Multi-Family Commercial Real Estate

Multi-Family Overview

Apartments are the most popular income property investment and range from single-family homes or a single unit in a condo complex to multi-unit apartment buildings from duplexes to high-rises.

Population of a given area are the key demand driver and the demographics we look to are the incomes, the age, the competing rents, and neighborhood type. The average size of apartment buildings in Los Angeles County is eight units.

Most contemporary residential tenants are demanding more and more amenities. In areas like the Santa Monica and Century City, it is not uncommon to find doormen, controlled access, elevators and fitness centers.

Benefits of owning multi-family investment properties:

  • Predictable cash flows, which allow for easier financing
  • Easier calculation of property’s profitability and potential upside when buying an add-value property
  • Improvements are depreciated over 27.5 years, as compared to 39 for other commercial property types, so the tax benefits get realized significantly sooner
  • Population is the only required driver to ensure profitability
  • Availability of professional property management makes these an easy target for local and foreign investors with less hands-on approach

Challenging aspects of owning multi-family investment properties

  • Susceptibility to wear
  • Upkeep and regular maintenance
  • Necessity of hands-on property management and dealing with issues of everyday households
  • Tenant turnover and the need for unit improvements
  • Most buildings do not have metered utilities, so the landlord assumes all the risks
  • Landlords need to budget for major improvements: roof replacements, painting of the building, facility upgrades, tenant improvements as units become vacant.

Basic sub-types of apartment investment properties

Duplexes, triplexes, and four-plexes

Found primarily in suburban areas, these are sometimes referred to as 2-4 units. These are sometimes owner-occupied in one unit with the other units rented to other tenants. Typically they don’t have an on-site manager, and the tenants are carefully screened in order to find good long-term tenants. With owners leaving next door, finding the right neighbor is the priority.

Commercial strip Garden style apartments

Are typically found in suburban areas with five to 100 units contained in one or more one to three story buildings. They are often clustered around a courtyard or a pool or another amenity like a dog run or tennis court. Typically have tastefully landscaped grounds with ample parking. There are about 265 of these in the San Fernando Valley alone, with clusters in West Hills, Northridge, and Van Nuys.

Apartment communities

Are typically much larger garden-style apartments. They often contain 1,000 units or more, with several buildings over hundreds of acres. Park La Brea is a perfect example.

Low-rise apartments

Are found in both urban and suburban areas with anywhere from five to 50 units contained in a single one to five story building.

Midrise apartments

Are typically found in urban and suburban areas with 50 – 100 units contained in one six to ten story building.

High-rise apartments

Are typically found in urban settings with over 100 units and have ten stories or more.

Loft style apartments

Tend to be adaptive re-use apartments and are a hot trend in areas like Downtown LA. What makes the loft style living unique are open floor plans, high ceilings, exposed infrastructure, unique details and often historic preservation. Lofts tend to attract younger generation, artistic types and business people who travel frequently for business and enjoy the proximity to the business district.

Investment Considerations

Apartment buildings attract two types of investors: 1) beginners, looking for a safer place to park their money, and 2) experienced investors, who invest in appreciation and play the real estate market cycle.