Benefiting from a lazy agent on the other team!

The world is full of good real estate agents and bad real estate agents. It is the luck of the draw when you enter into a transaction which one you will deal with, and what side of the transaction they will be on. We were fortunate to encounter a lazy agent on the seller’s side of our Wilmington Blvd. deal. After the initial walk thru we never heard from or saw the agent again….

In 2001 the market for income property was a bit soft with the giant gains far off in the distant future.10% down payments for investors on 2 to 4 units had just come into play. In our current environment it is 25% down or more.

I was searching the Multiple Listing service daily looking for our next deal, and out of the blue popped 4 units for $229,000 in Wilmington, our target market. In the remarks section of the listing sheet the agent stated the rents were low due to rent control. The building was grossing $26,400 per year. The price reflected an 8.67 Gross rent multiplier, (Annual rental income divided into price = GRM). The remarks also mentioned an illegal 5^th unit. I had been doing quite a bit of research on rent control for other buyers and the fact is any building constructed prior to November 1978 is rent control. The occupancy certificate on this building showed 1979.

The building was actually constructed in 1960 as 5 units and moved to its present location in 1979, when the owner simultaneously converted it to a legal 4 units. Had the listing agent gone to downtown L.A he would have found this out; all the permits for the conversion were on the record.

We immediately offered somewhere in the $220,000’s, and ended up at $225,000. We met the original owner at the walk thru. He was a sweet old man. I felt bad for him having selected this selling agent.
I rounded up 3 partners who each put in $8,500. I contributed my commission. We took over the building with a “tenants in common” ownership structure. I still have the agreement if you would like a copy. We turned the management over to Sherri whom we had used before on Sanford.  We closed down the 5^th illegal unit and merged it into one of the 2 bedroom units making it a 3 and one. The unit mix was great, two 3 bedroom one bath, and two 2 bedroom one bath.

The owner had not registered with rent control department in L.A. so we were free to fix up the building and raise rents. We went from a $26,400 gross annual income to $48,000 in the first 18 months.
The market was heating up in 2004, to the point where the gross multipliers had increased from 8’s to an average of 13’s.  I was concerned we were topping and we would not be able to hold on to our gain. We sold the building we purchased for $225,000 3 years later  for $664,000, a 13.8 GRM, We did a 1031 tax deferred exchange with our profit.


When you combine 10 to 1 leverage with increased rental income and increasing rental multipliers you can have a tremendous gain in relation to your down payment. Every once in awhile you hit one out of the park, and that is what we did on this deal!