[Calc Review] Help me analyze 4-plex in L.A.

[Corey Knauss]

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*This link comes directly from our calculators, based on information input by the member who posted.

Hello, I'm trying to look into the possibility's for house hacking in Los Angeles, CA. This property is a 4-plex with two 2+1 and two 1+1. I know the area is not ideal for investing, and the numbers i'm getting seem a little to optimistic. The areas I am most concerned with are the loan fees, the total gross rent, and the utilities (or lack of). Again any info or insight as to what might be wrong 

[Seth Borman]

Your report has some huge problems in it. First, the rents that I'm seeing on the Redfin listing are $4,005, far less than half of what you've got. If you were to get all the units vacant, renovate them and rent them ($200,000 in repairs) you could expect to get more like $7,000/mo. I don't know where you got $8,400.

Second, monthly expenses in LA are basically never 50% of gross income. They might be that high in a poorly managed building with master meters, but the rents are a lot higher than other places so the expense ratio falls.

For an apartment building here you need to build a pro forma with actual expenses for utilities, property taxes (1.25% of purchase price), insurance, etc.

With a rent controlled building you need to know that you may or may not be able to get the unit vacant. If you do, it will probably cost you money in a cash for keys deal. Then you have to renovate the unit. It's expensive and you need to have a lot of cash on hand and then refinance afterwards. If you don't fix up the unit then there is the chance that the next tenant could get in the unit and not leave for 40 years. If that happens, the extra $400/mo compounding at 3% per year is a lot of money left on the table.