Good idea to invest in fourplex in Los Angeles North Hollywood?

Question

Hi, I am looking for a feedback from more experienced members. Currently I am planning to buy a newly built fourplex in NoHo area of Los Angeles (sandwiched between North Hollywood and Toluca Lake). What concerns me is that for the past 2-3 years there is a lot of new development going on, putting similar townhouses on the market. I am a bit concerned that near term constant increase in supply would drive the rents downward. There are already several similar townhouses on market that are available for rent. Seller who is also a RE agent assured me that demand is very high and he is able to rent out other units in similar fourplexes rather quickly, even during COVID downturn. So I wanted to get some feedback from members who know this market to comment if it would be a good idea to invest there. My goal is 0 to positive cash flow and mainly banking on rent appreciation over time.

A little bit of background info - all units in fourplex have garages, are 3-4 bedrooms, and delivered vacant. Some of the units that were rented out ~2 years ago and are back on market are at same, higher and lower rents. Thank you.

A little bit of background info - all units in fourplex have garages, are 3-4 bedrooms, and delivered vacant. Some of the units that were rented out ~2 years ago and are back on  market are at same, higher and lower rents. Thank you.

Victor Ong · Answer

Brand new buildings could also be subject to RSO. LA Housing has made it clear since 2015 I believe that all RSO'd lot redeveloped into 2 units or above are subject to permanent RSO even they are built after 1977.

Also if you have leveraged any of the city ordinance such as TOC to increase your density, your newly developed could also be subject under RSO and ELI/LI rent cap.

Victor Ong · Answer

For the past 10 years, developers have been building these similar townhome across city of LA. I am also engaged in a couple of ground up townhome development)s. You will see a bunch of these in South LA and East LA.

As for LA multifamily rental market, demand has been surpassing supply by 2:1 ratio. We got the chart from Arbor Trust Realty last year and Los Angeles is the number one city when it comes to Demand:Supply ratio due to the high barrier of entry to develop brand new projects (city regulations, archaic zoning code, and ever changing building code). The trend will continue its course if not worsen after the pandemic. A wave of foreclosures are coming after the forbearance expires and eventually these ex-home owners will have to rent if they have to stay in LA.

We think LA has a good 20 years for the long run; therefore, we will continue to invest in the MFR market. In addition, 2 major events will greatly contribute to LA real estates:

2026 - World Cup2028 - Olympic, which LA will invest 6.9B into the event including infrastructure upgrades

If you plan is to buy and hold, I would wait for more deals to pop up. We have the dreadful rent and eviction moratorium, which could complicate your holding and financing. Again, there will be a wave of foreclosures down the path...

Account Closed · Answer

@Igor Nastaskin it really depends on what street this complex is on.  The area between Toluca Lake and NoHo can be very hit and miss as far as look and feel of the neighborhood.  The nicer streets should get you higher rents and make them easier to rent out.  That being said, we don't really know what Covid19 is going to do the real estate market at this point.  If a lot of companies are allowing people to work from home, there may be less demand for rentals as many buyers are starting to look at more permanent places.  The market, as of late, has been rather busy with buyers since they have been stuck at home and are now wanting to change what that looks like.  The area you're discussing has some great draws though with  parks and schools, and tons of new restaurants (well, there were at least).  There will always be people moving to the LA area and the pocket you are describing is still improving itself.  I don't think you will have too much trouble renting out these units, especially since it sounds like they are townhome-style which many people prefer out here.  Best of luck to you!

Rick Albert · Answer

If they are all brand new, keep in mind (for now) they are not subject to Los Angeles rent control and for the first 15 years not subject to state rent control.  That is a big deal for investors as the LA rent control can get complicated and restrictive.  That in itself has value.  Plus, as everyone else is saying, demand is high and there is such a shortage of housing. Across the board I'm hearing from my investor clients that places are renting quickly.  On my lease listing in Calabasas I had about15 showings in less than a week with four applications.  We listed it for $7,500/month.

Igor Nastaskin · Answer

This fourplex is a brand new construction, all 3/3 units, 3 story high with tandem 2 car garage. There is quiet a number of similar fourplexes, in fact one very similar fourplex right next to it rented out for same/higher rents prior to covid. My goal is long term hold. [Solicitation Removed by Moderators]

Leeron Regev · Answer

Hey @Igor Nastaskin, a close friend of mine does leasing in that area. She actually leased out one of those newly developed properties and it sold out pretty quick. I can connect you with her to further discuss if you'd like.

I am personally from Los Angeles and am familiar with that area myself. It is a relatively desirable area given its proximity to the West Los Angeles, Downtown Los Angeles, and the Valley (the area you described is pretty centrally located). Given that other cities in LA are far more expensive, the area you are looking into seems affordable and central which lead it also being desirable. (Which is why I am assuming developers are putting new projects there).

There is also a housing shortage in Los Angeles, so even though there are new developments coming in I don't see how that could directly affect rents in the short term unless there are a massive amounts of units being delivered at the same time. (I think it would take a long time to drastically affect rents, I also don't know how many exact developments are being built etc.)

As for your last statement on the rent being the same/going up... that's fine but it doesn't speak much to the market given that the economy has been going up the last few years too....

I have so many more thoughts about your question.. one that @Ray Johnson touched on above...you mentioned your project is new - but what does that mean? Recently build? Re - developed? If so, when?

[Solicitation Removed by Moderators]

Lee Ripma · Answer

@Igor Nastaskinm

I build these two duplexes on a lot (or dupie-dupie as I like to call them). I love them because:

1) RES financing

2) new construction, no capex and NO RENT CONTROL- this is huge

3) large units are good for families, extended families, and roommates/coliving.

Supply and demand is real but other rentals in an area is usually good, not bad, in LA. LA has so little housing and massive demand.

Brian G. · Answer

@Igor Nastaskin what’s the purchase price and projected rents for the four-plex?

Caroline Widjaja · Answer

@Igor Nastaskin I have no experience in NoHo area, but I can tell you that do NOT listen to what the Seller (no matter if s/he is a RE Agent or not) said. Ask YOUR RE Agent to run the Rent comps for you for the last 3 months, see the inventory in that area and in how many days it's pending for leased. It will tell you how strong the rental market during this pandemic. It's as simple as that. Normally, if the supply is increased, your rent will go down.

Ray Johnson · Answer

@Igor Nastaskin  You mentioned it's "Newly built", How old is the building you're purchasing? If there's still new construction happening around the neighborhood, How close is it to your potential property?

Will this be competing product in style, and size? If so, take a look at what the newly built properties are renting for, if you're only a couple of years apart, you should be able to rent at the same rate. Take a tour, look at the other properties inside, see how comparable they are with what you are getting ready to purchase. this is going to be your competition so I would look at what they are doing closely.

Also, take a look at how long the comparable units are staying on the market vacant for rent.

Good idea to invest in fourplex in Los Angeles North Hollywood?

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