How we forecast the rents

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One of our key advantages in this business is our ability to accurately forecast rents for renovated units.

We’ve previously discussed the importance of this skill: It’s understanding the rents that allows you to properly underwrite deals.

We are able to do such accurate forecasting because we are constantly leasing renovated units in the neighborhoods in which we are doing projects. By looking at how fast our existing units move, we get a good sense for how similar, future units would move (with the obvious caveat that the rental market could always change).

If you think about the above paragraph, you will realize that our degree of confidence is highest in neighborhoods where we have loads of units and lowest in neighborhoods where we have few / no units.

And that’s why I’m so excited to have projects totaling 27 units finishing up in the next 30-60 days or so in East Hollywood, Silver Lake and Highland Park.

The resulting leasing data will help us determine whether we can afford to pay the extortionate prices owners are already seeking in those neighborhoods, or whether I’m going to have to move to Pacoima.

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