My client was looking for a value add opportunity and this 5-unit building on the West side of Long Beach was a great option. The property sat on MLS with no offers for over a month. The main reason that they didn’t get more activity on the listing is because rents were extremely low and LA County was still under the COVID eviction moratorium. The COVID moratorium prevented investors from using the AB1482 “substantial remodel” clause to vacate units and any investor who purchased this property would need to rely on “cash for keys.” We had a team in place that had a lot of experience negotiating with tenants and we budgeted for a very high cash for keys amount and made sure that the deal still penciled out before making an offer.
We were able to negotiate an $84,000 price reduction and my client purchased the property with a bridge loan. Lucky for us, one of the tenants had to move out during escrow, so one of the units was delivered vacant. We knew that the market rent for a 3 bedroom unit in this neighborhood was $2,700 per month. Once all of the units were at market rent the property would be producing $165,000/month in gross rents. Based on an exit Gross Rent Multiplier of 12.5, we projected that the property would be worth roughly $2,070,000 once market rents were achieved.
After closing my client remodeled the vacant unit. One of the existing tenants agreed to move into the vacant unit after it was remodeled at a rent of $2700 per month. The three remaining tenants all accepted $5000 plus 2 months of no rent payments as a cash for keys payment and vacated units.
