Strategies to purchase 8 units in Long Beach, CA

[Lindsey Iskierka]

Hi fellow BP members!  

My name is Lindsey and I'm a Realtor and investor in Long Beach, CA.  My husband and I are looking for our next rental property and have a goal to purchase another fourplex in the Belmont Shore neighborhood of Long Beach, CA.  Rental demand is high here due to the proximity to the beach (just two blocks from the ocean), large university close by, the shopping and dining within walking distance, and the history and charm of the area.  Home values are high and rent rates are even higher.  

There are two fourplexes that just hit the market today; both priced at $1.3 million.  They are two buildings side by side and are mirror images of one another.  They're both for sale individually, but seller would prefer for both properties to go to the same buyer.  Each building brings in about $8,000 of rental income, so both  buildings would be roughly $16,000.  All units are currently rented with month to month leases and there is no deferred maintenance on the property.  Purchasing just one of these fourplexes at $1.3 million would be a great deal and it's in the price range that we are looking for.  However, purchasing BOTH and owning 8 units in Belmont Shore for $2.6 million would be amazing.  

My question is for any strategies that investors in more expensive markets like ours have to obtain financing.  We're open to partnering and raising capital as well.  Seller financing won't be entertained because these are both probate sales.  So we're wondering; commercial loan? Portfolio type loan? partnering? Line of credit? What would be potential strategies to obtain financing and nearly triple our number of units from 3 to 11!  

Thank you so much in advance and I look forward to learning from you. 

Blessings, 

Lindsey Iskierka

[Jason Chen]

I'm 80-85% sure you just want this deal because you're both in love with the location (near the beach, and prime location too). There's emotion invested into this property already.

Now I'm sure that should you proceed to get these two properties and were to raise the capital needed, everything would run just fine. You'd collect the income you'd need to collect, and the property would appreciate just fine as well due to its prime location.

But here's another alternative. If you were capable of raising a total of $2.6 million in capital, why not purchase a high cash flowing property somewhere else in the United States for $2 million, with an ARV value of $4 million, and spend $600,000 on improvements. A property that would generate a ridiculous $500,000+ in cash flow each year, even after loan payments. You and your family would basically be covered for life.

These deals are rare, but they still exist from time to time. It's inevitable that they will still exist because human beings make mistakes and have been making mistakes in real estate constantly since the beginning of time. There was a 75 unit motel in my city that sold for $600,000 recently, and it needed maybe $150,000 total in rehab costs. It now generates over $250,000-$275,000 in cash flow a year EASILY at least, without factoring in loan payments.

At this point, I think before you finally even make a decision to purchase this property - consider the equivalent alternatives. There's no rhyme or reason to just jump into this EVEN THOUGH it seems ok. $2.6 million is a lot of money and a lot of money could be further generated from it. Even $1.3 million is a boatload. You gotta ask yourself, am I buying this to make some money and have a "jewel" property that I can feel good about having in my portfolio, or am I buying this because I believe I can extract the maximum value and dollar amount out of this 1.3 or 2.6 million?

To answer your question, how much cash are you able to put up? I'd first see how big of a HELOC I can get, and start going to all sorts of banks looking for commercial loans, and maybe even a hard money lender to generate more. I'd want the property all to myself and not involve a partner, unless your partner is a super awesome person. Just my opinion.