All Forum Posts by: Jon Schwartz

@Jorge Liang, lots of answers, but none of them from LA landlords. Google "Los Angeles eviction lawyer" and call one that offers a free consultation. Explain the situation and ask how best to proceed. I'm not saying you can or should evict, but an eviction lawyer will know what course of action to take so that you don't get in trouble.

Good luck!

Jon

I also owned a duplex, lived in one unit, and rented the other -- so I know how these situations need to be dealt with in a way that doesn't create animosity.

You *definitely* need to tell your tenants that, even though this was an accident, they are responsible for the damage. If another driver accidentially rear-ended them and damaged their car, that driver would be responsible for the damage, right?

Secondly, their car insurance will *definitely* pay for this. You should ask for a copy of the driver's license and their proof of insurance just like this was an accident between two cars. Call up their insurance and make a claim.

Honestly, it doesn't matter if you have a deposit or not. You're the vicitm of a car accident in which the other party is culpable, so their insurance will honor the claim.

Good luck!

Jon

 Nicholas,

The great opportunity in LA multifamily right now is ADU construction. You can add two and possibly three ADUs to any multifamily building in LA. This is a massive opportunity because of the value it creates. I'll explain...

As @Greg Scott pointed out, buildings in LA are expensive. A nice fourplex could cost $2M -- and for that money, you could buy a few dozen sh*tty doors in Arizona.

But LA isn't expensive just in nominal terms; the buildings are expensive relative to the rent generated. A typical Gross Rent Multiplier (GRM) in a good LA neighborhood might be 18. That means a buildings sells for 18x it's annual income. In our example of a $2M fourplex, you should expect to earn $9260/month in gross revenue from that building. Here's the math:

GRM = Purchase Price / Annual Rent

18 = $2,000,000 / ($9260/mo x 12 months)

But here's where LA gets interesting!

Let's say our fourplex has soft-story parking (that's ground-level parking with units overhead) that can be converted to two studio ADUs. A newly-built ADU easily rents for $1600/month in decent LA neighborhoods. By building two, we've increased the gross monthly revenue by $3200. And because the building will trade at an 18 GRM, we've increased the value of the building by $691,200! Here's the math:

($3200/month x 12 months) x 18 GRM = $691,200

It would probably cost $250,000 to build those those studio ADUs -- so in addition to the cashflow return on that investment, you also immediately make about $440,000 in equity.

So, yes, Arizona has cheap doors and landlord-friendly laws, but if you understand LA ADU ordinance, the opportunity right now is in LA. Happy to chat more if you're interested.

Best,

Jon

This sounds great! Jon Schwartz - [email protected]

 Hi! Current S-Corp'er and former C-Corp'er here!

Your S-Corp isn't a separate entity, so I don't think it qualifies any better for financing that you individually.

And because it isn't a separate entity, I'm pretty sure you'll get the same tax benefits whether you own the building on your corp.

I have two suggestions for you:

- Ask you CPA, not us bunch of idiots!

- Investigate buying the building with a commercial loan. Then the building gets underwritten, not you. If you have a 33% down payment, you may be able to put a commercial loan on it. Though it's a residential property, many commercial lenders in LA will offer commercial financing on a 4-plex of that value.

Good luck!

Jon

Fellow Angelino chiming in here...

With all due respect to @Janet Behm and her finger-wagging, the County Assessor will definitely not find out about your addition if you do it without a permit. Janet must have forgotten that LA County has about three times the population of her entire home state. Anyway...

The additional square footage will most likely not be counted by the assessor when you go to sell. If you add 100-200 sq ft, not a big deal, but if you add 500 or more, the discrepancy might become a problem.

Also, if you add bedrooms or bathrooms, those won't show up on the assessor's records, either. It's always a mild red flag with a home is selling with more bedrooms or bathrooms than reflected on assessor records.

My recommendation to clients is usually along these lines: if you want to do an interior remodel without permits, go for it. If you want to add square footage, bedrooms, or bathrooms without permits, then you might get dinged on the sale.

Good luck!

Jon

@Alexandra Arnhold, I love my CPA, Akore Chemello. She knows real estate (in CA and out-of-state), and her pricing is beyond fair. Here's her website: https://www.thebusinesstaxgroup.com/

@Savannah Walbert, as an LA local, I can't help but jump in to defend our home town!

Have you considered house hacking a duplex in LA? Again, I'm partial, but I think it's the best investment that a young professional (or young couple) in LA can make.

Since you're clearly doing well outside of real estate, I'd think of your real-estate investments as opportunities to build wealth over a longer timeframe -- as opposed to opportunities to score some cashflow. I was in a similar position and looking out-of-state some seven years ago, and I ultimately decided that sitting on a big, appreciation asset in LA was more valuable than a few hundred dollars a month of Midwest cashflow.

What's your cost of living in LA? If you're living for free with parents, that's a different story, but if you're saddled with an expensive rental, converting that cost of living from a liability to an asset is a great move. Especially since you're both young and, I assume, childless. I house hacked a duplex until my daughter was four; at that point, we really wanted a "house" house.

Good luck!

Best,

Jon

It depends on where you live. Different states have different laws regarding tenant eviction.

@Spencer Krautkramer, definitely consult with a CPA who understands real estate. If you're putting money into fixing up the property, that's almost definitely capital expenditure, which you don't write off against rental income. Capital expenditure is added to the cost basis of the property.

For example, if you buy a $300,000 property and put $100,000 into repairing it, then sell it for $600,000 at some point, your capital gain is only $200,000 because your cost basis was $400,000 ($300K purchase price + $100K capex).