How to Spot a Profitable Multi-Family Rental Investment | Los Angeles Property Management
Investing in a multi-family rental property can diversify a quickly growing investment portfolio. These investments provide less risk, higher cash flow, and much more flexibility. Los Angeles is an especially attractive real estate market for investors seeking multi-family acquisitions, but it’s important to understand the market and know a good opportunity when you see one.
Evaluate your investment goals before you buy, and make sure your experienced Los Angeles property management company can bring you the essential data you’ll need to make a smart decision, including estimated rental values, time on the market, and maintenance costs.
Find a Los Angeles Investment Property with a High Cap Rate
The cap rate is a reliable metric when you’re looking for a Los Angeles investment property with a high rate of return. You can look at cash on cash returns and internal rate of return, but if you really want to know whether an investment property is going to perform the way you need it to, spend some time determining the cap rate. It’s easy to calculate, you aren’t considering the financing, and you’ll know right away how profitable your potential property will be.
What kind of cap rate do you need to make real money off a multi-family property in Los Angeles?
We recommend you get as close as you can to 8 percent. In other markets, this may seem modest. In Los Angeles, where property values are high, the average cap rate is much lower. But, when you’re in the right neighborhood and you’re choosing the right properties, a cap rate that moves towards 8 percent will signify an excellent investment opportunity.
Don’t Throw Money into Capital Improvements
Remodels and renovations drive up value. But, you don’t want to buy a property that’s going to require an early investment into major improvements. Multi-family investments are expected to deliver short-term income quickly, so buy a property that’s already in good condition. Spend money on cosmetic updates and minor upgrades that will drive up rental values. Better landscaping, a fresh coat of paint, and new floors or appliances in aging units all make sense. When you’re looking for a profitable multi-family building, don’t delay your cash flow or increase your debt. Acquire well-maintained buildings.
Call in your inspection team and look for a solid foundation with no apparent defects. Check off the health and safety boxes and have your inspectors investigate stairs, elevators, and communal spaces. Inspect at any vacant units and see what needs to be updated to ensure they’re market-ready.
Evaluate Tenant Retention Data
Occupied multi-family properties are often smart choices for investors who don’t want to spend time marketing, screening, and filling vacancies. Check the lease agreements and the tenant retention numbers so you know how long tenants tend to stay in the building. Evaluate eviction rates and vacancy lengths. Profitable multi-family investments in Los Angeles will have stable tenant retention statistics, low eviction rates, and very few claims, disputes, and lawsuits. You’re looking for consistency.
Choose the Right Location for Los Angeles Multi-Family Properties
The location of your multi-family property impacts the tenants you attract, the rental value of each unit, and the overall profitability of the investment. Target properties that are in desirable school districts and close to freeways, shopping, and entertainment. In Los Angeles, there are dozens of submarkets within the larger rental market.
Some of the Los Angeles neighborhoods that have lately proven themselves as profitable places to invest include areas such as:
● Highland Park
● Garvanza
● West Washington Boulevard
● Mid City West
● West Hills
● Central City
● El Sereno
These areas have the opportunity for high appreciation, rising rents, and a large pool of tenants looking for homes.
The real estate market in Los Angeles is expensive and competitive. It’s also lucrative for smart investors. Because of the high cost of living in the city, only 30 percent of Los Angeles residents own a home. That leaves a large tenant pool, which is great news when you own multi-family property.
Let’s talk about how to make smart investment decisions. We’ve got all the support, resources, and insight into the local market that investors like you need. Contact us at MGMT Group to get started.