Who buys multifamilies in Los Angeles (Santa Monica, etc)?

Question

Hi all!

I live in Santa Monica, a city where cap rates are typically under 5%, so my strategy is to invest out-of-state. However, I recently got my RE license and want to start working with LA investors but WHO are buying these low cap rates? Certainly someone is but what is their profile? Seeking appreciation?

Thanks for the insight everyone!Amy

Connor Wingfield · Answer

Hi Amy,

I work as an architect in Santa Monica. We get a number of investors looking to add value to properties on the west side of LA.  Generally we see people who are developing and can afford to wait for permitting and or variances to zoning (split lots, extra sqftage etc). However, I've only been on the design and planning side. I have been looking for good success stories that explain the numbers in more detail, if you find some please share!

Matt R. · Answer

@Connor Wingfield Sure, here are two recent examples I mentioned above. First the live in quad. Actually this is a killer front house (craftsman) with triplex in back. The purchase price was around 1.3 mil. This was a backup offer and lucky for him the first offer failed. The front house alone is now valued over a mil. This is about 11 blocks from the beach in a fast upscale transitioning street. Bay St. So he rents out the tri in the back and even the garages/carports. This added garages rental portion was after he purchased. I rent the gated carport for my surf biz. He has been doing basic reno to the front house and improved the exterior of the triplex part. His equity gain in 24 months is over $500,000. The cash flow is positive when considering the front house would rent near 4- 5k per mo and account for that reality.

The San Vincente multi is a OPM syndication with a longterm hold. They are improving the property and the equity gain in 24 months is well over one million on paper. One could have got into this syndication for as little as 20k. There is about an 8% annual return and they expect everyone to double to triple investment when they sell in 7 to 10 years. There are no guarantees and this is possible if everything keeps going the way it has.

Ali Boone · Answer

Thanks! :)

Amy Wunderlich · Answer

@Ali Boonesorry I forgot to tag you in my response!

Amy Wunderlich · Answer

@Matt R. Hi Matt! Thanks for the welcome and your insight. I had to believe there was a ton of, perhaps different, investment strategies under the works in SM.  I see you are working on some yourself with SM Invest so perhaps there could be a meeting of the minds :)

On another topic, I'd like to connect with you on your surf lesson biz!

Matt R. · Answer

@Amy Wunderlich Welcome to BP! The folks I know who buy or bought in Santa Monica are typically the most experienced and sophisticated investors. Although everything from beginner quadplex house hacking (live in) to San Vincente Blvd Multi syndications are happening so all levels exist in Samo. Serious value adding is what I have seen the most of either way.

Amy Wunderlich · Answer

Hi Ali

Thanks so much for your insight. You may have hit the nail on the head regarding in-state primaries and out-of-state investments. Seems to be what you're also capitalizing on via Hipster Investments? I've actually been following your "What's Available Wednesdays" for months now and love what the company stands for!

Amy

Ali Boone · Answer

Hey! I'm next door to you, in Venice. you're finding  cap rates above 0 in Santa Monica? That's impressive! As far as who is buying them... a) flippers (if app), b) people who are solely banking on appreciation potential, c) people who have no idea how to determine cash flow or what it is, d) primary homebuyers.

I'd say your best bet for being an agent out here would be to focus on the primary homebuyers. They are willing to spend more, will spend more, and there are probably more of them than investors. The investors will be looking for a deal or have their own off-market contacts if they are really good.

If you are an agent though, you can also work that into out-of-state properties! Maybe do primaries here and investors out there? That'd be great bang for your buck!

Who buys multifamilies in Los Angeles (Santa Monica, etc)?

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