Multi-Family Commercial Real Estate in Los Angeles, Beverly Hills, Santa Monica and West Hollywood
November 6th, 2013 by Diane Moore
Sales in the multi-family commercial real estate appear to be leading the first signs of economic recovery in Los Angeles, Beverly Hills, Santa Monica and West Hollywood real estate investment market. Investing in multi-family property is worth considering, particularly when just starting-out, since it optimizes your cash-flow by minimizing expenses and maximizing rental income.
Investing in multi-family commercial real estate helps optimize cash flow since it has lower vacancy risk and greater rental income by virtue of owning several units. In the meantime, the unit property costs are basically going to be lower.
- Multi-family real estate prices are normally lower on a per-unit basis. The rate per unit typically goes down when more units are involved.
- You will avoid commercial property status. Any commercial property with more than four units is taken as commercial. For instance, the interest rates on commercial loans are usually 1-2 percent above the interest rates on similar non-commercial loans. The down-payment requirements are normally greater (25 percent or even more). Other operating cost such as rental property tax, water/ sewer, and building insurance also tend to be higher.
- You will reduce inspection examination. Inspection requirements are basically stricter on commercial properties, which lend itself to a high repair and maintenance bills. For instance, in Los Angeles, in addition to the local municipality inspections, a five year state scrutiny is mandatory for all real estate properties.
Minimized Rental Income
Multi-family real estate investors understand that the rental income is almost at all times higher for multifamily real estate properties than single family properties. This is crucial in today’s market.
Since they only have one income stream, many single family rental homes usually struggle to cover the monthly operating cost. Alternatively, with small multifamily rental real estate properties you’re not dependent on a one income stream, which makes it less risky. For instance, if you own four unit properties, and one becomes vacant, you are still receiving rental proceeds from the other three units. On the other hand, if a single family rental property becomes vacant, you are receiving no income at all till you another tenant.
The truth is that real estate properties with two to four units have rent proceeds that are usually two to three times more than single family properties. In addition, the vacancy impact is much lower. Therefore, the cash-flow is greater.
Why Investing in Los Angeles Multi-Family Real Estate?
In Los Angeles, multifamily real estate property investment makes money in the following ways:
- Cash flow or return on investment (ROI) is the first way multifamily property makes investors money. Most multifamily commercial properties will cash flow a sufficient amount to pay the expenses and mortgage and have some amount of money return. That cash return will increase after a while and with income of tenants as higher market rents are realized. Majority of real estate investors do not run their assets with the highest efficiency therefore its possible for some purchases to improve the return on investment from the onset.
- The second way multifamily real estate properties make investors’ money is appreciation. Appreciation of multifamily commercial property is not determined only by market conditions like single family houses. This is a very important consideration. For example, if a property is purchased for ten times the gross yearly rent when the gross rent equals 100,000 dollars per year, that property would be 1,000,000 dollars. If, for example, in a few years time, the property’s gross rent was improved to 140,000 dollars and the market has not changed, that same building would at a value of 1,400,000 dollars.
- The third way multifamily real estate property makes investors money is by depreciation. There is no other asset available that allows you to depreciate the asset over time (39 years for commercial and 27.5 years for multifamily). Even though you pay taxes on the depreciated amount at the time of sale, the profit is huge.
- The fourth way multifamily real estate property makes investors money is Leverage. Real estate is the only asset whereby you can lend money to purchase it, and that act of lending money can actually increase your profits on the investment.
- The fifth way multifamily real estate property makes investors money is as a tax shelter. Investing in multifamily real estate in Los Angeles with use of financing can actually lower an investor’s tax bracket.
Beverly Hills Multi-family Real Estate
Beverly Hills is a prosperous city in Los Angeles County, California. If you’re looking to purchase a property in Beverly Hills, then consulting a real estate agent is really very important for your investment. Beverly Hills has a moderate and warm Mediterranean climate, with an average high of 64 degree Fahrenheit in January, and an average high of 85 degrees Fahrenheit in August and it’s also one of the richest cities in the world with a population of 34,358.
There are fewer activities in an apartment building or residential income in Beverly Hills. The truth is there are few commercial real estate activities in this area. This is because Beverly Hills apartment building owners are long-term owners, and they preserve the properties and pass them to their successors. The other problem is a price. Multifamily income properties in this area are very expensive and are priced around 13 times or more the gross rental income that the building generates. The asking capitalization rate for Beverly Hills multifamily real estate property is about 4 percent or less on average. This means that potential buyers need to pay all cash or bring in 70 percent of down payment to get the loan. The multifamily real estate investors in this area are not looking for a speculative risk. They’re investing to get asset perseveration as the property worth does not fluctuate in Beverly Hills.
Did you know that…
There are 9 available and active multifamily real estate properties for sale in Beverly Hills. Four of these properties are duplex to four unit residential income buildings ranging from 1.4 million dollars to 2.2 million dollars price range. Six of the nine properties are multifamily apartment buildings from six to twenty four units and their price range is from 1.63 million dollars to 6.85 million dollars.
Santa Monica Multi-family Real Estate
Santa Monica real estate market ranges from modern homes to luxurious homes and there are plenty of activities. Multifamily real estate investments in Santa Monica are considered as very secure investment and as a result the buildings are very costly. Besides the high property price, Santa Monica has strict rent control regulations. Even though Santa Monica has strict rent control system, there’re many real estate investors that still view this place as a great place to invest. The simple reason for this is that property values in Santa Monica do not fluctuate, and the real estate rental market is very strong. In addition, you can also get quality tenants in Santa Monica.
Purchasing 2-4 units and living in one of the units and renting the rest is one of the greatest ways to invest in Santa Monica Multifamily real estate properties. This way, it’s regarded as home where you do not need to look for down-payments, and you can also take advantage of reduced home mortgage interest rates and use the rental proceeds from the other three units to pay the mortgage. Majority of Santa Monica’s multifamily properties were build in 60s, 50s, and 40s nonetheless you may occasional find recently built multifamily real estate properties that are for sale.
West Hollywood Multi-family Real Estate
West Hollywood is a city in Los Angeles County, California. West Hollywood is notably famous for its exceptional vibrant commercial corridors, eccentric nightlife focused on the Sunset strip and dining. This city is bordered on the east by the Hollywood district of Los Angeles, on the north by the Hollywood Hills neighborhood of Los Angeles, on the west by the city of Beverly Hills, and on the south by the Fairfax district of Los Angeles.
Multifamily properties are a great option for home buyers in West Hollywood. There are semi detached homes like triplexes and duplexes, and there are also apartment complexes and other types of multifamily homes in West Hollywood. If you want to find a home that is good for you, you might want to consider multifamily homes in West Hollywood. People always find that West Hollywood multifamily properties work well for them and of course those individuals who love to invest their wealth in real estate and those who manage properties really appreciate the investment opportunities to be found in West Hollywood multifamily real estate.
Advantages of Multi-Family Real Estate Investments
Investing in multi-family real estate is the top secret that affluent real estate investors have discovered to achieving all these significant commercial property investing goals.
Returns of investing in multi-family real estate properties include:
- Higher income per-square foot than single family properties, and thus a higher income for the multifamily investors.
- Less compensation from other commercial property buyers.
- Depreciation tax shelter.
- Equity build-up.
- Massive leverage.
- Vacancy risk with multifamily real estate property is very small when compared to that of the single family home, because the vacancy risk in multifamily property is spread over a number of units.
- More flexible sellers.
- Triple-net-leases and tenants paying expenses.
- Solid economic value. most existing retail strip centers, industrial complexes, or office buildings can be bought for less than the replacement cost, or in simple terms, the price to build one new.
- Long-term capital appreciation.
- Provides vital tax shelter to the multifamily real estate investor via depreciation of the property and improvements.
One of the greatest advantages of multifamily real estate investments is that they generate strong, steady, partly tax sheltered cash flow and provide distributions.
Multi-family real estate properties are low risk for the basic principle that people will at all times need a place to sleep. If a unit isn’t renting, reduce the price and see how many potential tenants will apply. The same isn’t true for other types of commercial real estate property where the property doesn’t cure a basic requirement.
Multi-family investors know that investing in such property type minimizes expenses through a lower per unit purchase price as well as evasion of commercial grade inspection, tax, mortgage, and utility expenses. Investment in multifamily real estate also maximizes rental income through diminished vacancy risk and multiple income streams.
Latest posts by Diane Moore (see all)
- Tips for Making your Commercial Property more Energy-Efficient - January 22, 2014
- Remodeling Investments that Will Pay You Back - January 21, 2014
- 21 Reasons to Invest in the US Commercial Property Market - January 20, 2014