Need Advice on Assessing Development Options/Feasibility

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Need Advice on Assessing Development Options/Feasibility

Kevin Yang
Investor · Redondo Beach, CA · Member since 2016 · 3 posts · 0 votes

Appreciate any advice here! 

In Sherman Oaks, California at a LAR-3 zone, I have a 7, 200 square foot lot with 3 units - one with 1 2 br/1bath and two with 1 br/1bath.  These are renting out at a total of 4.5k per month and am paying 2.5k per month for mortgage.  Net income is steady at around 1k.  To be honest, there's a lot of wasted space there and it's all single story.   I have over 400k equity built up for total value of at least 850k.  

Right next door to my complex is a slightly larger lot with a 7 unit building, each renting out for at least 2.5k with a total rental income of at least 17.5k per month.  

This makes me think I'm missing out on an opportunity to develop or at least assess development.  I do have some cash to invest and want to evaluate my options. 

However, I have no experience with development and am looking how to get advice on how to best calculate key indicators on making an investment decision. 

Can anyone help advise with the following? 

a) How to best find someone or research a way to evaluate development options including cost, etc. of developing an apartment building, given regulatory and other restrictions?  I'm looking to do this at a high level initially and low to zero cost (don't want to spend a ton of money on an architect when I just need to assess feasibility). 

b) After the above is done, how can I best evaluate, using key financial indicators, etc. to make decisions.   There's of course other options I can look into such as remodeling the current, 1031 exchange, and so on which also needs to be compared against later. 

Thanks for the help! 

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  • Sanjeev Advani
    Investor · Bakersfield, CA · Member since 2015 · 483 posts · 234 votes
    10y

    @Kevin Yang glad to see that you are on BP looking for advice!  

    I think this is a great potential project (knowing no details), given that you know in that area people are developing and earning large sums of money for their properties.  

    At first glance it seems as though you are making around $1500/unit on your property, which your neighbor is making around $2500/unit.  The original question is why is this the case?  Are these units much larger than yours or does he have amenities which you do not have?

    Based on your questions we can help you move further with this.  Feel free to PM me and we can chat further!

    Best,

    Sunny

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  • Kevin Yang
    OP
    Investor · Redondo Beach, CA · Member since 2016 · 3 posts · 0 votes
    10y

    Sunny, 

    Thanks for the quick feedback! 

    The units next door are new, higher quality overall, and all are two bedroom/1 bath.

    I believe our 2bedroom unit, after some improvements, can go for at least $2,500 though our current tenant has lived there 15 years with only small increases in rent (we've also been very lax on her - mistake on our part).    In terms of size, this unit is actually bigger as it's basically a small house with a yard.   The amenities are about the same, I believe. 

    Thanks again and looking forward to more input! 

    Best,

    Kevin

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Kevin Yang So let me get this straight, you want someone to do the research for you and pay dimes for it? Your best option is to go for it by yourself from what I could tell. Good luck.
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  • Kevin Yang
    OP
    Investor · Redondo Beach, CA · Member since 2016 · 3 posts · 0 votes
    10y

    @Manolo D. thanks for the response and let me clarify.  What I want is advice on  how the evaluation process is typically done.  One part of the process, I assume, includes a high level feasibility estimate.  I'm not an expert in Real Estate, but I am an expert an other areas in my professional career and find it hard to believe that there aren't experts that are able to take less than 30-60 min. to look at my property, regulatory restrictions, and give me ball park figures with an accuracy rate of ~80%.   I wouldn't expect this cost that much to do as someone who has experience and is moderately familiar with the area, real estate, development, etc.  should be able to do this, even with limited information. 

    The more accurate the required estimate, the longer it'll take to research construction costs, limitations, etc.   However, I'm really only looking for rough estimates to assess feasibility. 

    Then as I mentioned earlier, advice on the general process end to end for decision making purposes. 

    Hope this makes sense.  

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  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y
    Kevin Yang I don't know where you could find what you're looking for but to my knowledge, every project is different and every location has a different finish. That alone will take up your 1 hour. It seems like you are looking for a contractor, architect, or builder, that knows more on the investing, which is very hard to find; this is assuming you can find them and they're not busy to cater you for free or very minimal fee. If you are looking for 30 min work, you can lower your number to 50% accuracy which you can run just price per sf. Let me remind that LA is a busy place, and one contractor, even if you have a contract, might not be able to do your job on your specific time, that will eventually change your financing timeline, or force you to change contractor, which ultimately will mean that there is a change the budget, I believe that accounts for 5-10% accuracy difference. What you are looking for is not impossible, but unusual. I know maybe 1, maximum 2 that can accommodate on what you need, but for sure won't want to entertain that kind of business.
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