All Forum Posts by: Seth Borman

 In that neighborhood a renovated apartment will rent out for about what Section 8 pays... you can find that information online.

Utilities. You need to triple check what is metered. Typically in a 2-4 unit building the water will be master metered. Once you replace the faucets/showerheads/toilets and lock the hose bib your water will run about $25/unit/mo. Trash is included in the tenant power bill. Usually buildings have individual electric meters (but check anyway).

I recommend looking at buying a house and adding an ADU in the backyard. The numbers are a little better if you buy a gut rehab 2/1 and make it a 3/2 with a 2/2 ADU in the backyard. That's what I should have done with my current project.

Your report has some huge problems in it. First, the rents that I'm seeing on the Redfin listing are $4,005, far less than half of what you've got. If you were to get all the units vacant, renovate them and rent them ($200,000 in repairs) you could expect to get more like $7,000/mo. I don't know where you got $8,400.

Second, monthly expenses in LA are basically never 50% of gross income. They might be that high in a poorly managed building with master meters, but the rents are a lot higher than other places so the expense ratio falls.

For an apartment building here you need to build a pro forma with actual expenses for utilities, property taxes (1.25% of purchase price), insurance, etc.

With a rent controlled building you need to know that you may or may not be able to get the unit vacant. If you do, it will probably cost you money in a cash for keys deal. Then you have to renovate the unit. It's expensive and you need to have a lot of cash on hand and then refinance afterwards. If you don't fix up the unit then there is the chance that the next tenant could get in the unit and not leave for 40 years. If that happens, the extra $400/mo compounding at 3% per year is a lot of money left on the table.

I work in South LA and I've not seen the stuff that you are describing. Lots of other crazy stuff, but not that.

What we're missing here is the fact that the land developer and the builder often aren't the same people. 2006 was the start of the housing crash as the large publicly traded home builders started to pull back in preparation for what they saw as a cyclical recession. A lot of lots went undeveloped around this time. There are still a couple dozen behind my childhood home, and there are newer developments around it that bypassed it completely.

It's entirely possible that the lots didn't get built for economic reasons.

I'm going to guess that this development is exurban and populated by starter homes?

Look at it this way, if you buy it for $30,000 and then tear it down you might actually save some money.

A duplex on an R2 lot requires four parking stalls, two of which have to be covered. An ADU and SFR on an R2 lot requires two stalls, which can be tandem and need not be covered.

Can you please point me to the municipal ordinance that requires owner occupancy in the City of Los Angeles?

No, state and local laws prohibit ADUs on a duplex lot (R2 in LA and LA County).

You can build an ADU and SFR on an R2 lot but you can't exceed two units.

In SF you can build ADUs in the nonresidential space of a 5+ unit building, but that is a different deal and I know very little about it.

LED lighting will have the quickest payback. If the HVAC is near end of life then the additional cost of efficiency is equal to the premium paid to achieve it. Most parts of the US require 13 or 14 SEER for new equipment and the existing equipment is often 8-10. New windows can help as well, especially if you are currently using aluminum sliders.

Los Angeles is a different animal. Small multis are going to be rent controlled and they are not for beginners. If you build an ADU and renovate the house, then rent the house out you can get a really solid position. The house is vacant so you can renovate easily and set the rent. In a nicer part of south LA it is possible to get a house for around $550,000 and rent it for $3,500/mo. More, if you do a high quality renovation. Build the ADU in the back for yourself and the house will cover PITI. You have no management costs, the utilities can be split so they pay that, and all you are left with is maintenance and capital expenses, which are mitigated by doing a quality renovation.

Mutual acceptance of the P&S is like... 10% of the way through closing. Most owners aren't going to let you tour the property, talk to the tenants or look at the financial data until you've got a deal started.