Los Angeles gets a bad rap sometimes because of our crazy political climate, but it remains an excellent place to own investment property.

We have a large, dynamic economy with strong, diverse demand drivers (weather, culture, entertainment, tech, defense contracting, finance, and so on). And, despite the best efforts of “Yes In My Backyard” types, it remains very difficult and expensive to build new buildings here. So, vacancy tends to be low and rents tend to rise over time.

In addition, we have the miracle that is Proposition 13, part of the state constitution which sets property taxes at approximately 1% of your purchase price and, crucially, limits property tax increases to 2% per year. Because property tax is generally an owner’s single largest expense item and because rents (revenue) tend to grow a little faster than 2%, long term owners of investment property here benefit from expanding operating margins.

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The President and co-founder of Adaptive, Moses Kagan, has overseen the acquisition and renovation of approximately 110 buildings in Los Angeles since 2008, and currently owns approximately $200MM worth of buildings in Los Angeles with investors.

Here are Moses’ top tips for buying in the market:

1. If you’re not a real estate expert, work with someone who is

If I suggested you buy a little business in a highly regulated industry, without ever having operated one before, and without help from experts, you would rightly think I was crazy.

Well, buying an investment property is like buying a little business. And Los Angeles is a highly regulated market.

And, adding to the risk and complexity, almost all buyers use debt, which has the effect of magnifying both good and bad outcomes.

So, if you haven’t done it before, strongly recommend finding an expert you can trust to help you think through your plan and then guide you through the process.

If you don’t know anyone, please reach out. We’re happy to help.

2. Beware of Los Angeles regulations

Los Angeles can be a wonderful place to own investment property. As noted above, demand is high and it’s very hard for developers to create new supply, so prices (rents) tend to rise over time, which is great for owners.

But rising rents have led to all manner of regulation of rents at the state and city levels.

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Because the regulations are complicated and ever-changing, it’s really easy for a beginner to make a big mistake for which there is no easy or inexpensive fix.

So, before committing to buy a building, you need to educate yourself about the rules (or find someone to work with who already knows them).

3. Build a financial model

Generally, we don’t buy investment properties because we love their feng shui, the landscaping, or any other superficial factors.

We buy them to make a tax-advantaged return on our investment.

Before you make an offer on a property, and certainly before you commit to buying it, you need to build a little financial model that looks at the rents you expect to receive, the expenses you expect to pay, and how much money you expect to earn each month, relative to your investment.

Haven’t done this before? We can help.

4. Do your due diligence

Typically, when you sign a contract to buy an investment property in Los Angeles, you get a period during which you can back out at no cost. This is called the “contingency period” or the “due diligence” period and it typically lasts for about two weeks.

During that time, your job is two-fold: (i) you need to do physical inspections, to understand exactly what you’re buying and, ideally, how much it will cost to fix anything that’s currently broken, and (ii) you need to review a ton of documentation about the property, including the existing leases, estoppels, service contracts, title report, and so on.

(And, if you don’t know who to call to do those inspections or you’re not familiar with any of the documents listed above, that’s another sign you need to be working with an expert!)

5. Have your property management plan in place well before closing

You definitely don’t want to find yourself frantically searching for someone to manage your property a week before closing… that’s a recipe for getting stuck with a manager who is not the right fit for you / your new property.

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Instead, you want to meet potential managers early, ideally before you go under contract to buy your investment property. That way, you have the time to get all your questions answered and build an actual relationship with the people you will be working with, without the pressure of a looming closing date.

(Plus, speaking with the manager in advance may also help you avoid buying a property you shouldn’t!)

6. Work with a property manager like Adaptive Realty

I’m only sort of kidding.

At Adaptive Realty, we really have renovated ~110 buildings, and we currently manage about 1,100 apartments spread over ~135 buildings all over the Los Angeles area.

We’ve helped a lot of people make smart investments for themselves and their families in Los Angeles for a lot of years. If you intend to be a long-term owner of your investment property, to take care of it, and to fill it with quality tenants paying market leading rents, we are just the organization to help you.