All Forum Posts by: Tim Chen

@Allan Ramos couldn't agree more! But the IE and Riverside county, you can still find some cash flowing properties, just wouldn't capture as much of the appreciation benefit. I'm also not sure how much forced appreciation these rents can be pushed. But the development of luxury apartments is still climbing pretty impressively and when I see a 400 sqft studio in a new development renting for $2,500, it makes me believe that these older apartments will be able to continue to force rents upwards. @David Faulkner this has been a beautiful flip market! good insight. @Jay Orlauski I hear you. Targeting motivated sellers is #1. Truthfully, most multi-family transactions happen off market in my area. Information is king. I once called an agent to find out his closing #s on a property he listed and sold and he very aggressively said no, this information is what gives me the edge in the market. I thought was ridiculous but there is some truth in it. I'm more of the share whatever you know type of person. 

@Mike Flora I did not go to that seminar but i have seen him in the past and I agree. Every time I read his articles in the AOA it seems to be about the market being in a bubble, which I do think it needs to cool down eventually, just not sure what economic factors will be the driving points. @Matt R. I would agree that you can make money in every market. Now, it must also be considered that larger investors have access to a very different range of product. Recently, the panda express family bought a mixed use building in my back yard for $154 million. That was priced above a 4 cap and was an A grade building. There are different opportunities for the larger investors. I am only playing devil's advocate here, I agree everyone can make money anywhere, I am just looking at a generalized view of the market here versus a broad snapshot of another market and how much more can this market grow before any type of adjustments. It's continued to grow for such a long time, who knows. I've looked at some CoStar reports and they seem to anticipate this year being the year, but with how the markets have progressed, I take everything with a grain of salt. @Aaron Mazzrillo I think that's a funny statement. I would say, it's not restricted to just the wealthy Californians! The poor Californians are welcome to lose money OOS as well! I'm fearful myself of investing out of state due to my lack of control and knowledge in it, but, it seems to work for some people who, hopefully, have done their own due diligence. 

There are some apartment owners that I meet with, that, for whatever reason, do not want to give me their expense information. When that happens, then I use the below information as a preliminary way to calculate their expenses. Sometimes, they'll give me information that sounds unrealistic as well, like a 12 unit building all two bedrooms, master metered water and the monthly water expense is $200. In those cases, I will also refer to this list to do my own underwriting because I want to be conservative in my calculations. Some owners will say to you "What the heck, this is way higher than what I operate at" and you can respond to them with. "That's great! I understand that you might be operating more optimally than what I have here, but I have put these numbers because these are the underwriting numbers that the lender is going to use." FYI, I work in Los Angeles county mainly in the San Gabriel Valley so some of these items may be very different from your respective cities. 

Property Taxes: 

1.08-1.25%

Confirm with the city

Direct Assessments: 

Contact City

Insurance: 

$.30-$.40 per sqft. of building

Utilities 

$45/unit/month - Water,Gas,and Electric Individually Metered

$75/unit/month - Mostly Studios + Small 1's

$85IunitImonth - Normal Unit Size

$90-$100funit/month - Large Units

Trash 

$100Imonth - 5-10 Units

$150Imonth - 10-20 Units

$250Imonth - 20-35 Units

$350Imonth - 35-50 Units

Pest Control 

$60/month - 5-10 Units

$100Imonth - 10-20 Units

$150/month - 20-35 Units

$200Imonth - 35-50 Units

Repairs&Maintenance 

15%of EGI - High Deferred Maintenance with Low Rents

10%of EGI - Deferred Maintenance

7.5%of EGI - Decent Shape Rent Control Asset

4-5%of EGI - Good Shape Rent Control+Non-Rent Control(1978-1999)

2-3%of EGI - Newer Construction(2000+)

Landscaping 

$100 per Month - Small Landscape

$150 per Month - Large Landscape

$200 per Month - Large Landscape Area in need of regular trimming

Pool 

$100-$200 per Month

On-Site Manager 

$30IunitImonth

Manager 

4-6% of EGI

Replacement Reserves 

$250 per Unit

Laundry Income 

$10/unit/month - Singles or Small Families(3-4)

$15-$20/unitImonth - Larger Families(5-6)

Vacancy Rate 

Based on REIS

@Phil Hong If you're just wanting to look at a map then http://graphics.latimes.com/soft-story-apartments-needing-retrofit/ is good because it's visuall mapped out, though i don't know if this is a comprehensive. So for that reason, if you have a specific address you are looking for then I would recommend you go on the county website https://www.ladbsservices2.lacity.org/OnlineServices/?service=plr

Today i met with a client and he shared something with me. With Chase's rates on a quick rise to the neighborhood of 4.29% for multi-family lending, he wanted to explore his options with other lenders and settled with East West Bank. As luck would have it, East West Bank is now requiring a hold back of funds for retrofitting. This does not only refer to the city of Los Angeles mandate, where soft story retrofitting is already required and owners have 7 years to remedy, this was a multi family unit in San Gabriel with tuck under parking. Again, this was a lender requirement and not one put forth by the city. The 3 conditions that the lender had required before closing were as followed.

1)get an engineer out to estimate costs 2) bank will hold back 1.25x the cost of fixing it and it will not be released until fixed 3)6-9 months after close have the retrofit work completed.

If the loan was $1m and the estimated costs for retrofitting is $100k, then they would only give you $875k and hold the $125k, not to be released until work is complete. Be careful when investing in multi family units with Soft story structures because, even if it is not required now, it will likely become something you have to fix in the future

Those are definitely not typical questions but that doesn't matter, if you ask it, the agent you are working with should work with you to find the answer. Sometimes the seller's won't know the answer to those questions so you may not get any answer. You will have a due diligence period once your offer gets accepted where you can research on all those things and disclosures will be required where they would need to release that information, if they know of it. If you don't like the answers that you get then you can back out, so long as you are still within the contract contingency period. Sometimes agents don't want to ask these questions up front because they feel it lowers the chances of getting offers accepted because the buyer may appear "troublesome" to the seller so they wait until it is accepted to find out all the details of past issues. 

@James Andrews On the BP website, the tabs and under "Tools" there is a "rental property calculator." You can use them three times to valuate properties and unlimited if you're under PRO version. I agree with @Michael Le, you should really educate yourself on valuating property and learning the market around where the property is located before taking any action. Once you know that, then you should meet with a few lenders to see what you are qualified for or what you are capable of getting. Or finding people that are willing to go into the deal with you. a 5+ unit is going to have extremely different underwriting guidelines than 1-4 units. 1-4 units are where you can usually use less capital to invest. Once you know your limits, then you can actively look for properties knowing what you can and cannot close on. As they say, you should be making your money once you buy the property which would require analysis. 

@Jake Dion Kindem Yes, if you have access to information for what rooms are renting for in the area, then you would use that information. Like most things in real estate, rent is decided comparably to everything else that has recently rented/is active on the market. It's usually a little tough to get information on individual room rentals so I would suggest you look at what similar style studios are renting for in your market area and use that as the benchmark for the maximum price that a bedroom would rent for. (Since studios would be the cheapest independent units in an area.) Then I would look at what similar styles 2 bedrooms are renting for and then divide it in half. So if two bedrooms are renting for $1400 a month, then the assumption would be that a rent for a singular bedroom will be approximately $700. This is using the assumption that two individuals may rent a 2 bedroom apt/house and split the cost and live separately in the two bedrooms. Be very careful with what information you give someone. If they are unable to obtain that price, they might blame you for the shortcomings. Sometimes it's best just to give the a range and tell them to do their own due diligence.

@Andrew Johnson great point, thanks for pointing that out. 

Every investor I meet, I like to ask them about their thoughts on where the real estate market is headed, specifically in California. People seem to give me answers from both ends of the spectrum. Recently, I spoke with an investor with half a billion dollars in real estate holdings and right now, his thirst for real estate is greater than ever. He anticipates hyper inflation. 

In the market where I work, Pasadena and Alhambra, the cap rates are so compressed. Buildings are selling at GRMs over 20x and Cap rates of 2-3% actual and 4% pro forma. Recently we brokered and closed the sale of a 7 unit apartment building at $440k a unit and $650 per sqft. It set a record for the area but I'm not really sure how the market can get any higher than that. I personally feel like we're due for an adjustment but what does everyone else feel? It seems the only thing preventing the multi family market from blowing up is the lack of inventory. The small escalations in interest rates haven't seemed to faze any investors. 

I'm curious, what are everyone else's thoughts?