- For over 40 years, the Loos family had owned a walk up style 8-unit property in West LA. During their ownership there had been dramatic changes. Once a quiet little out of the way neighborhood, the Westside has become it’s own big city. Dominated by the twin “downtowns” of Santa Monica and Century City; this coupled with it’s close proximity to UCLA and the 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. As the matriarch of the family had aged her medical expenses were increasing far faster than rent control allowed. Each year, her “free and clear” property generated cash that didn’t cover all her increasing expenses. When there was a vacancy, which was really rare, the management company chose a “path of least resistance” approach to renting the unit – do very little, charge a lot and get it rented quickly at below market rent. This scenario gave us a great opportunity to show what our local expertise and collaborative reach could accomplish for a client who needed a change of scenery.
- Step one was to understand the management arrangement and review our options. Working with the matriarch’s grown children, we solicited proposals from numerous aggressive management firms. We had an attorney review the in-place agreement and asked the current firm to think outside the box and come up with a plan to maximize the income stream. After careful consideration the family made the decision to move forward with a new firm that would take the one current vacancy to market rent and complete a tasteful that financially prudent remodel. Using our market research, we suggested a rent that would showcase the true potential of the building. The unit was filled in less than a week. We then took the property to market and with a clear path to higher rents, we generated multiple offers. A competitive bidding environment maximized the proceeds and terms for our client, who got a record price as well as a released deposit of 6 figures that they used as a deposit on their new purchase.
- Using the proceeds from their Brentwood property the family made the decision to conservatively use leverage to control significantly more units. They selected a non-rent control property that tripled their number of units, while almost quadrupling the square footage under their 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 on mom’s medical bills the exchange and it’s increased profits have given her the ability to help one of her daughters buy a house, and do a little bit of traveling.
- 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