5-Unit Apartment Building in Van Nuys (Los Angeles), CA

[Peter Davis]

Investment Info:

Large multi-family (5+ units) buy & hold investment in Los Angeles.

Purchase price: $427,000
Cash invested: $100,000

I purchased this property in 2002, rehabbed it and have been able to raise rents to market over the years. I've pulled cash out to invest in flip projects. It's more than doubled in value since 2002. My plan is to hold it for the long haul as part of my retirement portfolio.

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

I learned from a friend of the owner that she was planning to sell it. Prior to this I had only done flips. I spent a weekend and read everything I could about apartment investing and then went for it using my own money and money borrowed (and paid back) from family for the down payment. I negotiated the deal directly with the seller. I analyzed comps and area cap rates applied to the NOI to determine value.

How did you add value to the deal?

Extensive exterior rehab including painting, new windows, gutters and roof repairs, and I took advantage of a city grant to remove the grass and install xeroscape landscape to reduce water consumption. I rehabbed units as tenants left and maximized rents. I did much of the work myself, major sweat equity.

What was the outcome?

Great! It's a cash cow and has more than doubled in value, LA is a crazy market. Glad I got in when I did, now it's too rich for me.

Lessons learned? Challenges?

Run it like a business. I rely on prompt payment of rent because I have to pay the mortgage.
I accepted a Section 8 tenant at one point when I wasn't getting good response on a vacant unit. The program can be a pain to deal with and they definitely get into my business. The irony is I worked as an affordable housing development project manager for the LA Housing Authority for several years, which also runs the Section 8 Program.

[Dave Foster]

@Fay Chen, my two cents from experience.  States and municipalities handle sec 8 program and funds differently.  But one of my best tenants ever was a sec 8 tenant in FL.  The money from the program came directly to me.  The tenant only payed a fraction of the entire lease.  And it was a high market lease.  But if they didn't pay their rent they lost it all.  So their portion was always on time.  Losing that voucher was a great incentivizer for them to keep the property up and be a good neighbor to the other tenants.  And it was such a great esteem builder for her and her young children to have a place of their own.  

When the governing authority can treat it like a hand up instead of a hand out it is a very empowering experience for all.