REAP / Code Enforcement / Eberly Company Summit Meeting

The LA Fair Housing Coalition, a group that fights for landlords, has arranged a meeting for members with officials from the LA Housing Department’s REAP and code enforcement offices and the Eberly Company, which was recently hired as a landlord outreach contractor by the city.

The idea is to give landlords a chance to explain how unfair and anti-business LAHD’s policies and enforcement are. I’ve obviously got about a million examples, so I’m thinking of going.

The meeting is Wednesday night, April 25, from 5-7pm at 1645 Corinth Ave., Los Angeles, 90025.

(If you go, I advise you to tread lightly. You definitely don’t want to antagonize LAHD… they have the power to make your life pretty miserable.)

Even if you don’t go, it’s worth getting on the Fair Housing Coalition mailing list, which you can do by going to their website: fairhousingcoalition.com.

$500k flip opportunity

Am going to blast out a tasty small apartment flip deal at around 2pm PST today to the mailing list.

I’m intimately familiar with the deal and I think it’s a winner for someone who can bring $500k in cash to cover acquisition and renovation. The upside is $60-125k in profits within six months or so.* But you need to be willing to get your hands dirty.

I didn’t do it myself because I would have had to finance with hard money, and the numbers just don’t make sense if you have to pay approximately 20% interest (the annualized rate – I can explain some other time if you want).

If you’re interested in doing a flip deal and have $500k in cash, get on the mailing list right now by going here and following instructions.

*This is an estimate which is not to be relied upon. You will need to do your own investigation!

The Biggest Mistake LA Landlords Make

How do you feel about giving your tenants part ownership of your apartment building for free? Pretty terrible, right?

If you own a rent controlled building in Los Angeles and don’t raise your rents by the amount allowed by the city each year, you’re effectively giving your tenants a stake in your building for free.

Don’t believe me? Consider this: At any point in time, your apartment building is worth some multiple of the annual rents. (In Silver Lake, right now, it’s around 11-12x annual rents, give or take.) So let’s say a landlord has a unit renting for $1,000 and is allowed by the city to raise the rent by 3% this year.

That unit was worth $1,000 x 12 months x 11 = $132,000. If the landlord raises the rent, it goes from $1,000 to $1,030, making the unit worth $1,030 x 12 months x 11 = $135,960. If the city allows a 3% increase the following year and the landlord follows through, the rent goes up to 1,060.90 and the unit is now worth $140,038 (up $8,038 since the first year).

If the landlords chooses not to raise the rent after year one, he’s opting to forgo:

  1. The $30 x 12 months = $360 in actual cash; plus
  2. The $3,960 in potential value gain

But that’s not all (don’t I sound like Billy Mays, RIP?), because he can’t do retroactive raises. Once he fails to raise it one year, he can’t go back and get that increase – it’s gone forever.

If you play this scenario out over 5 years, the landlord who chose to raise his rents by the 3% ends up with a unit worth $153,024 (ah, the magic of compounding!). The other landlord’s unit is still worth $132,000. That’s $21,024 in value the second owner won’t be getting.

So where did that extra $21,024 go? To the tenant! Any buyer of the building who wants to raise the rents to market is going to have to pay the tenant whose rent hasn’t gone up in 5 years to move out. And that tenant is going to demand thousands of dollars. The buyer knows he has to pay the tenant, so he deducts that amount from what he can offer the owner.

So unless you’re cool with giving your tenants money that should have gone to you, do the smart thing and raise your rents when you can!

Ethics for brokers

Being a good broker is about keeping two different, competing ideas in your head at the same time:

  1. I am in business and want to maximize the amount of money I make; and
  2. I want to do the best possible job for my clients.

It’s amazing how difficult some brokers find it to balance these competing concepts. They fall prey to the temptation to push their clients to do things that aren’t in their clients’ interests in order to get a deal done and get paid. And, because they’re in a position of authority, there’s a good chance their clients listen to them.

But that’s self-defeating behavior, because unhappy, pissed off clients = bad word of mouth and no repeat business.

What you need to do instead is consider the appropriate time-horizon. If you plan to be in brokerage for a long time, you just need to focus on #2. It doesn’t matter whether it costs you some money or time in the short run.

If you do an amazing job for your clients, you will get more clients, because people talk. So, you suck it up and make your clients happy. Because, over the long run, happy clients = more clients = more money.

1239 N. Westmoreland is for sale

We’re selling 1239 N. Westmoreland Ave. in East Hollywood in order to realize some profits for our investors.

It’s a pretty great building:

  • 5 units, 4 one bed, 1 two bed
  • Totally rebuilt in 2009-10 with permits; no deferred maintenance
  • Monthly rent is $7,980
  • For sale at $949,000 (9.9x grm)

Here’s the listing on Loopnet: http://www.loopnet.com/lid/17621152

Here’s the MLS listing: http://guests.themls.com/Details/CA/LOS-ANGELES/1239-N-WESTMORELAND-AVE/90029/12-594467.aspx

Here are some indicative numbers (but you should not rely on them; you need to do your own diligence):

  • Put down 25%, $237,250
  • Borrow $711,750 at 4.25%
  • Annual NOI of $62k
  • Annual debt service of $42k
  • So, cash-on-cash return of $20k / $236k = 8.4%
  • First year return (including loan reduction of $12k) = $32k
  • Total first year return of $32k/ $236k = 13.6%

Finally, here are some pics:

I’m brokering the deal on our end. If you work with me directly, I can do a bit better on price, since I won’t have to pay another broker. Any questions, get in touch.