4 Unit Sale in Mid-City Los Angeles
DEAL STORY
We met the seller in March 2019 when he considered selling the property through a 1031 exchange. At that time, he had already finished renovating the property and wanted to get away from LA rent control, a common concern for property owners. However, due to sentimental reasons, he decided not to proceed with the exchange.
In early 2022, the seller was finally ready to sell and exchange the property. We listed it in late February and within two weeks, we received a total of five offers from a mix of our clients, outside brokers’ buyers, and exchange buyers. To give everyone an equal chance, the seller provided a multiple counter offer with the same price and terms. Since the seller planned to do a 1031 exchange, we advised including specific terms in the counter offer, such as two 30-day options to extend the close of escrow and making the 3%deposit nonrefundable and released to the seller’s 1031 exchange accommodator. These terms proved to be beneficial later in the exchange process.
Only one buyer accepted all nine points in the counter offer, and we opened escrow at $2,740,000 on March 15th. During the due diligence period, the buyer discovered minor issues with the building, leading to negotiations for a slight price reduction in exchange for removing all contingencies. Once the contingencies were removed, the deposit was released to the seller’s 1031 exchange company.
However, when it was time to close escrow, the seller had not found the right property to purchase, and they exercised their first escrow extension. Around the same time, interest rates skyrocketed, causing the buyer’s bank to inform them of a need to renegotiate the interest rate if the seller used the second extension. This would significantly impact the buyer’s net income. Although the seller had the right to extend for a second time, we recognized the importance of expediting the search for exchange properties. We explained to the seller that while the buyer’s loan issue wasn’t technically their problem, it was crucial to avoid an unhappy buyer who might consider walking away from their deposit due to worsening interest rates. We wanted to avoid a situation like the beginning of COVID when buyers walked away from nonrefundable deposits. Fortunately, we found two suitable properties for the seller to purchase in Ventura County, an area they favored due to its lack of LA rent control. The properties included a single-family house in Ojai, which they planned to rent out and build an accessory dwelling unit (ADU), and a three-unit property in Ventura City with strong value-add potential for rent increases and the addition of an ADU.
Ultimately, the seller was extremely pleased with the outcome. They received a great price for their renovated four-unit property and now possess two new value-add investments in non-rent-controlled cities, allowing them to grow their portfolio in the years to come. Similarly, the buyer was satisfied with their investment, appreciating the property’s ease of management and desirable location, which they believed would continue to appreciate in value for the foreseeable future.
