Triplex Investment in South Central, Los Angeles Analysis / Advice

[Andrew Helen]

Hello BP! I have entered into contract for a Triplex in South Central LA for $345,000 and would like to get your advice on whether I should go forward with this deal. Here are the numbers:

Basic Information:

• Built in 1925
• Triplex with 3 separate units (2BD / 1BA each unit)
• Landlord pays trash/water, tenant pay all other utilities

Terms:

• Contract Price: $345,000
• Down payment: 25% ($86,250)
• Mortgage payment at 4.25% ($1,273)
• Improvement: $2,500 (Cosmetic)
• Lease at $3,000 total
• Closing cost: 2.5% of Purchase price ($8,625)

Financials – Annual Number:

• Annual Rental Income: $36,000
• Annual Expenses: $16,810 (w/ Property tax, Vacancy, Repairs, Utilities, PM and Insurance)
• Net Operating Income $19,430
• Mortgage: $15,275
• Total Cash Flow: $4,155
• Total Equity Accrued: $4,362
• Total Cash ROI: 4.27%
• Total ROI w/ accrued equity: 8.75%

Other:

• For anyone not familiar with Los Angeles, this is in a B/C class neighborhood
• Rental market is hot in this area of town, normally there are no vacancy (I have estimate a one month vacancy/loss rate)
• Rent control area
• I am familiar with this area, have bought other properties a few blocks from this triplex
• I self-manage all my properties and will continue to do so for the next few years till I get to 20 units+. This increase the return to 6.98% and 11.46% w/ equity accrued.
• Investment goal: Being in LA, I will never meet the 2% rule. However, I am just more comfortable investing in the same city I live. The goal is to hold for the next 5-10 years while generating cash flow and sell when the market is great.
• Exit strategy, will do full rehab when it is time to sell to generate forced appreciation and take advantage of the LA/California market appreciation (sensitive topic)

Thank you very much

[Victor Argueta]

You should be fine with this deal that you've locked in. Good news is your current rents are below market. I own duplexes on 83rd and Main, 2 triplex on 93rd and Avalon and SFRs west of the 110. Market rents for 2bd/1b range from 1200-1350 depending on several factors of course by my 2 beds rent for that. I manage all my props and as far as vacancy, trust me, the minute one moves out you will have 20 applicants trying to rent from you. I normally provide $50 bonus to the tenant leaving if they allow me to show the units to prospective tenants before the tenants move out. This way as the tenant moves literally the other one jumps in. Finally, look into LADWPs offer to install water meters in units where only one exists. This way in the future when one tenant moves out you'll be ready to have the pay for the water. BTW, these are my best tenants. cheers