All Forum Posts by: Moses Kagan

In that area, you will find it almost impossible to find a deal that makes sense.

What do I mean by "makes sense"? I mean that your total out of pocket expense to live in whichever unit you select will end up being considerably more than what you would pay to rent that unit on the open market.

If you are willing to do a deal like this, then you might as well just speculate on a single family home.

If you actually want to do a good multifamily deal, then you need to try to keep the GRM to 11x or under.

Shameless plug: Check out Kagansblog.com for much more information on buying LA apartment buildings.

@Talha K.: You're at 10.5x grm, meaning you'll have a pretty decent yield. And you're at $204 / sq ft, which is about what it would cost to build a building brand new if someone gave you the land for free.

Obviously I don't know the address or the condition of the property, but this looks like a sensible deal to me. 

Bravo!

1. Whether it's an LLC or not will have no impact on your taxes. An LLC would just flow any profit or losses through to you on a K1, anyway.

2. The reason to use an LLC is for liability protection. If you hold the property in an LLC and (this is important) actually use the LLC (have a bank account, have tenants check written to LLC, etc.), then, in the event of something going wrong with the property, the LLC gets sued, not you.

3. You will not be able to use an LLC to close the deal, because your lender will require the property to be in your name. However, you can quickly and easily move the property into an LLC immediately after closing... cost will be in the range of $500-1500.

4. The way you are describing the property makes me nervous. "Gross income" is the rent before any expenses. If you let me know the following information, I will tell you whether it is a good deal: Price, total annual rent, sq ft of structure, year built, and sq ft of lot. (I've brokered / renovated / managed a ton of 4plex deals in LA).

*I'm not a lawyer and the foregoing is not legal advice.

For transactions, I've used Michael Roberts in Santa Monica. 

He's a solo practitioner, so his rates are lower than what you would pay for a comparably experienced attorney at a big firm. He's also very smart / experienced and has good judgment. 

Crucially, if you ask him to do something he thinks you could do with a little direction, he will always suggest you go that route, which keeps bills reasonable. Of course, if you ask, he'll do everything.

PM me for contact

Agree with @Joel Owens You should follow the management company's advice. I would add that, if you have multiple unit types, you should try to ensure you renovate one of each. That will give you a sense for the variation in rents and allow you to plan the next phase for optimal returns.

If all of your units are pretty much the same, here's another trick: Try varying the renovation a bit (eg different colors, flooring, etc.). You may find that one style is much more popular than the others. Then you can use that style for the rest of your renovation. We've successfully tested flooring, ceilings and appliance colors like this and it can make a surprising difference to achievable rents / leasing velocity.

With the experience you have, I think you should immediately quit managing this stuff yourself. Yes, the cashflow will suffer. But what you've done is basically create for yourself a second, relatively low-paid job.

You should delegate this low-paid work to someone else and focus on raising equity from investors and doing (much) larger deals.

There are plenty of people who have $20-250k lying around earning nothing who would be very happy to have an able, trustworthy guy invest it for them in cash-flowing real estate.

The set-up is not that difficult; you're probably looking at $10-20k in legal fees (less after you do it the first time). 

Taking, say, 20-30% of the profits on much larger deals will earn you a lot more money than what you are doing now. And there is effectively no limit on how large you can grow, because you'll be focused on the stuff that adds value (identifying deals, raising money, closing) and not on the menial stuff.

(In case you're wondering, this is exactly what I've done with Adaptive Realty in LA.)