20-unit Multifamily Renovation in Koreatown, Los Angeles

[Mark Hentemann]

Investment Info:

Large multi-family (5+ units) fix & flip investment.

Purchase price: $2,900,000
Cash invested: $900,000

Purchased, held and renovated this 20-unit 1989 construction apartment building in Koreatown. Put $120,000 into renovations. Increased cashflow from $24,000/mo to $42,380/mo over 7 years. Since I was sole owner, I held and let it cashflow for 5 years before doing renovations. Pictures below show 3 post-renovation images and 3 pre-renovation images.

What made you interested in investing in this type of deal?

I was growing my multifamily portfolio and found this 20-unit in growing Koreatown area of Los Angeles. I used proceeds from a 1031 exchange that gave me $900,000 to invest.

How did you find this deal and how did you negotiate it?

A broker brought this deal to me off-market. The seller was motivated.

How did you finance this deal?

Using a broker, I obtained a 30% DP, 7-year fixed loan from Manufacturers Bank, a regional lender.

How did you add value to the deal?

Unlike other properties, this one I held and let it operate for 5 years before jumping into renovations. I was working long hours at my day job, and this area was improving. I wanted to let it improve before I turned this C-class building into a B+. By last year, it had done so, so I invested $120,000 into mostly cosmetic upgrades. I added a secured gate at the front of the property, created a garden for tenants, renovated the courtyard adding a fountain, and painted.

What was the outcome?

Rental income has nearly doubled since I purchased it. The area is now hot, where once it was marginal. I am about to list it for sale. The valuation I was given by brokers is $7,500,000. I purchased for $2,900,000. I held it for awhile (7 years), but refi'd and pulled my equity out after 4 years.

Lessons learned? Challenges?

This was a fairly simple deal. I used a designer for the renovations, and that helped give it a wow factor. I learned from this property that you really need to watch the management company, and push them on unit turns and make sure they maximize rents.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Brent Sprenkle of Berkadia was my broker, and he's been been a total pro on several deals I've either bought or sold.