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Closed My First Buy & Hold in Los Angeles
BiggerPockets Family,
I want to share with you all a quadplex deal I closed back earlier this year in East Los Angeles.
About the Deal:
Property was listed on the MLS for $615k. Each Unit was 700Sqft with 1 bed/bath. The property also had a detached 4-car garage and a laundry room. I initially put in a offer for $630k, but was outbid by another all cash buyer and placed as back-up offer. A week later, the first offer fell through and they accepted my offer! When I first visited the property, I can tell the owner had neglected to keep the property updated and let the tenants run things. The owner was 80 years-old and had the property all paid off(dealing with a very motivated seller). All units were rented well below market rent and I realized this would be a great value-add opportunity. I ended up negotiation the purchase price to $595,000.
The next day, I went knocking on each of the tenants door notifying them I was the new owner and giving them a 60-day notice for an increase in rent. I ended up having one tenant leave one month at a time. This was great for me since it allowed to renovate each unit one at a time without making me pay the entire mortgage payment each month. Overall, I spent about $40k in renovations and have brought all units to market rent. All the tenants now living at the property have been screened by me and are absolutely wonderful. I am now collecting $5k in rents per month ($1350,$1350,$1100,$1200). Currently cash-flowing $1,645 a month with a 20% down payment. My cash-on-cash return is 11.2% (which I believe is great in the LA area). I hope this deal show folks that it is possible to invest LA. I bought this property at 23 years-old working as a full-time financial analyst in Santa Monica. I also have my real estate license. Please reach out to discuss more!
Please see below the property analysis:
@Anthony Gayden Thanks!
I was fortunate to have a savings fund my parent set aside for me I was able to pull out from after college. Having a full-time job, living at home, saving, and representing myself to get the commission were contributing factors on why I personally was able to finance the deal.
I would like to mention that this is not the only way to invest in LA. It is also possible to have done my same deal using a FHA loan(FHA allows you to invest up to 4 units). I decided not to go through this route since I had the cash available for a bigger downpayment and wanted to treat it as an investment rather than my personal property(would have to live there).
Please see below the same Analysis as if it was done with an FHA loan:
Note, I lowered the interest rate because FHA loans are usually lower than conventional. I also subtracted one of the units rent since I will have to live in one of them. Lastly, I made an assumption of $300 in PMI to be added in my monthly expenses. By doing an FHA loan, I have reduced my total investment by almost $100k compared to my actual deal and I am almost breaking even! Furthermore, after a year, you would be able to move out and rent out the other unit to get a better cash flow and an even better cash-on-cash return. It's possible to find good investments without coming up with a ridiculously amount of cash in LA.
@Joseph M. Thanks, Joseph!
I have had my licensed since I was 19-years old and this was the first deal I put it to good use! I did represent myself and received the commission. Fortunately, I had a mentor (my mother) who guided me throughout the entire process. There are many benefits to have a real estate license in my opinion.
@Agustin Jimenez Thanks Agustin! It's possible, we just have to work hard on finding the right deals.
@Ryan Rodriguez awesome! That is good it came in handy.
@Frank Schwarz Appreciate the feedback Frank! This is one of many reasons why I love BiggerPockets - hearing stories from the Podcasts and forums really helped me get my first deal done.
@Carlos Altamirano Appreciate the feedback Carlos! I have not considered the airbnb strategy. Will take a look at crunching the numbers and see if it would be worth my while.
Congrats, @Ryan Rodriguez! So many people poo-poo our market, and it's great to see some positivity!
@Logan Allec haha I could not agree more! We just have to look in the right places to find the money flowing properties in our market!
I see you are a CPA and an investor in the LA area, do you specialize in real estate (saving in taxes, etc.)? I am in the market for a good CPA :)
@Ryan Rodriguez Way to go !!!! Congrats
Redgy
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#4 Real Estate Deal Analysis & Advice Contributor
- Investor
- Saint Louis, MO
Great to see another young dude break into REI!
as others have pointed out, you will want to work in a 5% vacancy, 10% CAPEX, and 10% for a management company in future calculations.
I'm the same way where I self manage and wont see too much maintenance issues (hopefully) but I still put those in there for a worst case scenario kind of thing.
Besides its a lot better seeing a surplus profit over "expenses" than a cut from "profits"
Hi @Ryan Rodriguez, yes, I am LA-area investor and a CPA specializing in taxes for real estate investors and professionals. Feel free to email or private message me with any questions!
It's people like you that keep my fire burning to financial freedom ! 😎💪🤘
Originally posted by @Ryan Rodriguez:
@Anthony Gayden Thanks!
I was fortunate to have a savings fund my parent set aside for me I was able to pull out from after college. Having a full-time job, living at home, saving, and representing myself to get the commission were contributing factors on why I personally was able to finance the deal.
I would like to mention that this is not the only way to invest in LA. It is also possible to have done my same deal using a FHA loan(FHA allows you to invest up to 4 units). I decided not to go through this route since I had the cash available for a bigger downpayment and wanted to treat it as an investment rather than my personal property(would have to live there).
Please see below the same Analysis as if it was done with an FHA loan:
Note, I lowered the interest rate because FHA loans are usually lower than conventional. I also subtracted one of the units rent since I will have to live in one of them. Lastly, I made an assumption of $300 in PMI to be added in my monthly expenses. By doing an FHA loan, I have reduced my total investment by almost $100k compared to my actual deal and I am almost breaking even! Furthermore, after a year, you would be able to move out and rent out the other unit to get a better cash flow and an even better cash-on-cash return. It's possible to find good investments without coming up with a ridiculously amount of cash in LA.
The deal certainly could have been done via an FHA mortgage with 3.5% down. Once you add in the closing costs and the $40,000 you did in repairs, it is still a pretty steep price for a beginner at over $60,000 in cash that would have been necessary to do the deal. Also I don't know if East LA is the kind of area where I would want to live.
It took me more than 2 years of saving to get $60,000 for investing. I am single, make a six figure salary, and live in a relatively low cost of living location. I couldn't even imagine trying to do that in LA if you are starting where I started (with nothing).
Congrats! LA is 12 times harder to make deals work and it takes 12 times more time. The pay off could be...it is ultimately 12 times more profitable. I just met with someone who has 1000 units mostly in LA and a few in Vegas and Denver. They admitted they over payed for an off market LA 10 unit we were looking at and they said the exact area is what they really liked. They will pour in some mula and raise the rents and they feel that location will support/profit every dime they reinvest.
Good luck!
Awesome!!! Especially in LA
Very cool, @Ryan Rodriguez! Keep up the good work! I'm in LA also, and am close to buying my first duplex...excited!
@Gabriel D. Zapata Thanks buddy! Hope you achieve that freedom number!
@Anthony Gayden no doubt LA is one of the toughest place to get started.
@Danny Farrell Thanks Danny! That's awesome, hope all goes well with the deal. What city did you find the duplex?
Thanks Ryan! It's in Mid-city (I guess it's also considered the West Adams area).
Great job there @Ryan Rodriguez Let me know if you are looking for partner(s) for your second one.
Congrats @Ryan Rodriguez! This gives me hope too. My aunt and I recently started searching for a good investment property but didn't think LA County would be worth the time, but it seem like it is. I see you've shared your model with a few folks--may I take a look at your calculations as well?
@Ryan Rodriguez can you elaborate on how having your licence helped you??? I'm working on getting mine but I occasionally debate with myself on its value considering that I really don't want to get seriously into sales since I already have a full time job.. Congratulations... Nice to see someone from the greater San Gabriel valley doing something great your parents raised you well...