All Forum Posts by: Andrew Cushman

I don't have any specific groups to recommend in LA, as the ones I used to go to were in OC.  The best thing to do is just start going to as many as you can, weed out the lame ones, and keep going to the good ones.

For value add, it's all in the comps.  If you're looking at a 4 plex that's in rough shape, what are similar 4 plexes selling for nearby that are in good condition?  What rents are they getting?  Basically, you figure out what you're property would be worth fixed up and rented out and then work backwards from there.

Andrew

@Jason Malabute, that is a tough one.  I live in SoCal as well and invest only out of state since the cash flow here is so poor.  My advice is usually to find a way to invest in different markets. However, based on what you wrote, I'll answer on the assumption that you are only going to invest in the LA area.

First, how are you finding your deals? If you're just looking at stuff on the MLS, then yes a low offer is very unlikely to get accepted. I would work hard to find off market properties: network at REI meetings, form relationships with good agents, put adds on Craigslist, do some direct mail, etc. Additionally, look for something value add. It might be ok to pay close to market value for a property that needs some work and doesn't cash flow well to start with if you can renovate and then soon after have a property that is worth much more. That is one benefit of the super low cap rates here - a little value add can go a long way for creating value! You then sell or refi and move on to the next one. A friend of mine recently bought a 4plex in LA for $1.5 million, upgraded it a bit, and then sold it for $2.2 million within a year, netting almost half a million profit.

When evaluating properties here, look at renting by the room in addition to renting the unit as a whole.  In many cases the total amount of rent you can get is much more when you rent by the room.

Another thing to consider is this: what is the cheapest rent you can find for yourself here?  Then, if you took the money you have and invested in multifamily somewhere else, would your cashflow be enough to cover that rent?  If so, it could make sense for you to rent here while owning somewhere else.  I have met a surprising number of investors who own a large portfolio of properties but rent the place where they live!

It is challenging here, but it can definitely be done.  Many people have made a fortune in LA real estate.  Stick with it and make it happen!

Good luck,

Andrew

@Jm Childress, I live in SoCal as well.  While it's a great area in which to flip properties, cash flow can be a challenge.  Thus, all of my apartments (about 1,600 units) have been in TX, FL, and GA, where we can still find great value-add deals and create strong cash flow.

Where and how you invest depends heavily on what your goals are and how you are going to operate.  Are you planning on self managing?  Are you willing to travel?  What do you plan on doing with the cash flow?  How long are you going to hold the properties? SoCal markets are sexy and you may get some market appreciation, but your cash flow is minimal, and CA is a very tenant friendly state.

Why are you looking at turnkey?  Generally those are for investors who either 1) want to be fairly passive, 2) don't want/aren't able to take the time to find a good deal, 3) aren't able/willing to do the work to add value.  While they do have their place and they could be the best fit for you, generally the person getting the best end of the deal on a turnkey property is the guy selling it to you.

Whether you go turnkey or value add, you will get more cash flow out of CA.  The key is to build the right team - property managers, contractors, etc.  If you do that right, investing out of state can be easy.

Here's what I recommend you do to figure out what you want:  keep analyzing deals in SoCal, and at the same time pick an out of state market and analyze deals there as well.  Compare the results of the two markets, and then decide what fits you best!

Good luck,

Andrew

@Charles Frederick, also try TaskBullet.com.

1st, great mindset in looking to get a VA. Too many people spend time doing repetitive things that can (and should) be handed off to someone else.

Regardless of what VA company you use, make sure you get the system and procedures worked out well for whatever you are having them do before you have them do it. Also, the best way to train them is to use a screen recording program to create videos of you doing it. The clearer your instructions, the better your results will be. Also, if a particular VA doesn't work out, you'll have a ready made training program for the next one.

Andrew

@Michael Doherty, since no one else answered this I'll jump in.  First, by "MFH" I'm assuming you mean manufactured home?

While I have no direct experience with manufactured housing, when it comes to apartments, condos, or houses I have always stayed away from land leases.  It's a big variable that is generally 100% outside of my control, and that's something I don't like (plus other downsides).  So if a property has a land lease, I am not interested. To answer your questions directly:

1.  Yes it will affect your cash flow and you need to factor it in as an expense.

2.  Whether or not the cost increases depends on the lease.  You would need to get a copy and read it carefully.  I know of one project where the land was leased for $600/month, and when the lease expired the land owner jacked it up to $2,000/month.  Values dropped, a bunch of owners just walked, and the whole thing is now deep in litigation.  Not something I would want to be involved in!

3.  From what I have seen, properties on leased land typically are harder to sell.

One final point:  when you are looking for comparables, you can only use other properties that are on leased land.  A property that is fee simple is NOT a comp for something on a land lease.

Andrew

 @Brandon Sturgill, just about everyone is writing books these days, so there's a lot out there.  The two I like have been around for a little while but everything is still relevant:

Dave Lindahl: Emerging Markets

Dave Lindahl: Multifamily Millions

I read these when I was getting started and really liked them.  No book is going to prepare you to run out and buy a 100 unit property, but these will give you a great overview.

Andrew

@Ryan Franklin, I have worked with Kim Taylor before and can recommend her.  I also work with Gene Trowbridge.  Google makes him very easy to find :-)

Syndication is NOT something to do without a good syndication attorney.  The SEC takes it very seriously, and it's a complicated matter.  You are an investor, and the highest and best use of your time is putting good deals together and raising money.  Hire a good attorney (Kim or Gene!) and let them take care of it.  While the fee isn't small, it's not much when considered in the overall cost of an apartment complex or getting tangled up with the SEC.

To answer one of your questions though: If you are doing a 506(b) offering and not soliciting, you can take "sophisticated" investors.  These are roughly defined as people who aren't accredited but have the knowledge and skill to be able to determine whether or not your offering is a good fit for them.

Andrew

P.S.  Congrats on the deal!

@Ryan Franklin, yes with the series LLC it all flows into one return. I haven't used one personally yet though, so be sure to get advice on them from someone who really knows!

Andrew

@Ryan Franklin, that depends on a lot of factors:

1.  The size of the properties

2. The cost of creating & maintaining an LLC in your state(s)

3.  How complicated do you want you life and taxes to become?

4.  Your tolerance for risk

For me, most of our properties are 100 units or bigger, so it absolutely makes sense for each one to have it's own LLC. I'd say that's the case for most multifamily properties. Once you get down to SFR, duplexes, etc., it becomes more of a business decision. A separate LLC for each house in a 20 unit portfolio would be a giant headache and not cost effective, although it would keep a lawsuit from spreading beyond one house. I have known some investors that will group properties together, and put 5 or so houses in each LLC.

Another option is a Series LLC. This is basically a bunch of LLCs that are treated as one big LLC, where each member LLC is a "cell" of the parent LLC. This keeps things a bit simpler on your end, but still provides liability protection for each asset.

Andrew

@Brentin Hess, good to see you on BP.  I've acquired about 1,600 units in the last 6 years, all through syndication. It's a great model in that it let's you do bigger deals and more of them, but at the same time having the accountability to your investors forces you to do only great deals.  Ironically, I've found it's easier to lose discipline when buying for just yourself than when you know other people are counting on you!

Andrew