We visited a property last week in Redondo Beach that could be quite a compelling purchase for buyers currently living in a 1-bedroom or studio apartment close to the beach.
Take a look at 522 S. Broadway in south Redondo, a duplex in need of some TLC from a motivated buyer. This property stands out because it is west of Pacific Coast Hwy close to the proposed Redondo Pier redevelopment, and is listed well below $1 million. For some perspective in south Redondo, the last marketed MLS residential income property below $1 million west of Pacific Coast Hwy was way back in May of 2012 at 227 Avenue B at $915,000.
Now there are multiple reasons this property is priced so low: 1) it needs some work, 2) it is very small at 918 sq ft total for both units (2-bed and a studio), and 3) the lot is minuscule at 1,922 sq ft and offers little to no development upside or remodel additions. Many professional apartment investors and developers will pass on this. But therein lays the opportunity for someone currently renting a studio or 1-bedroom in the area…
Most renters by the beach in the South Bay can expect to pay $1,500/mo or more. I believe this property offers a savvy renter the opportunity to become a property owner with very little change to their monthly cash flow. I always recommend putting 30% down on income properties so if a 1-bedroom renter has that in savings, here is how it would break down:
Step 1: At an $800,000 price, you need a loan pre-approval with 30% down ($240,000) and assuming a 4.25% interest rate on a 30-year mortgage.
Step 2: Have another, let’s say, $60,000 for closing costs, fix-up money, and cash to service holding costs during a two month full rehab of the property (these are estimates).
Step 3: Rent out the fully rehabbed 2-bedroom unit for $2,500/mo (services $500k of mortgage…wow!), and move into your refurbished studio as a new property owner. The numbers…
$2,750/mo in mortgage payments ($560,000 P&I at a 4.25% rate)
$830/mo in property taxes
$170/mo in insurance
$200/mo in utilities and maintenance (negotiate the front unit to pay utilities if you can)
$0/mo by being your own property manager and mowing your tiny lawn every few weeks
$3,950/mo in total expenses
Less
$2,500/mo in rental income from the 2-bedroom unit
$1,450/mo is now left over to be serviced by a savvy buyer. You move into the studio and pay the same, if not less than you are currently paying in rent around the area.
Please keep in mind that these are estimated numbers. All prospective buyers/investors should consult with lending professionals, licensed and insured contractors, along with their trusted investment and tax professionals…and hopefully one of our agents to send over an offer 😉
So assuming these numbers are accurate, someone can go from renter to property owner of a beautifully rehabbed southern California duplex west of Pacific Coast Hwy for virtually no change to their monthly cash flow. If you have been a diligent saver, then this is a fantastic opportunity, normally only reserved for renters looking to buy in Texas or the Midwest.
And actually the numbers get better…not only does you cash flow stay the same, but you are paying down a loan each month and you will have fantastic tax benefits when factoring the mortgage interest deduction on your tax returns. It is also reasonable to assume that you have some built in equity and promising long term growth as the pier redevelops and more and more buyers discover how wonderful south Redondo living can be.
This property is more than a fixer; it is fabulous long term investment for the right buyer looking to switch from renter to owner, and eventually a landlord getting paid on a growing investment.