Need help...Which rental 4-unit would you buy? In Los Angeles.

General Real Estate Investing
1

Goal is not really appreciation, but cash flow, and keeping that cash flow by having a good place to rent, don’t plan on reselling ever. Assuming everything else with numbers and the property is the same:

House A. Inglewood/South Los Angeles. 10 miles to downtown which is desired, 18 miles from where I live. Built 1965. Good condition. On busy street, lot of noise. Two story.

House B. Long Beach. 22 miles to downtown, 5 miles from where I live. Built 1935. Good condition. One story. On quieter street.

House C. Everything the same as B, but really better condition, costs $65k more and $4k more income in rents a year.

2

Amir,

You didn’t provide any useful information with which to decide which is a better deal. At a minimum, we need to know purchase price, gross rents, and rehab needed for each building.

Mike

3

Thanks for your reply, sorry. Not telling you all that information was kind of the point in getting the help/advice to decide the options. Assuming purchase price/rents/rehab needed is the same for House A and B, which would you choose based on those other factors?

Is a house built in 1965 an advantage over one built in 1935?

Is it more important to have the place close to LA on a very busy street, or on a little quieter street at least 10 more miles farther away?

Is it a big advantage to have a one story over a two story?

Thanks in advance to anyone that replies.

4

I would be surprised if you can find something that truly cash flows in the city of Los Angeles.

You need to give some more information so people can tell you if it will cash flow or not.

5

Yeah, there are 4 units that cash flow, they are in bad areas. But again, that is not what I was really needed help with. What I was asking advice/help with was assuming purchase price/rents/rehab needed is the same for House A and B, which would you choose based on those other factors? Mainly…

Is a house built in 1965 an advantage over one built in 1935?

Is it more important to have the place close to LA on a very busy street, or on a little quieter street at least 10 more miles farther away?

Is it a big advantage to have a one story over a two story?

Thanks in advance to anyone that replies.

6

If you are buying to hold for rental income, you are buying the cash flow the property generates. On a cash flow basis, the two properties are equal. The factors you are looking at are only relevant it they will influence your future cash flow. Which neighborhood will decline faster, reducing your cash flow and increasing your vacancy rate?

If the neighborhoods are stable (not declining), then the neighborhood factors don’t matter. If the cash flows are the same, then the better deal will be the one that gives you the better return on your invested capital, which will usually be the less expensive property.

7

Isn’t LA subject to some of the strictest rent control in the country?

8

They don’t cash flow as he says they do! He posted his numbers in another thread. He just wants those other questions answered because he seems to think they are more important than the house actually making money.

Gross Income: $3,600/mth = $43,200 annual (sounds high to me too but I’m east coast as well)
Expenses (50% rule of thumb) -21,600
NOI: $21,600
275,000k@7%/20yrs: -$25,584 (I know you guys on the west coast are doing 60 year mortgages but you better find out what it is for rental property, things are a changing. Regardless, how is it an investment when you have it paid off when your dead?)
Yearly Cash Flow $- 3,984 OUCH, NEGATIVE CASH FLOW!

9

Real estate is a business. The only thing that matters in business is does it make money. The quite street, the cul-de-sacs, the wallpaper all that stuff is noise. What you need to know is what is the house worth, how much will it cost to get it and have it up and ready to make money and how much can I get somebody to pay me for it.

10

Well Said!

11

Yeah…a lot of times people unintentionally over complicate things.

The guru’s make things sound complex because that is how they make money

Buy my “special program” for learning how to buy REOs,etc.

Real estate is just a product that is bought or sold or rented out.

Houses or buildings are just merchandise.

12

I never said the numbers don’t matter, I said

Assuming purchase price/rents/rehab needed is the same for House A and B, which would you choose based on those other factors?

In the other topic we discussed it, and the property does cash flow.

These other factors don’t matter as much as the numbers but they do have importance. Age/busy street/one story or two story affect future rents and future appreciation. With the two properties having similar numbers, if I had to, I was just wondering how to decide which property is better based on the other factors. Is it better to get the property on a very busy street, that’s closer to the main hub of city, that’s two stories? Or is it the 1935, one story property on a quieter street that’s 15 miles farther away?

13

Age/busy street/one story or two story affect future rents and future appreciation.

Why do you keep talking about future appreciation? You said they were ghetto properties and they appreciate WITH or BELOW inflation which means you either kept your money the same or you lost money. I already told you this Amir but you seem to be stuck on this appreciation thing. Who told you that ghetto properties will make you money from appreciation because I need to talk to them.

14

I think it depends on the degree of ghetto too.

There are areas of Los Angeles that were gang ridden and ghetto, but now they are hip/trendy desirable and expensive. Echo Park, parts of Hollywood, etc.

Areas can change, but if you don’t see signs of gentrification…I would say that the chance of betting on appreciation or the neighborhood turning around is very very low.

Lot’s of areas have been ‘bad’/ghetto for decades and will probably remain that way for quite a while.

If you are on the fringe of a changing neighborhood you might have a better shot.

If you are going to bet on appreciation…see where the city is putting infrastructure or where redevelopment is planned or happening. These things will make the area more desirable and raise property values and rents.

But generally, people don’t invest in the ghetto for appreciation…but for cashflow as Hooch mentioned.

If you want cash flow , the city of L.A is really not a good place for it. Rents just are not high enough to cash flow at current prices…unless prices come down significantly …but I doubt they will as it is one of the most desirable places to live for many people.

You are insisting the year build, etc is so important, but you want to ignore the numbers or try to make the math work. They might be important but it seems you are elevating these factors up above the market rents that you can get.

Everyone just doesn’t want you to lose money and is trying to help you out.

15

I didn’t say just future appreciation. I said those factors affect future rents and future appreciation. Btw, I agree that there will probably be less appreciation that desirable areas, but in LA, properties in the ghetto do appreciate and don’t appreciatiate at the inflation rate. Maybe your area is different Hooch, but you can look at home/multifamily prices in compton, south LA over the last 25 years and see that they clearly don’t follow inflation.

Investorman, in response to

but you want to ignore the numbers or try to make the math work. They might be important but it seems you are elevating these factors up above the market rents that you can get.

Did you not see what I wrote

Goal is not really appreciation, but cash flow, and keeping that cash flow by having a good place to rent, Assuming everything else with numbers and the property is the same

quote]
How is that ignoring the numbers? I said assuming the numbers are the SAME, the same rents, the same price, vacancy rate, etc. These other factors don’t matter as much as the numbers and I said that before too, but they do have importance. Age/busy street/one story or two story affect future rents and future appreciation. With the two properties having similar numbers, if I had to, I was just wondering how to decide which property is better based on the other factors. Thanks so much for helping out so I don’t lose money, but are there any more answers to the questions I was wondering?:

Assuming the numbers are the same:

Is it better to get the property on a very busy street, that’s closer to the main hub of city, that’s two stories? Or is it the 1935, one story property on a quieter street that’s 15 miles farther away?

Thanks in advance again. Any answers?

16

Let me see if I can answer your question. If all of them cash flow then buy all of them, because that is why you are in business. If you are forced to make a decision between them,then the criteria would be future rents and appreciation,not one story vs two story or near vs far.
If all things being equal and they never are I would do the following.
I would choose the busy street over the hard to find cul-de-sac because I feel that a sign would attract more renters due to the higher exposure.
I would choose the nearest to the city for the convenience of my tenants. I would choose the one story over the two story due to the elderly do not like stairs and i would not want to rule them out. I would choose the house built in 1965 over the house in 1935 due to the difficulty of bringing the older balloon frame up to current code.
I hope this answers your questions
dennisg

17

is it better to get the property on a very busy street, that’s closer to the main hub of city, that’s two stories? Or is it the 1935, one story property on a quieter street that’s 15 miles farther away?

Your “good ghetto” vs “bad ghetto” statement is much more important than whether it is one or two stories or the year it was built. And I already told you the obvious answer to that. Definitely buy “good ghetto” over “bad ghetto”. Unless you already knew that the city has major plans for the “bad ghetto” area that is backed with millions of dollars as investorman suggested.

18

Awesome advice! Thanks so much everyone.

19

I live in CA and have found cash flow to be minimal or difficult in Southern California. I invest in the Midwest where I grew up and find tremendous cashflow deals. I could get a steal on a house for $200K that rents for $1300 in San Diego, but would only have to pay $50K for $1300 in rent. What I am suggesting is to check out deals in other areas. I have always been baffled at how much people overpay for property in CA and speculate for appreciation. It is a business and all about the numbers. There is an oversupply of opportunity out there, you can cherry pick from deals around 50% LTV that cashflow tremendously in much of the Midwest and other areas of the US.

20

Ryan,

What part of Ohio are you from?