Off-Market Duplex Los Angeles -- Deal or No Deal?

[Peter Trettl]

Hi BP,

First-time investor, new to BP.

I've been searching for a Duplex/Triplex to be my first RE investment in Los Angeles. My plan is to purchase as Owner-Occupant (FHA), rehab and add the max number of ADUs, bring rents to market and hold. I work as an architect, and am very familiar with the value-add process, permitting and construction.

A potential deal fell into my lap and I'm wondering whether it's worth proceeding with.

Brief Summary:
The property was listed and taken off the market after it failed to sell for $720K. The owner informed a real estate professional friend of mine (who's company is managing the property), that he would absolutely sell if my friend could find someone willing to pay $660K. Comps for similarly sized remodeled duplexes with ADUs in the area clock in between $1.2M and $1.4M.

The Catch:
Property is RSO with both units occupied. Currently pulling in $2K rent combined. If the current rents are maintained, I'd be losing about $2400/mo with my mortgage, MI and taxes. I don't currently have the cash reserves for the significant relocation payments that HCIDLA will require. It also seems I'd be on the hook for them anyway, even if I manage to get an Owner-Occupy eviction. Plus...the eviction moratorium right now.

Unless the current owner delivered the units vacant, I really don't see any way this pencils out.
It's a real shame because I'm insulated from the mad bidding wars going on here and could actually pay a fair price.

Am I just in denial of the obvious at this point?
Or is there something I'm missing?

Thanks for your input!

[Jon Schwartz]

@Peter Trettl, hate to say it, but you're in denial of the obvious. The duplex is available for $660K because it has tenants paying a combined $2000/month. If the seller could vacate the units, he would, and then he'd sell the property for $1M.

Without a vacant unit for you to occupy, you won't get approved for an owner-occupant loan. With owner-occupant relocations on hold due to the moratorium, and you don't have a good path to getting this property with an owner-occupant loan.

Also, earnest question here: if you don't have cash for relocation fees, how will you get cash to renovate and build two ADUs?

Best,

Jon