All Forum Posts by: Account Closed

Investment Info:

Large multi-family (5+ units) other investment.

Purchase price: $4,950,000
Cash invested: $1,500,000

24-unit value-add in up-and-coming Los Angeles location. 1920's historic, architecturally significant property. Rebranded as Chateau Westmoreland, restoring original character, but modernizing. Have turned 4 units, increasing rents and are adding storage. Adding value and so far, exceeding projections.

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

I know this area and it is poised for growth -- an affordable pocket between Downtown LA, Silver Lake and Hollywood. It's an historically significant property in disrepair, and the seller was motivated, creating an opportunity to buy cheap, and add value to this property that, we predict, if it's restored to it's original character, it would be a coveted residence in an increasingly prime area.

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

A broker relationship I've had for 15 years, and I've closed on many deals with. He brought it to me and intimated that the seller was very motivated.

How did you finance this deal?

A regional bank, 5-year fixed at 4.5%. Wanted a 5-year term because the we expect to add most value in years 1 & 2, and want to be able to refi with minimal prepay penalty.

How did you add value to the deal?

Turning units in disrepair and upgrading them. The neighborhood supports premium rents. Also used RUBS program, added storage, and are exploring consolidating cable and wi-fi contracts.

What was the outcome?

Work in progress. So far so good...

Lessons learned? Challenges?

Syndicating this deal with first-time partners. We're both experienced and have known each other, wanted to do something together. Partners can be fun when each bring a different area of expertise. ...Our bank was slow with the loan due to the holidays, and whereas most sellers tend to be flexible if they know you're going to close, this one wasn't (I think he was bitter because of the price he accepted). It was a nail-biter. In future, need to negotiate contract extension options.

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

Todd Sherman at First Pacific Financial is my loan broker, who always delivers.

I started with a duplex in Los Angeles, lived in it and self-managed the other unit.  It was a great way to dip a toe in the water, and understand the assets I was investing in on a small scale.  But I immediately recognized the value of economies of scale, and more doors under one roof.  I salivated at the 4, 6 and 8 units on the block.  They were more stable if a tenant moved out.  I then I jumped to 4, 10, 20, 36, 48 and beyond, and still go for economies of scale.   Bottom line: SFRs & duplexes are a great place to start, but if you're ambitious and can put together funding, starting larger works too, but know that you're taking on more opportunity, more leverage and more risk.  Be sure to buy right, and keep an eye on the management company.   Good luck!

I agree with Todd Dexheimer's suggestions. I'd also add: avoid turnkey and A-class properties. Buy B & C class in good up-and-coming locations and add value. You should be okay. I bought through the 2008-11 real estate collapse and recession, and it was anxiety-producing, but the B & C class properties I invested in were surprisingly resilient. This is what tends to happen during a recession: homeowners who get into loan trouble become renters. And renters in A-class, high-end properties can no longer afford them, and move down to B & C class units. So B & C class properties are a good place to be. The investments we made in these assets in 2008 (just before the collapse) had tripled in value when we sold in 2015. Be careful. Pick a good location. Buy cheap. Don't over-leverage (75% LTV is reasonable). Add value. ...Good luck!

Mark

Yes, there definitely are areas along the light rail from downtown to SM that are surging due to convenient transportation.  The Wilshire corridor from downtown heading west is improving and is a promising place to invest.  Koreatown is becoming a hotter market not just because of the metro, but also its proximity to downtown.  Same for Miracle Mile.  You can look on the city website and find all of the development projects mapped out throughout the city... allowing you to target your investments in areas of growth.