All Forum Posts by: Ara Abrahamian

We’re starting a remodel of a rental apt and considering using LVP for the first time. Typically, we do ceramic tile in kitchens/baths and laminate floors in common areas and bedrooms.

Was looking for some input before deciding whether to switch to LVP throughout the whole unit.

- What would be the benefit of doing LVP instead of ceramic tile? Tile is more durable and only marginally more expensive. Assuming $6/ft for tile and $4/ft for LVP (labor and materials), this only comes out to a $500 difference on our 250 sq ft of kitchen/bath space. In the big picture of a $20k remodel, this isn’t major. The LVP we would use would be ~6mm thick and have a 20 mil wear layer. The place will probably rent out for $2300-$2400.

- If we do go with LVP, is it ok to install it wall to wall and have the cabinets sit on top of the tile? One flooring store said this might cause the planks to buckle due to seasonal temperature changes (didn’t realize we have seasons in Los Angeles, but decided not to bring that up!). We typically like to take the flooring all the way under the cabinets so that if there’s ever a leak, it comes forward and does not just pool under the cabinets and lead to mold/rot. Any thoughts here would be appreciated.

Another thing I’m considering is using tile in the kitchen/baths and LVP in the living and bedroom to avoid water damage from mopping, but then I’ll need to add cork under the LVP to raise the finished surface to be more flush I’m with the ceramic tile.

Any suggestions would be much appreciated.

@Mark Hentemann, thanks for the reply. I think the key takeaway is to keep an open mind and make a decision based on what’s available in the market. I appreciate you offering your perspective and recent case studies.

To clarify, the above question about values is in regard to the LA market, specifically the San Fernando Valley. Thanks.

@John Warren, @Jeffrey Isenberg, and @Mark Hentemann - thanks for all the feedback.

John, I'll look into the commercial Fannie Mae deals you mentioned. I wasn't aware of the larger loan programs they offer.

Jeffrey, thanks for the feedback. Can you clarify what you meant by "market rent programs that offer 70-75% LTV"? Is this a specific type of loan? A different way to underwrite conventional <= 4-unit properties?

Mark, I appreciate your feedback as well. You make a strong point about the economies of scale with the larger buildings. This had always been my intention - to get into larger properties with 1 roof, 1 driving route, 1 sprinkler system, etc, but I recently started considering the multiple 4-units to (A) increase property value (through leverage) and (B) create a path to "average-out" to a decent blended cap rate across multiple properties.

The multiple 4-unit strategy would allow me to purchase 2 properties with ~30% LTV within the 1031 window to satisfy the requirements, then do a cash-out refi (almost immediately) and redeploy the rest of the capital into 2 additional properties when cap rates improved. Although I'd buy 2 properties at 4% cap, the other 2 would hopefully be at a 5.5-6% cap, leading to a better average cap rate than deploying all $1 million from this sale into a 4% property today. Is this something you would take into consideration at all? Do you think there are acceptable deals to be had at the 8-15 unit range ($2.5-$3.0mm) in today's market or is it better to consider this "averaging" strategy?

Thanks, Joseph, agreed. I think it boils down to supply / demand for housing but, nevertheless, I'm sure there is a lower limit on what return investors will accept. I think 2.9% is below that threshold. I'll go back and revisit my numbers.

@Joseph Cacciapaglia, thanks for the clarification. I always approached properties from a cap rate perspective (even 4-plexes), but I can see how others might not.

@Jaysen Medhurst, thanks as well. For the agency debt, it might be worth considering if I do 1 large property. Wouldn't work for the smaller ones due to the minimum size requirements.

Regarding the analysis, I'd be happy to share the Excel file, but don't see a way to do that here. It all comes down to the assumptions, but I was assuming 5% annual appreciation on the 4-units and 4% appreciation on the larger multifamily. This was essentially the biggest driver of the delta. Property value grows from $3.6M to $5.9M ($3.9M equity value) in the former scenario and from $3.0M to $4.4M ($3.0M equity value) in the latter. This difference is partly offset by more cumulative cash flow in the larger multifamily due to slightly higher cap rates there ($500k of cash flow over 10 years vs $175k with the 4 quadplexes).

But again, the assumptions make or break it. Under the forecast I built, the 4-plexes at $5.9M in year 10 imply a cap rate of 2.9%. I think it's unlikely that cap rates stay that compressed for that long.

@Jaysen Medhurst @Lauren Speidel @Dave Foster @Joseph Cacciapaglia

Thanks for all your input / suggestions. A couple reactions / thoughts:

- When mentioning "forced appreciation" on larger multifamilies, I assume this is through rehab / renovation. Why is this more doable on larger properties rather than small? In my experience, it's fairly common to find value-add triplexes and quadplexes.

- I wasn't aware of agency debt for larger properties. I'll look into it. Would this be through ordinary mortgage brokers?

-@Dave Foster regarding 1031 strategies, your last suggestion is spot on. If I go the route of pursuing 4 separate properties, I would try to close just 2 properties within the 180-day window. Then I'd refi and redeploy into 1-2 additional properties. Hopefully, this would also allow me to buy the next 2 properties at more favorable cap rates. The CA multifamily market is on the verge of softening with recent (and upcoming) rent control legislation coming into effect, leading many investors to sell / move their capital out of state. I particularly like this option because I'm somewhat afraid to deploy the full amount at 4% cap rates (going price in LA). If there's just 100-200 bps of cap rate expansion, that will negate all appreciation from 3-5% rent increases. My only concerns here are (A) qualifying for 4 separate resi loans and (B) whether I can get a 70-75% LTV on a cash-out refi for the property that I purchased all cash, since lenders are more aggressive on purchases than refis.

- Last question - would a portfolio loan make sense to fund the purchase transactions (especially if they are spaced out over time)? It's a good idea that I hadn't considered, but it seems it would be more appropriate as a refinancing option after I have all 4 properties under title. Am I missing something?

Net-net, it sounds like both options have their pros and cons. I have some work to do with regard to looking into financing options and also evaluating true NOIs for properties listed in my market. Thanks for all the constructive feedback.

Also, in case anyone's curious, I ran some math on both scenarios, using hypothetical purchase metrics, NOIs, and appreciation. Projections are projections (and often wrong), but the fourplex strategy yields approximately $500k more value over 10 years (+$800k asset value, -300k less cash flow). But, of course, it all depends on what assumptions you use.

I own a 4-plex in Los Angeles and have built up ~$1 million of equity in the property (bought in 2011, at the lows). I'm considering selling the property and exchanging into more units (still in L.A.) but I'm trying to decide between two strategies and would be curious to get others' thoughts.

Option A - Buy 4 fourplexes. With $1mm equity, I can theoretically cut four $250k checks and, with 70% LTV, purchase four $900,000 fourplexes. These would be smaller units or in slightly less optimal submarkets of LA (e.g. North Hollywood vs Burbank), but would leave me with 16 units and $3.6 million of property value.

** I recognize it might be tough to find 4 properties that are actually worth investing in at today's prices, but let's assume we can find them (or be patient enough for opportunities to materialize).

Option B - Buy one larger multifamily (e.g. 12 units) for $3 million (with ~$1 million down payment).

My questions are:

1) Is one option clearly better than the other?

2) For Option A, which assumes standard conforming Fannie/Freddie loans, would it be difficult to quality for 4 residential mortgages within a 12-month time frame? I have generally strong W2 income, but I feel I'll hit up against DTI ratios if I don't have tax returns showing the income from the new properties (which I won't have until ~12 months after closing each property).

3) Is it even possible to get 70% LTV these days on conforming 4-plex deals?

4) Brokers that I'm speaking with (Marcus & Millichap, Colliers) are saying that 4-plexes generally appreciate more per year than larger multifamily. Is this true in your experience?

5) Are there any other concerns / pitfalls I should watch out for as I enter this process aside from the 1031 timing considerations?

I own a 4-plex in Los Angeles and have built up ~$1 million of equity in the property (bought in 2011, at the lows). I'm considering selling the property and exchanging into more units (still in L.A.) but I'm trying to decide between two strategies and would be curious to get others' thoughts.

Option A - Buy 4 fourplexes. With $1mm equity, I can theoretically cut four $250k checks and, with 70% LTV, purchase four $900,000 fourplexes. These would be smaller units or in slightly less optimal submarkets of LA (e.g. North Hollywood vs Burbank), but would leave me with 16 units and $3.6 million of property value.

** I recognize it might be tough to find 4 properties that are actually worth investing in at today's prices, but let's assume we can find them (or be patient enough for opportunities to materialize).

Option B - Buy one larger multifamily (e.g. 12 units) for $3 million (with ~$1 million down payment).

My questions are:

1) Is one option clearly better than the other?

2) For Option A, which assumes standard conforming Fannie/Freddie loans, would it be difficult to quality for 4 residential mortgages within a 12-month time frame? I have generally strong W2 income, but I feel I'll hit up against DTI ratios if I don't have tax returns showing the income from the new properties (which I won't have until ~12 months after closing each property).

3) Is it even possible to get 70% LTV these days on conforming 4-plex deals?

4) Brokers that I'm speaking with (Marcus & Millichap, Colliers) are saying that 4-plexes generally appreciate more per year than larger multifamily. Is this true in your experience?

5) Are there any other concerns / pitfalls I should watch out for as I enter this process aside from the 1031 timing considerations?

Thanks, @Mike Reynolds and @Craig Tripp.  The doweling and SL1 are good suggestions that I hadn't thought of.

On another forum (bethepro.com), some others correctly pointed out that it's probably not a great idea to concrete around main water pipes / gas valves that are in some of these planters. I'm considering an alternative approach, which would be to fill these areas with sand/granite and install paver stones to create a more rigid/flat surface, which would still provide accessibility for future repairs.

Might make sense to adopt both approaches, according to the specifics of each area.

Much appreciated!