Results At-a-Glance
- Utilized depreciation to significantly increase cash flow.
- Got to pick their own trash company
- Tripled their units
- Doubled their cash flow
- Got out of rent control
- Helped her daughter buy a house
Once a quiet little out-of-the-way neighborhood, the Westside of LA had become its own big city. For 40 years the Loos family had owned a walk-up style 8-unit property there. During their ownership, dramatic changes occurred. Dominated by the twin “downtowns” of Santa Monica and Century City; coupled with its close proximity to UCLA and Hollywood Studios, their rents should have been sky high. Unfortunately for the Loos, they had two things holding them back, rent control, and their 40-year management company relationship.
In this desirable area there was rarely a vacancy. When there was, the management company chose the “path of least resistance” approach to renting the unit – do as little as possible to the unit, get it rented quickly, at below market rent.
As the matriarch of the family had aged, her medical expenses were increasing but rent control wasn’t allowing their income to grow at the same pace. Though she owned the property “free and clear” her equity in the building wasn’t working for her.
We could see another option for her and we wanted to help.
Solution
First, we educated ourselves regarding the property management arrangement and reviewed our options. First, we asked the current firm to think outside the box and come up with a plan to maximize the income stream. Meanwhile, we worked with the matriarch’s grown children and solicited proposals from multiple management firms looking for someone that would be aggressive in their approach to rents and getting the property in shape. We had an attorney review the in-place agreement. After careful consideration, the family made the decision to move forward with a new firm.
The new plan went into action. The new firm would bring the current vacancy to market rent and complete a tasteful and financially prudent remodel. Using our market research, we suggested a rental rate that would test the true potential of the building. The unit was filled in less than a week.
Vacancies filled and a clear path to higher rents in view, we took the property to market and quickly generated multiple offers. A competitive bidding environment maximized the proceeds and terms for our client. They received a record price and a released deposit of 6 figures that they used as a deposit on their new purchase.
Outcome
- Using the proceeds from their Brentwood property the family made the decision to use their leverage conservatively to control significantly more units. They selected a non-rent-controlled property that tripled their number of units but almost quadrupled the square footage of ownership.
- The use of debt at 3.6% fixed for 7 years contributed to a cash flow increase of 82% from their net income on the 8 Units.
- Less than a year after ownership their “new” management company had increased rents and their net return was more than double their previous property.
- In addition to covering all medical bills, the exchange and its increased profits gave her the ability to help her daughter buy a house, and do some much-needed traveling.