Investing in Multi-Family Real Estate with 10%+ Returns
We have recently partnered with a developer in the Los Angeles area that has consistently been producing 12%+ returns to their clients through multi-family real estate. Compare this to the rental yields in Orange County, which are pretty anemic and generally hovering around 4% to 5%. While that is still much better than leaving your money in the bank, I would invite you to learn more about this product.
A Little Background
There are over 300,000 residential lots in South Los Angeles that are zoned R2 (2-family) that have an existing single family residence built upon it. In general, the residents of South Los Angeles serve as the labor force for the downtown area. With continued job growth and a new football team on the way, there is a continual need for clean, affordable housing within commuting distance of downtown LA. The developer acquires distressed single family residences, generally through auction, tears down the existing structure and builds brand new, beautiful duplex properties on the existing lot.
The units are generally about 3500 square feet in size with each 2-story unit offering 5 bedrooms and 3 baths, including a downstairs bedroom, Solid wood cabinets, granite countertops, tile flooring, upscale amenities, exterior hardscape and landscaping and garage parking. These units are definitely the pride of the block and the residents tend to take great care of the units. The units come with a 12 mo. “bumper to bumper” warranty and a 10-year systems warranty.
Rents on these units vary slightly based on location, but run, on average, about $4,800/mo. for both units. Assuming you put down 25% and finance the remaining 75% at around 4.25% rate, the average scheduled cash on cash returns (after all expenses including property management) on the units is roughly 10%. When you factor in appreciation, your total scheduled returns on these investments can be in excess of 15%. While there are no guarantees on any investment, I certainly prefer a 10%+ return on a secured real estate investment than over gambling in the market.
To Learn More
Steve Patton, Broker
HCM Real Estate