Get this through your head: Every apartment building is different. Even literally identical buildings differ because they are by definition located on different pieces of land.
That being said, there are some simple rules of thumb for quickly coming to grips with the numbers behind a building:
- Cap rates in Los Angeles currently range from less than 4% (for very large, institutional grade properties) all the way to 10%+ for challenged properties in terrible neighborhoods. In Northeast LA (Silver Lake, Echo Park, etc.), you’re looking at 6-7.5%.
- For 5-20 unit buildings, a good estimate of expenses (including property tax but not including any mortgage payments) is 35-40% of the total rent.
- For 3-4 unit buildings, figure expenses at 25-30% of the total rent.
- In Los Angeles, you can estimate what your annual property taxes will be after you buy the building by multiplying the price by 0.0125 (1.25%).
- For 5+ unit buildings, lenders are currently willing to loan you 70-75% of the cost of a new building (meaning you need to put down 25-30%), so long as the debt-service coverage ratio is more than 1.25. (To find the DSCR, divide the anual net operating income by the proposed total annual debt payments. If the ratio is 1.25 or higher, the bank will loan).
- Interest rates for 5+ unit apartment buildings are between 4-5%, depending on the length of the loan.
Did I miss any? Let me know in the comments.