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VENTURA COUNTY BUSINESS

Despite Higher Prices, Mom-and-Pop Investors Are Still in the Market

Real estate: Some consider buildings a safer alternative than stocks. And there are complexes in a few neighborhoods still reasonably priced.

November 28, 2000|BOB HOWARD | SPECIAL TO THE TIMES

Individual investors can still get into the apartment market in the San Fernando Valley, although buying an apartment building is a considerably more expensive proposition today than it was in years past.

Despite rising prices that have pushed up the values of apartment buildings as much as 14% in the past year alone (according to one study), experts say apartments are still within the reach of "mom-and-pop" investors who have long made up the biggest percentage of Valley apartment owners.

"It was a lot easier 20 years ago, but there is still money to be made [by small investors] in apartments," said Dan Faller, president of the Van Nuys-based Apartment Owners Assn. of Southern California.

Faller and other experts say rising prices mean investors need considerably more to buy an apartment building today, while rent control can reduce the cash flow on some buildings. Under the L.A. rent control ordinance, apartments built before October 1978 fall under rent control, while those built after that are exempt.

Nonetheless, individual investors remain a vital force in the Valley's apartment market. About 15,000 of Los Angeles County's approximately 85,000 apartment owners are based in the Valley, Faller estimates, with the average landlord owning about 12 units.

Ken Francik, owner of apartment buildings in Van Nuys and Valley Village, is typical of the many investors who consider Valley apartments a good place to put their money.

Francik, a recently retired Los Angeles Police Department detective, bought his first apartment, a 16-unit property in Van Nuys, six years ago while still on the police force.

Francik financed the down payment on the $600,000 apartment building, which he described as a "fixer-upper," with $120,000 he realized from refinancing his house in Simi Valley.

"I had immediate cash flow" from the apartment building, he said, but he figured he could earn more from the building if he upgraded it, so he spent an additional $60,000 on improvements.

Recently, Francik sold the Van Nuys property for $880,000 and put the proceeds into a $1.3-million, 10-unit complex in Glendale on which he is now in escrow. Once that deal closes, Francik will own two apartment buildings--the Glendale complex and a 15-unit building in Valley Village that he bought three years ago by refinancing his home again.

Francik said he started investing in apartments to increase his net worth and to provide income for his retirement.

"I knew some people who had been successful investing in apartments," he said. "I was never tempted to put my money into the stock market because I didn't want to invest in something that volatile. I see real estate as more stable."

Francik now employs an outside property management firm and maintenance help, but he saved money in the early years by doing most of the maintenance and repair work himself, even though it meant a tough schedule.

"I was working eight hours a day Monday to Friday and then spending every Saturday and some Sundays working at the apartment," he said.

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Despite rent control, Francik said, he boosted cash flow in his first building by upgrading units whenever anyone moved out and raising rents in accordance with the city's "vacancy decontrol" rules, which allow landlords to raise rents when tenants vacate units.

Overall, Francik believes apartments represent a good opportunity for individual investors, but he cautions that buyers need to realize that buildings need a lot of attention.

"There is always the potential for things like washers and dryers and garbage disposals to break, and if you're managing it yourself, you're going to get the phone calls," he said.

Another individual who sees Valley apartments as a good investment is Carlos Martin, a Porter Ranch resident and owner of Porter Ranch-based Professional Retrofit construction company. Martin bought his first apartment, a six-unit, $244,000 building in Van Nuys, in 1994 at the age of 26. He now owns 28 units, including his original purchase and buildings of 15 units in North Hills and six units in North Hollywood.

Martin said he borrowed $49,000 on a second mortgage to spruce up the Van Nuys building with a view toward boosting cash flow through higher rents. He figures he actually accomplished about $120,000 worth of improvements for his $49,000 because of the value of the labor he contributed by doing much of the work himself.

"For the long term, I don't think there's anything like apartments," said Martin, who doesn't like the unpredictability and lack of control in other investments. "It is harder to liquidate an apartment [than a stock market investment] if you want to get your money out of it, but it just takes a little more time, that's all."

Other negatives of apartment ownership are rent control, the need to maintain hands-on control, and legal liabilities "in an increasingly litigious society," said Todd Schwartz, a senior associate at Hanes Investment Realty, Westlake Village.

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