All Forum Posts by: David P.

So the tenants noticed something was structurally going on and then informed the city? Was that their reason for stop paying rent saying it was unsafe? Wouldn't you be able to get your home owner insurance involved for this? I thought thats the whole purpose of insurance is for situations like this?

From my experience a lot of home inspectors do the very basic. I wouldn't go the inspector route cuz that maybe hard to prove in court. I woud get home owner insurance involved and they would actually pay you lost rent due to house being unhabitable or unsafe and give a tenants a place to live.

For these situations it all comes down to how was your relationship with him during those 4 years. If they were good tenants then i would not sweat the small stuff. If they were tenants that kept breaking every rule and taking advantage then yes i would turn it around and be more strict. 

Quote from @Sam Yin:

Quote from @David P.:

Quote from @Sam Yin:

@Bruce Woodruff

Good morning Bruce. Lots of great points and opinions already. But I'll chime in... from a SoCal perspective...

I think the market is still hot! It's predominately a sellers market still. Although I mainly concentrate on small multifamily, I can tell you that it is HOT!!! It flies off the shelf if it gets listed at any reasonable price. However, most times it never gets listed because the demand is so hot that the agents get it sold with only a few calls.

The last 5 out of 7 deals I closed were all off market. And I had to jump on it because I knew if people got wind, I would lose them. They were all small multifamily, 6 to 20 unit buildings.

My most recent deal, to be closed next week, is also off market. It has a blended COC of 7.5, CAP of about 7.5, and GRM of about 8. Total price was originally about 2M, but I negotiated to 1.85M with a promise of no trades. Its 14 homes and one vacant lot, spans 1.5 blocks, and unit mix from studios to 4 bedrooms.

I am always looking and negotiating and I can tell you that the market here is so competitive that you better have funding at a moments notice. There is no sign os slowing down, only limited inventory. I was negotiating a 32 unit and was almost there when the word got out. Suddenly all kinds of investors jumped it to snatch it up.

I feel that the market will vary from region to region. However, the major markets might have seen their bottom, or close to bottom... with the stagnant prices. Now, there may be a good possibility that it will begin another in up in 2024. I do not have any concrete evidence, just a gutt feeling based on experience.

Sam, I'm in Southern California too and invest mostly small multi family 1-4 units. Recently try to bid a triplex off MLS that was priced about 100k under value. I made an offer with the listing agent but still got beat by 2 cash offers at 1.2 mil. Curious though...how are you cash flowing with these high interest rates? I'm currently working a deal on a offmarket duplex in long beach but the numbers look terrible..almost negative 4k/month cash flow after all expenses with the rate and low rents. Both factors can be corrected over time but itll be a painful slow process. The rate portion we can't control. The deal itself is awesome at 360/sqft where the area goes for 450-500/sqft so that's the main reason I still want to pursue.

The simplest answer is to adjust the price until it fits your criteria.  If it's not accepted,  move on. Do not change your core criteria fit the price, that's a fail. 

back in Feb, there was an ON MARKET deal 6-units listed for $850K. For it to work based on current rents, the best I can do would be 770K. To the seller, that was absurd. Remember, to other investors, they would chase it at 700 to 780, but NOT at 850. Price dropped to 825K and it sat on Zillow for 177 days. So I made an offer for 770K. Seller scoffed. Seller came back a few weeks later at 790K. I said NO and moved on. About a month later, Seller asked if I was willing to put 770k in writing. I did, but I also asked the Seller to raise the rent on half if the units during escrow. And before we closed, I got another 5k credit. In April, it closed escrow, cash flowed, and I was able to get fixed debt of about 75% LTV at 5.85%.

Fast forward a few months, there was an OFF MARKET deal of 10 units, consisting of a 6plex, 2plex, and 2 SFRs next to each other on separate lots. The owner wanted out of the business and the numbers were decent. Rates had crept to almost 7%. As I walked the property, I noticed a vacant lot next to them, which would cover the entire block. So I made a deal on that. As I was a bout to leave, I got wind that there was a 4 plex on the next block for sale too, but the numbers were not quit there... because it was a 4plex obviously. I had just about enough in my savings and if I 1031x to purchase all of them as they were. But it would be tight and I was not about to put that kinda stress on me. To combine total was 2M. It could still work, but numbers were tight. I negotiated all of them to a combined 1.85M, with a verbal promise of no trades. Then I shopped Freddy Mac for a 6.81% loan at 80%LTV. In this case, Freddie Mac got stretchy due to the vacant lot. Long story short, I ended up with a local credit union with 75%LTV at 6.61% for 10 year, amortized 30 years, due in 20 years, with a rate cap of about 9% and a PPP of 3, 2, 1. It should close in 6 days.

Biggest hurdle for both was insurance!!!

Easiest hurdle for both was making them cash flow at COE. Stick to your criteria. If it doesnt fit, move on. No deal is better than a bad deal. Do not bank on appreciation... account for it, but it's no guarantee. 

Final thoughts, the 1 to 4 units are generally going to be much more inefficient for pricing because they are so accessible to people. In the about case, I combined all to blend the income in order to make the deal worth while.

There are still deals to be had in SoCal. I have seen it. I just do not have the capital to take them all down, nor do I have the time since I'm a solo operator. It's ok to send in a low ball offer, they the seller can just say No. Do not change your underwriting, if anything, increase your expenses. For the above deal, I underwrote $6K for my insurance. Best I could get was $11K. Luckily, I'm still at 1.34 DCR, so there is plenty of room.

Keep searching. Keep making offers. Keep in your buy box. You will find it and you will score. Long Beach is a cool community.  I lived there twice and owned a house in Bixby Knolls... my biggest regret was selling it. I bought it in 2002 for 250K...
 

Good idea bout getting the seller to raise the rents. I thought about asking the seller to deliver one unit vacant but knowing the seller there will be push back. Just for reference...i purchased a duplex from the same seller last year and that is why he is offerring it to me off market. He built 3 new construction duplex's in 2007 all next to one another on the same street. I would be purchasing the identical unit I purchased last year but next door but this time with tenants who are under market by a lot and my rate will be 2-3% higher. Last year I was able to get the owners unit vacant but that was because the tenants moved out voluntarily. He is offering me a discount of about 50k (1.28 mil last year vs 1.23 mil now). I don't think prices have changed much in a year down here in socal. The zillow zestimate says the property is worth 1.5 mil range so the price sounds good but the cash flow is not. They are 3500 sqft duplex so good size and good lay outs. Definately a great property long term in an A neighborhood...about 2 miles from Bixby knolls. Im thinking of biting the bullet few years until I can refi. 

Quote from @Sam Yin:

@Bruce Woodruff

Good morning Bruce. Lots of great points and opinions already. But I'll chime in... from a SoCal perspective...

I think the market is still hot! It's predominately a sellers market still. Although I mainly concentrate on small multifamily, I can tell you that it is HOT!!! It flies off the shelf if it gets listed at any reasonable price. However, most times it never gets listed because the demand is so hot that the agents get it sold with only a few calls.

The last 5 out of 7 deals I closed were all off market. And I had to jump on it because I knew if people got wind, I would lose them. They were all small multifamily, 6 to 20 unit buildings.

My most recent deal, to be closed next week, is also off market. It has a blended COC of 7.5, CAP of about 7.5, and GRM of about 8. Total price was originally about 2M, but I negotiated to 1.85M with a promise of no trades. Its 14 homes and one vacant lot, spans 1.5 blocks, and unit mix from studios to 4 bedrooms.

I am always looking and negotiating and I can tell you that the market here is so competitive that you better have funding at a moments notice. There is no sign os slowing down, only limited inventory. I was negotiating a 32 unit and was almost there when the word got out. Suddenly all kinds of investors jumped it to snatch it up.

I feel that the market will vary from region to region. However, the major markets might have seen their bottom, or close to bottom... with the stagnant prices. Now, there may be a good possibility that it will begin another in up in 2024. I do not have any concrete evidence, just a gutt feeling based on experience.

Sam, I'm in Southern California too and invest mostly small multi family 1-4 units. Recently try to bid a triplex off MLS that was priced about 100k under value. I made an offer with the listing agent but still got beat by 2 cash offers at 1.2 mil. Curious though...how are you cash flowing with these high interest rates? I'm currently working a deal on a offmarket duplex in long beach but the numbers look terrible..almost negative 4k/month cash flow after all expenses with the rate and low rents. Both factors can be corrected over time but itll be a painful slow process. The rate portion we can't control. The deal itself is awesome at 360/sqft where the area goes for 450-500/sqft so that's the main reason I still want to pursue.

Bumping this since it is an interesting topic and probably applies to every investor right now in real estate. When i purchased a duplex mid last year I thought 4.875% was high and I was already having trouble cash flowing. Currently I looking at making an offer on a tri-plex that is priced slightly below market and I am looking at rates in the 7-8% range. The current tenants are month to month with lower than market rents so there is room to grow. I will be almost negative 500 a month in cash after factoring all expenses.

The way I see it is that it is a long term play and if i can purchase a property below market then I am still good whether or not the property cash flows. In future there is many avenues to make gains and profits. If i just keep my money in the bank it is not doing a whole lot for me either. It is defintely hard to time the market and if rates were to drop the competition will also rise. For a real estate crash to happen it would require a lot of inventory to hit the market. Foreclosures seem unlikely due to everyone having equity. If a ton of people started going unemployed then I can see a crash eventually happening with people having a hard time to pay bills. For now I say if you have money to play and you have a passion in real estate and see a deal out there then the cash flow part is just a small part in the overall weatlh of owning real estate. 

Depends how much compensation are they asking and also how difficult it is to evict in your area if worst case scenario happens and things go south.

Quote from @Dustin Allen:

Quote from @David P.:

I would of problably done the same. The buyers had a time period to do their due diligence and by that time it was past the inspection period i assume. If they knew there was a flood in that area they could of asked before closing or asked to do more inspections.  Most time you buy a property it is as is once your inspection period is up. If you haven't told them anything yet..you could just play dumb and say the neigbhros dont know what they are talking about and nothing happened.  People all over the country find issues with a a property after closing and who knows if the seller knew in advance or not. 

 This is the worst advice ever! Great way to be in even more legal trouble. Anyone who tells you to lie isn’t worth listening to.

 If the basement is concrete and the water didn't sit for long..nothing is going to happen if it was cleaned up. It'll take long periods of sitting water to start causing issues. Mostly just drywall if it got soaked. Concrete is capable of some sitting water.

I would of problably done the same. The buyers had a time period to do their due diligence and by that time it was past the inspection period i assume. If they knew there was a flood in that area they could of asked before closing or asked to do more inspections.  Most time you buy a property it is as is once your inspection period is up. If you haven't told them anything yet..you could just play dumb and say the neigbhros dont know what they are talking about and nothing happened.  People all over the country find issues with a a property after closing and who knows if the seller knew in advance or not. 

I personally have rented in my early days like this. We had a landlord that was pretty hands off and as long as the monthly rent kept coming in she didn't care who it came from. It was rented by rooms back then so whenever one moved out it was up to us to find a replacement. Im guessing this is similiar situation. She never dealt with leases either. This was back in the 2000s when freeloaders wasn't such a thing so probalby a reason she didn't worry as much about eviction protections. 

Im in LA too and I think if I were you i would get new leases and said what the prior tenant did was not allowed and you didnt know about it but we do require a lease. 

I went through something similiar. I included a contingecy escrow will close with units delivered vacant so it was just an open ended escrow and it gives the seller urgency if they want their money to to keep pushing the issue.