While the mega mansions and multimillion-dollar multifamily sales take up a majority of the Los Angeles real estate headlines. In reality, the market consists of mostly small apartment buildings. Last year, over 764 apartments were sold totaling more than $3.1 billion; this signals that more and more investors are gaining interest in small apartment buildings. The beginning of the pandemic showed a slowdown in sales but a year and a half later sales are returning to pre-pandemic rates. Many professionals in the industry suggest that smaller apartment buildings are the best for entry-level owners who don’t have much experience. This is because those units are less management-intensive. Many successful investors have suggested that investors should start their portfolio with small apartment buildings of around eight units and use the cash flow to buy more properties.
When looking to purchase one of these smaller apartment buildings the ideal standard is a unique property in a great location where there is a substantial upside. Another key factor that has brought a lot of eyes to the small apartment market is the historically low interest rates being offered. One way to vastly improve a building’s performance is to add accessory dwelling units to provide more rentable space. These ADUs are much cheaper than outright buying new units which allows for any property owner to maximize the value of the building as a whole. ADUs have become a selling point of a lot of buildings in recent times because they can be seen as a buyers’ hot point; they tend to make the building more desirable and stable as assets. Currently, the market is seeing a problem with inventory. There are many buyers but very few sellers and as long as the inventory stays low the prices are going to continue to stay high. However, there may be a slight increase in sellers because of the looming uncertainty of the 1031 exchange, some property owners may feel pressured to sell 12 to 24 months before they anticipated.
In conclusion, a lot of major investors suggest that investing in small apartment buildings is a good stable asset that is experiencing a lot of growth currently. These assets have a lot of upside with the potential creation of ADUs and these buildings will remain in demand for a long time.
Madans, Hannah. “Small Apartment Buildings Attract Big Interest from Investors.” Small Apartment Buildings Attract Big Interest From Investors | Los Angeles Business Journal, 28 June 2021, labusinessjournal.com/news/2021/jun/28/small-multifamily-buildings-attract-investors/.