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Multi-Family Cash Flow possible in Los Angeles?
BP Community,
Has anyone has success in acquiring Multi-Family properties in the LA area that cash flow upon purchase? How did you find these deals? Am I going to have to suck it up and buy a property that operates at break even or a loss until I can raise rents or can I find cash flow gems? Are there particular sub markets to focus on to give me a better chance without worrying about a buying in an unsafe area?
The market is so hot right now, most properties are being sold based on proforma or have unrealistic asking prices. I have cash and the desire to purchase, but having trouble finding good deals. Any advice or thoughts on this market would be appreciated!
Hi Tim,
It's possible, but not easy.
I've had success with fixers that are underperforming. Nothing sexy. Improve it, add a couple of rental units and couple months later you have cashflow. I focused on properties that had been sitting for a while and had bad agenting. I tried to avoid rent control areas and got lucky.
There are ways to make it work, but you have to figure out what you're comfortable with have patience and be ready to act.
I'm curious to see what investors are buying in LA? I'd love to compare to what my clients are buying in Utah and Idaho. We have a lot of investors flying in and buying up multi units here, but what cap rates can you expect in LA and are they in good areas?
What @Gil Vaisman said. The only deals I see with potential meat on the bone are from old and poorly advertised listings.
Thanks for the response @Gil Vaisman. Are you buying properties with a vacant unit or two that you can fix up and rent for more or having to evict tenants before you can rehab, etc?
Hi @Sam Newell,
LA is tough in terms of cashflow. 6% cap rate is a good deal and most listings don't make the 1% rule. You have consistent appreciation on the other hand. I've thought of buying out of state, but I find it hard to rent to someone I haven't seen in person.
Originally posted by @Tim Farmer:
Thanks for the response @Gil Vaisman. Are you buying properties with a vacant unit or two that you can fix up and rent for more or having to evict tenants before you can rehab, etc?
Both. Some vacant units, two evictions and on some units I'm still waiting for the old tenants to move out in order to rehab and rent.
Originally posted by @Gil Vaisman:
Hi @Sam Newell,
LA is tough in terms of cashflow. 6% cap rate is a good deal and most listings don't make the 1% rule. You have consistent appreciation on the other hand. I've thought of buying out of state, but I find it hard to rent to someone I haven't seen in person.
I don't think a property exists in LA that meets the 1% rule. As far as cap rate goes, 6% would be an AMAZING deal in any decent area of LA.
Originally posted by @Archie Robb:Originally posted by @Gil Vaisman:
Hi @Sam Newell,
LA is tough in terms of cashflow. 6% cap rate is a good deal and most listings don't make the 1% rule. You have consistent appreciation on the other hand. I've thought of buying out of state, but I find it hard to rent to someone I haven't seen in person.
I don't think a property exists in LA that meets the 1% rule. As far as cap rate goes, 6% would be an AMAZING deal in any decent area of LA.
Depends on if you are talking LA county or LA city. If county, you can hit the 1% rule all day long on a multifamily property in the Antelope Valley (Lancaster & Palmdale). Historically this region cashflows better day 1 but doesn't appreciate as fast/much long term (which is why you can hit 1% rule), so there is never any free lunch, ever. IMO, at this time you'd be better off staying closer to the core of the city and looking for value add where you can force appreciate it to get an equity bump, hold for long term market appreciation, and cashflow as icing on the cake. IMO it is better to scoop up deals in the AV after prices crash, which they do there every downturn.
I would have to agree with David's post. You'll have a better chance of cashflow up in the AV area. I did that a few years back and bought at the bottom and got immediate cashflow. You don't get the same appreciation as in the city and you have to drive at least an hour out there to handle issues. But the properties are generally newer.
Originally posted by @David Faulkner:
Originally posted by @Archie Robb:
Originally posted by @Gil Vaisman:Hi @Sam Newell,
LA is tough in terms of cashflow. 6% cap rate is a good deal and most listings don't make the 1% rule. You have consistent appreciation on the other hand. I've thought of buying out of state, but I find it hard to rent to someone I haven't seen in person.
I don't think a property exists in LA that meets the 1% rule. As far as cap rate goes, 6% would be an AMAZING deal in any decent area of LA.
Depends on if you are talking LA county or LA city. If county, you can hit the 1% rule all day long on a multifamily property in the Antelope Valley (Lancaster & Palmdale). Historically this region cashflows better day 1 but doesn't appreciate as fast/much long term (which is why you can hit 1% rule), so there is never any free lunch, ever. IMO, at this time you'd be better off staying closer to the core of the city and looking for value add where you can force appreciate it to get an equity bump, hold for long term market appreciation, and cashflow as icing on the cake. IMO it is better to scoop up deals in the AV after prices crash, which they do there every downturn.
That's a great example of location versus higher cap rate and I get lots of clients telling me they're buying 8% caps but it's out pretty far from the better areas. The thing my investors here in Utah and Idaho like is that they're able to buy really close to growing economic areas that appreciate as well as cash flow really well. We've had about 10% appreciation the last few years in a row and you can still find properties that cash flow and that are located near all the growth and new jobs (i.e. around the Silicone Slopes). I'd say buy close to the stable jobs and try to get the best of both worlds
I am having luck in the San Pedro area. Lets face it, it is the last affordable and oceanside community in CA with a large amount of multi family. It is rent controlled so do your homework. There are big developments going on down near the port which could lead to gentrification. The market is slow giving more buying power. Pretty simple market to learn and grow in because there are major streets dividing the good from the medium to the war zones. I want more investors in there fixing the place up!
Originally posted by @Tyler Turpin:
I am having luck in the San Pedro area. Lets face it, it is the last affordable and oceanside community in CA with a large amount of multi family. It is rent controlled so do your homework. There are big developments going on down near the port which could lead to gentrification. The market is slow giving more buying power. Pretty simple market to learn and grow in because there are major streets dividing the good from the medium to the war zones. I want more investors in there fixing the place up!
Yeah ... I really like San Pedro and find it really charming and relatively inexpensive compared to other coastal SoCal. Got to be on the right side of Gaffey though. I would still probably prefer Long Beach as it can have similar price points (depending on neighborhood) and no rent control. Have you looked in Wilmington (or adjacent Carson)? Definitely not as charming or nice, but if you want to talk inexpensive SoCal coastal, that's it ... not positive, but don't think Wilmington is rent controlled either. I don't own in any of those areas, which is why I'd be curious to hear your take on it.
To me, Long Beach has some opportunity but it is way more competitive. It is a good market though. I cant speak for Wilmington however. It has a poor stigma to me.
I prefer to look at it from this stand point: if San Pedro and Long Beach are appreciating at the same rate; Id invest in San Pedro and hope for a hike in values due to the large developments. Yes, Long Beach is considered coastal but it isn't nearly as nice in the areas that make sense to invest. There are few places in San Pedro that you can go without having views of the ocean or city. There is a strong pride throughout the community that bring a reliable and long lasting tenant base. It really has a great opportunity to gentrify; the downside to it is that it is taking a long time to do so.
I invest out of state and travel there at least quarterly. I would never buy in Los Angeles for rentals and expect positive cash flow. Appreciation, hell yes. But I buy for cash flow.
Think about it. Oh, by the way, I'm getting appreciation also in my market. Not like LA but it does appreciate.
Only multifamily also. No SFR.
@Tim Ryan - what areas out of town are you investing in? I'm in Santa Clarita and considering out of state too due to stiff completion and too high or prices to get positive cash flow.
@David Faulkner Which side of Gaffney would you recommend? Based on the coast line there, would you say West (Palos Verdes side) or East (closer to the port) side?
This is very very intriguing post as I live in Los Angeles as well. I've been looking to invest in properties as well, and I've heard of phoenix, oregon, and mid-west regions being a great areas to invest for cash flow.
Originally posted by @Tim Farmer:@David Faulkner Which side of Gaffney would you recommend? Based on the coast line there, would you say West (Palos Verdes side) or East (closer to the port) side?
It depends on what you are looking for and how much risk you are willing to take. The Palos Verdes side is the nicer side, by a long shot. However, it will cost you significantly more and won't cash flow as well (at least on paper, in the short term) ... far fewer headaches though. I think the Palos Verdes side is also higher up on a hill, so you get some awesome views and ocean breeze. The other side (closer to Long Beach) is rougher but less expensive. Thinking further about it, though, the real tricky part is that the new development that was mentioned here is on the rough side, so if you are playing that then rough end may actually be better. So a bit less straight forward now that you mention it. Realize, though, that it may take a long time for any gentrification to take hold there ... they've been talking about that development literally for decades and have not yet been able to pull it off. If you do go to the rough end, then you can somewhat counteract some of the roughness by moving further down closer to the point & Cabrillo beach. I'm by no means an expert on San Pedro and don't own there ... these are just my impressions from driving, scouting and research. I was looking on the Palos Verdes side, SFR for me and my family (with young kids) but ultimately chose Huntington Beach instead, which turned out to be a wise choice (not that San Pedro would've been a poor choice). If I were young and single, house hacking, could pay the mortgage ok without rental income, and could stand living on the rough end, then I may very well take the riskier path of progress play on the rough end, as close far down and close to Cabrillo Beach as I reasonably could afford though. I'd be curious to hear other opinions from those more familiar with the area ...
Like I said, San Pedro is divided up in three sections. West of Gaffey is nicer but less cashflow, east of gaffey is about mid range and east of Pacific in most areas is the rough area but it has the development coming. It is my personal thought but I have been investing in the craftsman style duplexes there because I believe those values will increase similar to how they did in long beach.
They have actually broken ground on the development. It is in the demolition phase so still has a couple years before completion.
The Cabrillo area is a nice rental area too but it is a little more expensive; similar to the west side of Gaffey.
I was born and raised here in San Pedro, currently renting in SP, but preparing to house-hack a 4-unit somewhere in town. I'm curious what some you investors here, who are familiar with the San Pedro area, think of the recent influx of homelessness/vagrants and it's (possible) impact on property values. Any thoughts?
I don't know if there truly was an influx of homelessness in San Pedro. Im not sure if it was just the media blowing it up to be a bigger problem than it was. There was a community meeting a few months ago and someone proposed a billboard that said something like " don't give charity to the homeless who are begging off the freeway". I think it was controversial enough to grab the media's eye.
Yes, there is a homeless population like any city in LA. I hope that it dissipates over time as investors fix the place up and more development takes place.
Originally posted by @Tyler Turpin:
I don't know if there truly was an influx of homelessness in San Pedro. Im not sure if it was just the media blowing it up to be a bigger problem than it was. There was a community meeting a few months ago and someone proposed a billboard that said something like " don't give charity to the homeless who are begging off the freeway". I think it was controversial enough to grab the media's eye.
Yes, there is a homeless population like any city in LA. I hope that it dissipates over time as investors fix the place up and more development takes place.
Yeah, I remember when I was looking there for a property for my family, this was 2012, maybe it is different now ... anyhow, I remember distinctly it was an old historic home ... ironically it just sold again (zillow 324 W 10th st) ... the property was beat up but beautiful, which pretty much matched the description of most of the block. There were homeless walking around everywhere ... there was a homeless shelter or something like that, and a liquor store next door, so I think many of them just hung out around there all the time. And I remember they were openly hostile too.
Any beach town is going to have some homeless, but I think homeless in different areas act differently and I think it depends on how the police react. In Newport Beach, they send them somewhere else so you don't ever see many. In Huntington Beach, where I live, I think the police leave them alone unless they start harassing people, then they bring them in ... so they are there, but they are mostly cool. In Long Beach I've heard that they leave them alone for the most part downtown, but if they venture across certain streets into the nicer areas they crack down. San Pedro, I got the impression that the police let them do whatever they like, and they were drunk and hostile, at least back then in that neighborhood; was not so west of Gaffey, though ... probably not PC, but that was my honest observation. Not sure if it still is the same, but I would check it out, say on a Saturday late afternoon, before buying. BTW, I'm glad I didn't end up buying that property ... beautiful as it was the repairs and historical society would've bankrupted me and even if not, I would have had to fence it and keep my young children locked inside to play, and it did not appreciate as well as my HB home, even though they were priced similarly back then ...
I agree with you that it might be how the cops treat them. Its LAPD here and they have bigger things to worry about than the homeless population. In Newport and Huntington, the homeless and drunk teenagers are the majority of what they deal with.
I think the Real Estate Guys hit the nail on the head with this "live where you want to live; and invest where the numbers make sense".
Originally posted by @Tyler Turpin:
I think the Real Estate Guys hit the nail on the head with this "live where you want to live; and invest where the numbers make sense".
Just depends on which numbers you are running and how ... like I said, I've done much better financially in HB than I would've done in W. SP (not that I would've done poorly there necessarily) ... as it turns out, where I want to live is where a lot of others also want to live, and rents and prices have shot up as a result :)
I've owned cheap rentals in mediocre neighborhoods and expensive rentals in really nice neighborhoods, and while I have done well in both, I have always done much better financially over the long term in the nice neighborhoods. As it turns out, you usually DO get what you pay for in the long haul. This has been my experience in SoCal over the last 15 years ... YMMV ...