All Forum Posts by: Account Closed

I think Cleveland (where I'm from) and other tertiary markets surged these past few years because we're at the end of the cycle. The more prime markets, with strong population growth and job growth, had gotten priced up to the point where deals no longer penciled out. As a result, investors chased yield out of those markets and into more affordable secondary and tertiary markets. I've seen that pattern through three economic cycles dating back to the mid-90's.  So, where you are in the economic cycle impacts what type of market is surging. But long-term return is ultimately driven by population growth, job growth, income growth, diversity of industry, constrained supply, and other factors (most related to "growth". I love Cleveland, but its sluggish population and job growth makes it cheap (which is enticing), but sluggish long-term. Does that make sense?

Hey Jordan, If your ticket is still available, I'm looking. Thanks
Mark

Hi Ara, if you're finding better opportunities in the 4-unit range than the 8-15 units, then, yes, pursue the better opportunities regardless of size.  You can always level up to multifamily later (possibly selling your 4-units in pairs to get into larger bldgs.  I just did this with a pair of 5-units in Koreatown that I'm trading into a 30-unit in Westlake).  

...And a benefit of 4-units is that you can find emotional buyers, who will buy at lower cap rates if you fix them up nicely.  

But a great thing about LA is the sheer volume of inventory there is.  You should be able to find 8-15 unit opportunities at 5+ cap rates, that compete with 4-unit prices.  You may need to explore up-and-coming areas that are more marginal now / earlier in their transition.

Your strategy of exchanging into a low leverage, then refinancing to pull out tax cash, works, too.  

I hope that answer isn't too confusing! 

I agree with both Ara and Jeffrey. I was faced with this choice 18 years ago after rehabbing my first duplex and having some profits to deploy. I decided to go into multifamily -- as many units with one roof, one foundation, one LLC, one tax return. I bought a 6-unit, then a twelve, then 24, alway value-add, always fixing it up. I'm now approaching 500 units, and don't think I'd be at this scale sticking with 4-plexes. It would simply be too much management, too many LLCs, too many tax returns, too many roofs, foundations, etc. That's my perspective. Keep it simple. It's the units that generate rental income, not the property. So go for more units, fewer properties. Hope that helps!

Hey Daniel, 

I think both LA and Arizona are good options.  LA has great long-term fundamentals.  It's a major city with a growing population, increasing foreign investment and a chronic lack of supply.  Los Angeles and Honolulu were ranked the most difficult cities in the U.S. to build apartments.  That means supply will remain tight and demand will remain high.  

Phoenix, on the other hand, is the fastest growing city in the U.S., and is still relatively affordable.   However, it's fairly easy to build new construction, so it may eventually be at risk of overbuilding (you might check stats on this).  But both are very solid markets.

If I were starting out, I'd stay local, only because familiarity lowers the risk.  If you don't plan to live in the duplex, I'd venture into submarkets that are transitioning the fastest.  Off the top of my head, Long Beach, South LA, Boyle Heights and East LA are all formerly marginal areas that are improving steadily and are much more affordable than more established areas.  There are others, too.  

Managing yourself would be a great educational experience, but you might hire a property manager for the first year or two, and watch how they do things. 

Hope that helps.  Good luck!

Mark

LA has the advantage of being local to you, so you'll have more access to the property and control.  If you plan to live in it, location 

Hey Patrick, I'm from Ohio, but did my first house hack in Los Angeles just after I moved here. If you're buying at a decent price and can improve the property, I would absolutely go for it. There's no better opportunity in the world to build wealth than an FHA loan house hack. It's a rare gift. You just have to do one thing: make sure the value goes up, not down. You can pretty dependably do this (in good economies and bad) by buying a neglected property (avoid turnkey!), add fresh paint, landscaping, and other cosmetic improvements, then spend some money creating a modern kitchen that will make the next buyers fall in love with it. If you can do that, you'll do very well with low risk. Thanks to the leverage you get with an FHA loan (a 25 multiple), it's not unreasonable that you could see your $11k turn into $150k. With my first duplex, I had no idea what I was doing, was terrified, overpaid, but made a dilapidated duplex look great. To date, it's probably the best return I've ever gotten, thanks to the leverage given only to first-time buyers (I made 2000% on my DP). Good luck!!

Mark 

Personally, I would run the other way... sound predatory.  The truth is you can learn it on your own.  Real estate investing is not that complicated.  It's one of the simpler businesses around.  I never had a mentor but agree they have value.  Reach out to successful investors you admire, and offer to work for them and value to them in exchange for some mentoring.  Don't let them take all your savings.  Use that to buy a property.

Investment Info:

Large multi-family (5+ units) fix & flip investment.

Purchase price: $2,900,000
Cash invested: $900,000

Purchased, held and renovated this 20-unit 1989 construction apartment building in Koreatown. Put $120,000 into renovations. Increased cashflow from $24,000/mo to $42,380/mo over 7 years. Since I was sole owner, I held and let it cashflow for 5 years before doing renovations. Pictures below show 3 post-renovation images and 3 pre-renovation images.

What made you interested in investing in this type of deal?

I was growing my multifamily portfolio and found this 20-unit in growing Koreatown area of Los Angeles. I used proceeds from a 1031 exchange that gave me $900,000 to invest.

How did you find this deal and how did you negotiate it?

A broker brought this deal to me off-market. The seller was motivated.

How did you finance this deal?

Using a broker, I obtained a 30% DP, 7-year fixed loan from Manufacturers Bank, a regional lender.

How did you add value to the deal?

Unlike other properties, this one I held and let it operate for 5 years before jumping into renovations. I was working long hours at my day job, and this area was improving. I wanted to let it improve before I turned this C-class building into a B+. By last year, it had done so, so I invested $120,000 into mostly cosmetic upgrades. I added a secured gate at the front of the property, created a garden for tenants, renovated the courtyard adding a fountain, and painted.

What was the outcome?

Rental income has nearly doubled since I purchased it. The area is now hot, where once it was marginal. I am about to list it for sale. The valuation I was given by brokers is $7,500,000. I purchased for $2,900,000. I held it for awhile (7 years), but refi'd and pulled my equity out after 4 years.

Lessons learned? Challenges?

This was a fairly simple deal. I used a designer for the renovations, and that helped give it a wow factor. I learned from this property that you really need to watch the management company, and push them on unit turns and make sure they maximize rents.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Brent Sprenkle of Berkadia was my broker, and he's been been a total pro on several deals I've either bought or sold.

Hi Cedric, we entered contract at about a 5.3% cap (after a broker credit and seller credit), and when we closed it increased to about 5.6% due to rent increases and a unit turn.  Pretty good cashflow for Los Angeles.  We haven't done buyouts so far, and will play that by ear.  The unit mix is studios and one-bedrooms.  I like this mix in rent-controlled buildings because tenants tend to be single people who move after 5 yrs or so due to life or job changes.  This regular turnover helps rents remain near market levels.  We're adding storage, doing RUBS, and reconfiguring some vacancies to capture higher rents, which we've had success with so far.  Thanks for the post!

Mark

Hey Kevin, thanks for the post, and congrats on your duplex & triplex.  I like Gardena.  Let me know if I can ever be of help!

Mark