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Old 04-13-2016, 02:04 PM
 
4,498 posts, read 2,765,220 times
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Quote:
Originally Posted by jm1982 View Post
In the real estate investing world that's called an alligator property.

DEFINITION of 'Alligator Property'
In real estate, when the cost of mortgage payments, property taxes, insurance and maintenance on a rental property is greater than the income it brings in. If this situation is not corrected, it will eat up all of the owner's profit, leaving him or her with negative cash flow.
Alligator Property Definition | Investopedia

Instead of milking it, you might find it milking you.
There's nothin' funny bout losin' money.

It's pretty much impossible to find any property in L.A now on the market where you can make a profit after all ACTUAL expenses.
Realtors and sellers pretty much always leave out the true costs/expenses when calculating the cap rates.
Even 4% is likely a fantasy after the actual costs.

People are buying purely on speculation of an increase in rents and an increase in property values (appreciation).

Rents are high in L.A..but not high enough to cover mortgage and all expenses and have profit left over.
Yep. If you are buying for investment properties, you should be looking someplace other than LA where you can make a much faster profit even if you live in LA. Why spend $350-500k on a condo to rent out if you can buy 4-5 condos somewhere else for the same money to rent out?
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Old 04-13-2016, 03:12 PM
 
234 posts, read 134,767 times
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Quote:
Originally Posted by ryanms3030 View Post
Yep. If you are buying for investment properties, you should be looking someplace other than LA where you can make a much faster profit even if you live in LA. Why spend $350-500k on a condo to rent out if you can buy 4-5 condos somewhere else for the same money to rent out?
Short term holds have the potential to yield much higher returns when you're dealing with lower cap rates.
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Old 04-13-2016, 03:34 PM
 
Location: Los Angeles (Native)
24,155 posts, read 13,675,815 times
Reputation: 11364
Quote:
Originally Posted by ryanms3030 View Post
Yep. If you are buying for investment properties, you should be looking someplace other than LA where you can make a much faster profit even if you live in LA. Why spend $350-500k on a condo to rent out if you can buy 4-5 condos somewhere else for the same money to rent out?
Yeah I mean people have made fortunes buying property and just sitting on it despite the rent in SoCal..but if you are looking for actually cash flow then L.A isn't the market , especially right now.
It just depends on investment goals and what type of horizon. No doubt buying property in L.A decades ago was smart and has built generational wealth for many families.
Some people lucked out that their parents or grandparents had put a downpayment on an investment property ...held onto that property and now they are paid off and making great money.
Any market where land is scarce , but populations rise ..like Los Angeles , land values will rise due to supply and demand.
You could have a run down or burned out building sell for millions just because of the land value.
In parts of the country , the same size land might be worth practically nothing or a few thousand dollars.
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Old 04-13-2016, 03:36 PM
 
Location: Los Angeles (Native)
24,155 posts, read 13,675,815 times
Reputation: 11364
Quote:
Originally Posted by NOIGUY View Post
Short term holds have the potential to yield much higher returns when you're dealing with lower cap rates.
Yeah that's why a lot of people investing in L.A are flipping or doing "value add" deals and forcing equity with improvements.
People can buy a property and make a profit of $50,000 or more in a short time period , while renting the same property it would take several years to net $50,000.
There's just less opportunity for the person that want to buy a property to rent out in the L.A market.
Rehabbing or developing seem to be where the money is being made.
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Old 04-13-2016, 04:39 PM
 
234 posts, read 134,767 times
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Quote:
Originally Posted by jm1982 View Post
Yeah that's why a lot of people investing in L.A are flipping or doing "value add" deals and forcing equity with improvements.
People can buy a property and make a profit of $50,000 or more in a short time period , while renting the same property it would take several years to net $50,000.
There's just less opportunity for the person that want to buy a property to rent out in the L.A market.
Rehabbing or developing seem to be where the money is being made.
Correct. Obviously any sophisticated RE investor knows that cash flow plays are not going to happen in the LA area and will target places like Indianapolis or Minneapolis or some such.

However, buying a Class A building with a 3.5 cap and doing something to increase NOI exponentially increases value compared to a 6 cap.
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Old 04-14-2016, 01:05 AM
 
Location: Tucson/Nogales
16,471 posts, read 20,002,503 times
Reputation: 22380
Quote:
Originally Posted by BennyPhoenix View Post
The solution is for people to stop coming here.
L.A.'s antiquated zoning factors into this as well, as 72% of L.A. is still zoned for single family homes, and then there's the selfish, anti-density, power-hungry, screaming, crying Nimby's.

To get a new high rise up in Santa Monica would take nothing less than an Act of Congress! Or a high rise or mid rise along the coast anywhere from Oxnard to Laguna. Even Hollywood, what a struggle for a developer to put some density into that city, without the Hollywood Kings and Queens screaming: No way! It's going to block my view of the valley smog!"

It totally stuns me, when I light rail it around L.A. these days to see single family homes at rail stops like Compton, Watts and along the rail stops on the Expo line.
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Old 04-14-2016, 11:08 AM
 
360 posts, read 492,435 times
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Quote:
Originally Posted by NOIGUY View Post
Yeah you can milk a good negative cash flow after paying taxes, ins, debt service, HOA, management fees, r&m, etc.
Stupid comment. You have no idea what their mortgage rate is and where the property is located to make that blanket statement.

For example, if they owned the condo outright, in a desirable area, had a low HOA and they personally knew the tenants and didn't need a property management company, they would be making a nice profit. If they had PMI, a bad mortgage rate, high HOA, and was located in a low rent area, then you are spot on.

I would be making $900 month profit, after taxes, HOA, insurance, management and mortgage payment if I were able to rent my condo for $3300/month.
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Old 04-14-2016, 11:26 AM
 
Location: West Hollywood, CA
1,367 posts, read 1,628,033 times
Reputation: 1784
Quote:
Originally Posted by tijlover View Post
L.A.'s antiquated zoning factors into this as well, as 72% of L.A. is still zoned for single family homes, and then there's the selfish, anti-density, power-hungry, screaming, crying Nimby's.

To get a new high rise up in Santa Monica would take nothing less than an Act of Congress! Or a high rise or mid rise along the coast anywhere from Oxnard to Laguna. Even Hollywood, what a struggle for a developer to put some density into that city, without the Hollywood Kings and Queens screaming: No way! It's going to block my view of the valley smog!"

It totally stuns me, when I light rail it around L.A. these days to see single family homes at rail stops like Compton, Watts and along the rail stops on the Expo line.
People running Santa Monica are idiots. Not only on the zoning part but also when it comes to laws on what you can and cannot do at the beach. you literally can't do $hit at the beach here.

Meanwhile in other parts of the world:















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Old 04-14-2016, 12:28 PM
 
234 posts, read 134,767 times
Reputation: 124
Quote:
Originally Posted by iama30something View Post
Stupid comment. You have no idea what their mortgage rate is and where the property is located to make that blanket statement.

For example,if they owned the condo outright, in a desirable area, had a low HOA and they personally knew the tenants and didn't need a property management company, they would be making a nice profit. If they had PMI, a bad mortgage rate, high HOA, and was located in a low rent area, then you are spot on.

I would be making $900 month profit, after taxes, HOA, insurance, management and mortgage payment if I were able to rent my condo for $3300/month.
If you think he can make 900/mo cf on a single unit condo deal I have plenty of bridges to sell you.

I actually have a pretty good idea what he paid for his condo, what rate he got, and where it's located.

~550k, 3.5%, West Hollywood.

Secondly any conservative underwriting would look something like this


Edit: debt yield should actually be ~5.5% but I don't feel like doing this over.
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Old 04-14-2016, 12:33 PM
 
234 posts, read 134,767 times
Reputation: 124
Quote:
Originally Posted by YoungTraveler2011 View Post
People running Santa Monica are idiots. Not only on the zoning part but also when it comes to laws on what you can and cannot do at the beach. you literally can't do $hit at the beach here.

Meanwhile in other parts of the world:














You can always move back to Rio

Or Miami if that's the look you want and you want to stay in the U.S.
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