All Forum Posts by: Kevin Z.

Thank you for all the replies!  Chris - busted me - I'll take all the advice I can get!

I should edit my original post or at least have those smarter than I check my math because I stated 2.2% CAP on the $30k investment but I believe it is actually 22% ($6,600/30,000 = .22).

Kevin: Interesting insight. So you have found that vacant units w/ market gross scheduled incomes are doing better than occupied units at or close to market rents in place? Have you found any differences between 1-4 and 5 and above units? I imagine higher actual NOI favors the 5+ properties w/ commercial underwriting? And yes, lots of mixed responses from people I have spoken to!

Sue & Tracy:  The tenant is ok.  They do pay on time, they could do a lot better at taking care of the apartment and I have had a few minor issues with them.  Certainly could be a lot worse.  I guess it is just weighing out if losing the $30,000 in liquidity would set me back significantly on getting the next property or if getting better in place cash flow from the current property will help me on the finance side enough to offset the $30k?

Thank you all again,

Kevin

Hi all,

Would love your thoughts on this.  The Building is in Los Angeles, CA. Subject to rent control.

TLDR: Own an apartment building. Should I spend around $28,000 to get an additional $550 a month in rent (conservatively) by doing a cash for keys deal? The $28,000 includes all costs associated with paying the tenant to leave as well as the cost to renovate the unit so it can command market rent.

Detailed Version: I have a 4 unit apartment building in Los Angeles. The building is subject to rent control. I inherited all the tenants when I bought the building. One of my units has a long term tenant who pays below market rent.

The below-market tenant is an ok tenant - They are a bit messy but pay their rent on time and to my knowledge, don't really cause any problems.

If I did a cash for keys deal with the existing tenant and renovated the unit, I think market rent for a good, creditworthy tenant would conservatively be $550 /month higher than current rent.

Including the attorneys fees, paying the tenant, vacancy during renovation and cost of renovation, the project will cost between $28,000-30,000.

I do have the cash on hand, it generates maybe 1% at the moment as I have a fair amount of liquid cash sitting in the bank.

It would take about 4.54 years to recoup, basically a 2.2% CAP on the $30,000 investment. Not that exciting but more than it is currently generating (and of course not factoring that rent will still increase each year).

I plan to hold onto the property, but, comparable buildings in my area trade at around a 5 CAP. So from a value-add standpoint, the $30,000 investment could add $132,000 in value at a 5 CAP.

Would appreciate any thoughts. I'm not blown away by the numbers but they are not terrible so I am conflicted.

Thank you!