Small apartment building pricing in Silver Lake continues to be very strong, driven by continued gentrification-driven demand, low supply and historically low interest rates.
We ran the numbers on deals for 2-4 unit buildings in Silver Lake (as defined by the LA Times) that closed between September 1 and December 31, 2012, are here’s what we found:
1. 17 deals closed. That’s an active quarter, but not a crazy one.
2. Sale prices came in at 99% of list. There were very few instances where buyers got real bargains; mostly, sellers got what they asked for.
3. Median price per square foot was $286. This one was influenced by REOs and at least one property that is a tear-down and sold for land value only.
4. Median gross rent multiple of 15.2x. Unbelievable. There’s little to no return on the cash used for a downpayment if you pay 15x. So these buyers are basically betting on appreciation. Not a crazy bet, but why not just buy a house and save yourself the hassle of dealing with tenants?
If you own one of these properties, now would be a good time to think about investing to see if you can capture higher rents and, thereby, increase the value. But we’re not quite at the point in the cycle where I would advise selling, unless you’re a pro looking to crystalize profits you’ve already created.
The fine print: This data came from a search of closed deals on themls.com, augmented by my estimates of rents for units which were vacant at closing. Here is the underlying data: Silver Lake 2-4 Unit Sales Q4 2012.