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Gold Contributor
Jazzman
Posts: 1,544
Registered: ‎02-12-2009
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Is this possible, or a waste of time?

Cap rate of 12% in Korea Town. What's the best way to confirm this without making an offer?

http://www.redfin.com/CA/Los-Angeles/1856-W-11th-St-90006/home/6931942

Silver Super Contributor
Lizard
Posts: 1,320
Registered: ‎12-18-2007
0

Re: Is this possible, or a waste of time?

You can make good money in these types of areas IF you are hands on and work it as a FT/PT job. It's not easy as it appears. Getting the right renters in this market is near impossible. In a better market you can see caps at 14-15%+. For most people it's too much work, easy pickings elsewhere.

 

Check the past/current rental agreeements...post offer. Most won't do it preoffer.

Regular Contributor
911c2s
Posts: 61
Registered: ‎01-19-2009
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Re: Is this possible, or a waste of time?

That area is not really ktown. I'd be careful with that area as it's Rampart district and is known to have gang activity. Otherwise, the numbers look good.

Regular Contributor
blkman0072
Posts: 93
Registered: ‎11-28-2009
0

Re: Is this possible, or a waste of time?

Jazzman the one thing that makes me wonder about the property is how old it is. I have known a few people that have looked into buying units an I always wonder how much life a place has. Building get old and not all people keep them up. One of my friends was looking int a fouplex in riverside. It lookd all great until we started looking at plumbing and electrical. Wen the inspecton came back that newly painted and updated kitchen in the one unit he was going to stay in didnt look that nice when he was going to have to do some major work on the other 3 units. So I would wonder more about that also. What do you have to fx after you get it becuse last time I checked if it was making them money every month why would they be selling it?

Regular Contributor
911c2s
Posts: 61
Registered: ‎01-19-2009
0

Re: Is this possible, or a waste of time?

No need to wonder. The listing says the building was built in 1911. So, about a hundred years old.

Agreed, if the property is really producing that much cash flow there must be something else going on...

Regular Contributor
richinvestor
Posts: 127
Registered: ‎04-13-2010
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Re: Is this possible, or a waste of time?

The thing I don't understand about the market right now is that any property that is barely inhabitable and in a semi-dencent neighborhood in L.A such as K-town, 90016, 90019 the prices are very often just as much as 2004-2006 level, or even higher like in the case of this particular property!  What is going on with the housing ressession but the price is just as high as 3 or 4 years ago in these areas in L.A ?????  In theory, we're still in ressession, but it seems that the prices only reflect in very working class neighbood, not in semi-decent area.  When you talk about Santa Monica or Culver City those desirable area, you can ust forget it!  A 1 bedroom condo 600 something sqft asking price $600,000 plus!  The same size condos in Culver City are $350,000 average!!! What is going on here??

Gold Contributor
Jazzman
Posts: 1,544
Registered: ‎02-12-2009
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Re: Is this possible, or a waste of time?

Ho Ho! 1911! Well spotted. There's me thinking this was a newish home looking at the pic. Thanks for all the advise everyone. I don't know my postcodes in LA, but I have noticed more multi families on the market offering better cap rates than I've seen before.

Regular Visitor
azulpalido
Posts: 2
Registered: ‎11-21-2009

Re: Is this possible, or a waste of time?

If this is such a cash cow, why would this person be willing to let it go? I would keep it in my family for generations in order to produce passive income. Seems strange...
Gold Contributor
Jazzman
Posts: 1,544
Registered: ‎02-12-2009
0

Re: Is this possible, or a waste of time?

There are all sorts of reasons why people sell. Maybe the owner is old and just wants to be relieved of the hassle. My query really is the cap rate, which seems high of MLS listings for LA. You many see this more on CRE websites for multi-units. Age of building and the neighborhood, as others have pointed out may explain the cap rate. In other words, risk vs returns.

Silver Super Contributor
Lizard
Posts: 1,320
Registered: ‎12-18-2007

Re: Is this possible, or a waste of time?


azulpalido wrote:
If this is such a cash cow, why would this person be willing to let it go? I would keep it in my family for generations in order to produce passive income. Seems strange...

Advanced multiunit investors know the "real" way to make money is exchanging depreciated properties for another to restart the depreciation schedule. Two identical cash flow properties can have one more advantagous than the other for tax reasons [depreciation].

 

Also a seller may want to cash out to buy a better property.

 

Not so strange but never ask a seller why they are selling, they will always lie.