Finding Multifamily with Cashflow in Los Angeles

[Kevin Crosson]

Hey BP members,

So there’s a lot of talk these days about how multifamily properties with strong cash flow in Los Angeles are just about nonexistent. Well, I’m going to try to change your mind on that, and make a case for investing in apartments South LA (yes, the one, the only, the infamous, South Central LA)!

I’m sure most of you have a certain picture of South Central LA in your mind, and it’s probably not a pretty one. That’s still the case for most investors out there, and I think this presents an opportunity for investors looking to find affordable apartment buildings with potential for solid appreciation in the near future. Because of that not-so-pretty picture most investors have in their mind, the first word that comes out of their mouths when they’re offered an investment in South LA is a big fat NO. Here’s where your opportunity lies: this immediate rejection of the idea causes these others to overlook some pretty significant changes happening in South LA that (in my humble opinion) are the first signs of transformation.

Here are the signs:

1) The Crenshaw/LAX Metro line is on track to be finished in 2019. This line will start off the Exposition Line in the West Adams neighborhood, and head all the way down to LAX. This will take it through many of the neighborhoods in South LA that are most in need of revitalization, and the construction will bring jobs, accessibility, and desirability to South LA.

2) Metro also just received a $15,000,000 grant to transform underused railroad tracks along Slauson Ave. into a 6.4 mile long walking and biking trail. The trail will start at the Crenshaw line, and run west along Slauson Ave. to eventually connect with the LA river. This path takes this major urban improvement right through South LA.

3) The Vermont Entertainment Village is scheduled to open Winter 2016, in the Vermont Knolls neighborhood of South LA. This center will be a major lifestyle shopping center (along the lines of The Grove and other outdoor malls throughout LA), and is being built on land that used to house shops that were burned out in the LA Riots in the 90’s. To me, The Village marks the healing of a major wound for South LA, and will help revitalize an area that has stagnated for twenty years.

Now, these signs alone aren’t (or at least probably shouldn’t) be enough to send you charging into South LA with your offer-signing pens blazing. But, I think they signal a strong reason to take advantage of these enticing aspects of multifamily housing South LA:

1) Unparalleled cash flow for the LA area. There are quite a few buildings on the market in the area with CAP rates in the 8-10% range (which should make most LA investors feel all tingly inside).

2) Accessible pricing, ranging from as low as the $300k’s to about $1.2 Million. These prices (on average) sit well below almost all other areas of LA.

3) The chance to beat gentrification. As South LA continues to develop and revitalize, investors who buy in the near future will find themselves the beneficiaries of the significant appreciation in value that accompanies redevelopment. So, in five-ten years, you may be feeling the way investors in Mid-Cities, Koreatown, and other areas are feeling today.

So, I hope this post entices you to take a look at South LA if you’re looking for multifamily with strong cash flow and potential for appreciation in the LA area. Of course, investing in this area still requires thought for you as an investor, to determine if you’re willing to take on the challenges that are unique to South LA. Do your research, and especially concentrate on finding a management company who has demonstrated strong experience in the area, so that you know you have a team in place that can provide the expertise the area demands. But, if you’re an investor who wants to be on the forefront of emerging markets and you’re willing to assume the risks that accompany this, South LA may be for you.

That’s all, folks. Now I want to hear from YOU! Let me know if you think this opportunity is as ripe as I do, or if you think I’m off my rocker. As always, don’t hesitate to reach out with questions on any part of this post.