Multifamily Investment Guide — Los Angeles
Acquiring, underwriting, and operating apartment assets in Los Angeles.
1. Market Selection & Underwriting
LA multifamily fundamentals: rent growth, occupancy rates, rent control implications (RSO, AB 1482), and supply pipeline. The Westside commands premium rents but also faces the most restrictive regulatory environment.
Underwrite based on actual rents — not pro forma projections. Apply vacancy assumptions of 3-5%, management fees of 4-6%, and reserves of $250-500/unit. Stress-test your returns at a cap rate 50-75 bps higher than current market.
2. Acquisition & Due Diligence
Key due diligence items: rent roll audit, lease review, deferred maintenance assessment, seismic retrofit requirements (soft-story ordinance), and utility cost analysis. In LA, RSO properties require additional review of allowable rent increases and capital improvement pass-throughs.
Financing: agency debt (Fannie/Freddie) offers the best terms for stabilized properties. Bridge debt works for value-add plays with near-term renovation and rent bumps.
3. Value-Add & Operations
Common value-add strategies: unit renovations (kitchens, bathrooms, flooring), amenity upgrades (laundry, fitness, outdoor space), utility submetering (RUBS), and operational efficiencies.
In LA's rent-controlled market, renovation-driven rent increases are limited for existing tenants. New tenants after vacancy decontrol can be brought to market rate. Your renovation strategy must account for this regulatory framework.