, electrical meters at the inspection; and 2. Call all of the utility companies and ask.

In general, you should create a spreadsheet which you fill out for each deal before making the go/no go decision.

Is the property delivered vacant? If not, and this is a rent control area, you need to budget to relocate the tenants.

Concerned your insurance estimates are low. Regular insurance alone on a property of that value can easily be $1500-2000... and, if you're in a FEMA flood zone with four structures, I'd expect you'll end up considerably north of $2,000 / month.

Have you checked on the utilities? In LA, for a multifamily dwelling, it's very unusual for tenants to pay water / sewer... that's usually on the landlord.

Overall, I think the yield is sub-par. On the other hand, large lots with (partial?) commercial zoning near the beach are probably good bets over time. So, I think it's not a crazy deal. But you should get very comfortable with the rents / expenses... it's ok to do a deal with a low yield, but you want to go into it with your eyes open.

Am not an accountant, so please don't rely on this advice. 

That said: You can write off 1/27.5 of the value of the structure (but not the land!) against your income each year (until you've owned the property for 27.5 years).

So, if you bought the property for $1MM and the land is worth $500k and the structure is worth $500k, you can depreciate 500,000/27.5 =~ $18,200 per year.

That means that first $18,200 is tax free.

The most important thing to remember is that everything you do needs to be justified by the economics.

Do not get carried away and try to make this into the Taj.

For every dollar you spend, you need to consider the marginal return. In our business, where we either sell or refi the properties post completion, we use a simple GRM test:

• We want to be all in for something like 10x annual rent (10x GRM)
• So, if we are considering spending $5,000 for something (say, adding a bathroom), it needs to increase the rent by $500 / year or more (ideally more!).

Obviously, things like re-wiring don't add much, if anything, to the rent. So, the more cosmetic improvements (like adding washer / dryer or putting in hardwood) need to be MORE accretive (eg need to come in at, say, 5x GRM or something).

Bottom line: Unless it's a major system (like roof, electric, etc.), do not spend money on anything that won't directly increase the rent.

Choosing a brokerage is an incredibly important step which should not be taken lightly. The reason is that real estate brokerage is all about your network. Once you start brokering, you will inform everyone in your personal network that you are now an agent and can help them buy and sell real estate. If the next thing they hear from you is "And now I'm switching brokerages", that is going to undermine your credibility and make growing your business much more difficult.

So, making the right choice up-front is critical. But how do you do that?

The answer is that you need to figure out what kind of an agent you want to be. There is a huge difference between residential brokerage, where you specialize in selling homes and investment brokerage, where you work with investors. Within the broad category of investment brokerage, you can specialize in 2-4 unit deals, larger multifamily, office, retail, etc.

If I were you, I would want to work with investors. Rich people who own investment property tend not to own just one. They transact a lot, and their deals tend to be larger in size (so the commissions are larger). Also, working with investors is a very good way to learn about how deals are structured, where the equity and debt come from, etc. Finally, rich people who invest in real estate are EXACTLY the type of people you will need to back you in your own deals.

Once you decide which type of business you want to do, then you should identify the brokerages that lead in that area. Meet with all of them and try to find the place that is going to offer you the best (1) training / mentoring; and (2) leads. It's reasonably likely this will be a smaller brokerage, because bringing along new agents is how smaller brokerages grow.

Hope this helps!

You should never, ever allow the contractor to pick finish materials... Otherwise, you will end up with units that look like every other unit in LA (awful).

All of your construction contracts should require the contractor to supply and install the generic stuff (drywall, etc.) but only install the finishes (which you purchase and provide).

Recommend All-Valley Washer Dryer. Do not use Dadson under any circumstances.

Finally, a word about laundry contracts: Many owners are hoodwinked into signing very long leases that are extremely difficult to get out of. You should absolutely not do anything longer than one year. If you do, you (or the person who buys your building from you) will likely find yourself paying the laundry company big money to get out of the lease.