State Specific Question About: CALIFORNIA (CA)

we've finally found a nice duplex that we want to make an offer on in a hip area of Los Angeles. There are no sold comps in the last several years (very strange).

How do you estimate the fair market value of a duplex?

- two houses on a lot

- remodeled with some cosmetic work (~20k) left to do

- may need a new roof

- 1300 sf total

- vacant

- estimated rents $3000 and $2200 (seller); $2950/$1950 (me)

- 1 car garage and street parking only

- tiny 3000sf lot

Yes, rent controlled. But currently vacant and I have no problem raising rent on my tenants yearly. none whatsoever.

Sure. 3% a year for the last three years? That's 9.3% in the last three years. Not bad at all, you want to raise it more than that? Sure we have one tenant we'd like to be paying 5-7% more, but we'll catch up to market price with them soon enough. It was the previous LL who was just foolishly not raising rents when they should have been.

Forget that last question. We plan to buy in a rent controlled area, we're in LA and happy.

There are many area's in the Los Angeles City and Near By County that are "Duplex's" -- two rental units on a single lot, either attached or separate.

Depending on the location and the age of the structure will dictate the true market value.

From West Los Angeles, to the Tips of Venice, down to Koreatown, Downtown, Hollywood or through the San Fernando Valley -- prices will range from $250,000 to $1,500,000.

Robert,

It's two blocks from sunset junction in silver lake.

I do a simple cap rate formula:

cap rate = yearly rental gross / price of property

Over the last 4yrs, I've seen it go from 5.5 to 6.5%, depending on condition and location desirability. Lately it's been on the high side closer to 6.5%. I attribute that to the sense that interest rates will be going up and that investors want a higher return.

Based on the above, the property is worth about $880k but they are only asking $780k to get multiple bids. Our agent (same office as sellers) says they have 8 bids. We bid only $810 to give us plenty of room for profit.

Sound reasonable?

How much would you go up in price when they ask for counters?

Just curious ...

After reno, I think we can easily get $5k per month in rent. Total monthly expenses are &4350. $.

Positive cash flow of $650/month.

That's not why I buy in Los Angeles. Cash flow might be my goal when I retire. For now it's just part of the equation. Mainly I'm looking to Reno and sell for a premium to another investor that is looking to avoid work...

Your after repair value times 70% minus the repair cost equals your highest offer.

I'm glad that you worked out the numbers, however there is more than rents, tenants and value.

In some of those older neighborhoods parking is at a premium. Without enough parking for the tenants, the value drops some. Second check out the crime on that area, my Silver lake property off of Sunset and Hyperion went way up in value but because of recent hold ups, break ins and the lack of police response, I'd had to lower rents a few bucks to attract the better applicants.

I agree with you numbers, based on rent it could max out at $880K. But check if the property has new copper pipes, new electrical panels, enough parking, good sewer drain (no roots), upgraded roof, heating/air systems, etc.

Each little thing to replace cost a lot and those properties were built from 1900 to 1926. So now's the time everything needs a helping hand.

GOOD LUCK....

Thanks everyone!

Yes, the parking is bad (one car garage and street only). Not permit parking on the street either. But we considered that in the monthly rent (minus $200/month). The roof needs a new layer. The sewer was replaced 2-3yra ago. The disclosures look good.

New electrical panels and tankless water heaters are in place. We re told the owners are older, got into it at the urging of a son and now find themselves uninterested in LL. Who knows.

Besides parking the two big negatives are the general unattractive ness of the street (not terrible just not good). And the 2/1 unit has an ensuite bathroom so guests have to access it through the bedroom.