All Forum Posts by: Seth Borman

 A three story apartment with 12 units, one stairwell and surface parking is probably the cheapest apartment product you can build and you can hit densities of 50 DU/AC with it if you have the right set backs and very little parking.

When you step up to four stories you need an elevator are often (but not always) stepping up to tuck under or garage parking.

So I don't see the upside.

You need to get tenant estoppels and leases before you close.

 It's about the system that you build. If your system is to install low flow shower heads in every unit you aren't going to save a lot of money towards cash flow, but you are going to increase the value of the portfolio. If you have a tech going to every unit when you buy it the marginal cost of changing the showerhead is minimal.

 I don't have the data on how much tenants use and for what. I know the averages across the portfolio. $208 was the high and usually meant there were huge problems such as bath tubs running 24/7/365.

The average at acquisition was about $60. 

This being LA you often have a lot of people in the unit. A studio might have 5-7 people living there. 

That doesn't include the savings from buildings that use a common water heater, which is very common in 5+ unit buildings.

 In my area water bills run as high as $208/unit/month. Stabilized properties average $25/unit/month. What makes the difference? Fixing leaks, changing showerheads, and changing toilets.

Also, that $20 is a $400 improvement at a 5% cap, so there is that.

Following!

@Josh W. Michael made some good points about your assumptions.

In my limited experience the 50% rule doesn't apply to repositioned fourplexes in Los Angeles. Rents are so high that expenses are crowded out. Your own calculation reflects that. Also, you have expenses pro forma'd at a 3% increase YOY but your largest expense will be property taxes and they will go up at 2% each year. It's possible to "grow into" an investment.

The rents that you are talking about (I assume for three units) are stellar so the $1.2M assumption would seem to be low. The rehab amounts that you are posting are enough to gut rehab three units so you should be getting top dollar (whatever that means for the neighborhood).

The biggest problem I see is the low down payment.

To be clear, all four units are vacant? What neighborhood or cross streets?

 When you do your DD on the building you need to go into every apartment and talk to every tenant. Do they look like they would be willing to move? How clean is the place. Have they done work on it to fix it up? Do they have pictures on the wall from their kids Naval Academy graduation (saw that in Boyle Heights).

If you think they can be moved, decide how much it will cost. I've heard of people taking six figures. Where I was doing this we budgeted $3,000-$10,000. Sometimes you will be right and sometimes wrong. One building we bought with two vacancies (of ten) and a tenant passed the day prior to closing. Other buildings had tenants that refused to even talk about leaving.

Buyouts are the way to go. There are people that specialize in them.

When you get the unit vacant you can renovate it to get it back on the market at peak rents. It's also a good time to look at reconfiguring the floor plan to add an extra bedroom.

Don't make the place too comfortable because you only want the tenants to stay for a few years.

As a rule of thumb, in Los Angeles County you're either going to be happy to get Section 8 rents  or charging so much more that they aren't even going to call you.

Not something I would worry about.