Help With Analysis

[David W.]

Hello! 

I am going into escrow with a multi unit, two 2 bed + 1 bath, six 1 bed + 1 bath. located in . It has a rent roll of $16,000 per month. Price is $2,030,000. I am putting 33% down, 6.6% mortgage. Renters are all up to date and no missed or late rents. This offer would not seem attractive to middle America because it is not cash flowing as much but I would say this property will conservatively appreciate 5%+ per year. I own 2 sfr in LA and this will be my first step into multi. What do you guys think? 

[David W.]

I see a tumble weed and a turtle off in the distance crossing the sun scorched sand lonely road in the desert.  

[David W.]

Does anyone know where I can get some advice? Is there perhaps another forum that might be more active?

[Rick Albert]

The problem is there isn't enough information and everyone uses different metrics to determine a "deal."

1) What's the condition?

2) Rent controlled? That plays a role.

3) Where this gets complicated is you are doing commercial financing. It is 6.6% today, but who knows in five years. You have to account for that.

4) This is all about the rental numbers, and if this is subject to rent control, right now the max you can raise rent is 4%. With insurance costs going up, construction, etc., 5% might actually be high in your estimation. 

[David W.]

@Rick Albert thank you kindly for your response. I am entering escrow tomorrow and although I have reviewed all the various data from this property I am still "inexperienced" and we all know that although a buyer's agent has a fiduciary they are still going to have a monetary agenda so if something might be on the fence they will shine a positive light on it. That is just reality so I was hoping to find an outside thought on the deal. I know that is a lot to ask for but I don't have anyone else that is a real estate pro or has any experience with multi unit analysis. 

1. Property condition. Built in 1963 and requires soft retrofit aprox $100k (getting estimates this Friday). I have to find out with inspector(s) anything else but I was told there is no deferred maintenance and 6 of the 8 units have been remodeled. No roof issues etc. 

2. What was attractive about this property was that 6 of the 8 units are section 8 and all are 100% current. The property is owned by a company that does exclusively section 8 and I have been told their vetting is very thorough. With the socialist prop 33 that might be approved in November then section 8 is all the more attractive. 

3. 6.6% today but we all hope that the crystal ball will lower. I have no prepayment penalties at that rate and at that rate I will be positive cash flowing (not much but enough after expenses, vacancy rate, etc)

4. I would guess that a 3% max annual raise is more realistic because the socialists are tightening their grip on California and pushing for harsh laws to take control of properties etc. 

[Rick Albert]

To be honest if you can't rely on your agent, then you need to find someone else. 

A solid agent will understand that there is a financial gain, but this is a relationship, so if it isn't the right deal, they can be honest with you and you are more likely to use them again and refer. I've told clients not to sell before, and then a few years later we put it on the market. I've closed three deals with him and he referred me to someone where I closed another three deals. 

I've heard mixed things on Section 8. One thing to keep in mind is it is my understanding (you would need to verify) that you get one shot per year to increase rents, but they can say no. That means you may not be keeping up with inflation. 

[David W.]

Thank you Rick for your reply. Will call HACLA to verify all details 

[Sean O'Keefe]

Following - I'm based in California