Echo Park of Jefferson and Hauser??

Question

Am looking at these two properties in LA, one is a 4-unit 50 years old just East of Culver City, somewhere east of Hauser and just north of Jefferson Blvd. this one is a bread and butter property which almost covers its own expenses and will be completely carrying itself in 5 years, second one is a 3-units 95 years old on Eagle Rock in walking distance to Colorado Blvd with one unit vacant (needs 30K to rehab). I know Eagle rock is the place to be, but also the other one also pays for itself.

Eagle rock has a long way to cover its own expenses as the other 2 tenants pay so low rents and does not seem like they will be going anywhere any time soon, so I am not sure if I invest in the Eagle Rock property and carry a large negative for at least next 10 years or go with the Bread and Butter property and stay in a not so good neighborhood.

What do you guys think, a better neighborhood or an easier investment in a not so good area?

Give me your thought.

thx

Aaron K. · Answer

@Sean Moaref If you were going to live in one of the units there are some regulations for LA rent control that I think are quite advantageous when you plan on living in one of the units.  My understanding is that no fault "evictions" for a unit that the owner intends to occupy are allowed although you may have to pay relocation assistance.  Oftentimes the seller will base the price on current rents and depending how far below market they are you can get a unit that is renting for $1100 that should be renting for $2000 to live in by paying the extra $15,000-$20,000 in relocation assistance, which if you treat it like an increase in purchase price is a pretty good deal.  Also if and when you decide to move out the unit would be able to charge market rent.

David Friedman · Answer

@Sean Moaref

If you need help finding better cash flowing properties in those areas,  I’m a broker that works with a lot of investors. We can talk over some coffee in LA this week if you are free.

Sean M. · Answer

@Lee

Hi Lee, I think you know the property I am talking about, it's just perfect as a Bread and Butter investment, Still the one in Eagle Rock is itching me so hard. it is in a walking distance to Colorado Blvd, and is a nicer area and larger lot. only that it will not have enough income to carry itself for a while !! and that's a problem.

Sean M. · Answer

You got that right Aaron, I would not mind a property that I can even live in, and the Eagle Rock property could be the one I can live in, although still not enough income with the current tenants. so it's a dilemma !!

I know good neighborhoods grow faster and higher, but the negative is gonna kill me, remember I am on a salary income, this is just a side investment, it cannot be too big and heavy on me !!

Sean M. · Answer

I am hoping to get something more than just a Bread and Butter property, you can even get better caps in Compton or South LA, but not sure if I want to be in a slow growing area.

Thanks for the offer, I'll hang on to your contact info.

Lee L. · Answer

If it's the one I'm thinking of, I kind of like like the 4-plex. The rents are decent but there's upside if they move out, and you don't need to stress if they want to stay. What I like most is it's not all 1-bedrooms, and a great househack opportunity. Also, it's sort of within walking distance to metro stops. And you're pretty close to the westside. What I don't like is the streets. That area is especially cramped and parking is pretty horrible. But you've got some parking, not enough for everyone, but at least a spot per unit.

Aaron K. · Answer

You also have a third option of looking for a property that is neither of these two, I always prefer rentals that I wouldn't mind living in myself if I had to.

David Friedman · Answer

I wouldn’t suggest buying either! Who’s guiding you on this?

I’m buying a duplex in Highland Park, south of Eagle Rock, where I will be a cash flowing after doing about $50,000 in rehab.  It’ll be approximately a 6.5% cap for me after accounting for expenses.

I just helped a client buy a 4 unit 7 cap (After expenses) in Riverside for $659,000.

What I’m trying to say from all this is that the market is a little frothy right now and you should probably buy for current fundamentals in case the market goes down. 10 years might turn into 20 if you don’t buy something that makes sense today.

Feel free to private message me and ask more questions.