18-Unit shared living in Los Angeles, CA

[Gina Petrosyan]

We are looking into a unique opportunity. The building is over 5,700sf with 19 units, 18 of which are studios with 8 shared bathrooms and a large shared kitchen. The 19th Unit is owner occupied which could potentially be converted into 5 additional single units (estimated $50k for construction cost) with a bathroom and kitchen. The 23 potential units would generate a net income of over $140k per year, considering no increase in current rents and market rent for the new 5 rental spaces. Annual rent control is 3%, conservatively not included in NOI. The price we are currently negotiating is $2m, which would generate 7% cap rate (current cap rates for apartment buildings in LA average less than 4%). Anyone familiar with this type of investment property to advise whether this is a good opportunity?