Los Angeles triplex was first multi-family investment

[Erin O'Connor Smith]

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Los Angeles.

Purchase price: $825,000

Triplex of three single family homes on one parcel purchased in 2004 on a half-acre hillside lot with incredible views in 90065.

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

It was a 1031 exchange from a townhome in San Luis Obispo, my agent scouted it out for me. The townhome was my first rental property near a college campus, and my agent thought I could step up into multi-family.

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

My agent found it, he taught me a lot about the ROI numbers and helped me get out of my comfort zone. Other people I knew who dealt in real estate looked it over for me and gave me the green light.

How did you finance this deal?

Purchase price was $825,000 for the triplex, using $200,000 down via 1031 exchange plus an interest-only 5-year ARM to finance the rest. I've refinanced twice since then but never pulled cash out. Current value $2.5M. Cash flow $5402 per month, or $1800 per house.

How did you add value to the deal?

2012 remodel of the front house of kitchens and baths, adding granite and hardwood floors. Added 6' redwood enclosed fencing around each of the houses to establish better yard delineation and privacy. Depreciating the capital improvements.

What was the outcome?

Better house = better renters = higher rents. Considering a possible lot split into a total of two parcels, one with two houses and the other with one. Thinking I could sell off one to reinvest in another multi-family but need to look at the numbers. Such a great cash flow I don't really want to touch it... but there's a ton of equity there. Looking for ideas.

Lessons learned? Challenges?

Tenants must be trained, and screened very carefully. I tell them up front I'm looking for people who will treat the home like it's their own, and if they help me keep expenses down I'll help by keeping rents down. I tend to get excellent long-term tenants this way.

Also, my history with property managers is that I always lost money with them. Managing myself has brought great returns.