Sam Chivitchian from Secured Capital Lending shares some insights about the newest trends and challenges facing investors today in the residential rehab market in Los Angeles. Watch the video or read the transcript below to learn more.
Summary of Interview with Sam Chivitchian
Trends in Rehab Projects in Los Angeles:
Sam Chivitchian highlighted the increasing popularity of Accessory Dwelling Units (ADUs) as a major trend in Los Angeles. ADUs are highly attractive to both rental portfolio investors and fix-and-flip investors because they generate significant cash flow. The recent allowance of Junior ADUs (JADUs) in LA County now permits the conversion of a portion of a single-family home into a third rentable unit. This enables property owners to maximize rental income by accommodating multiple tenants.
Another significant trend is the growth of affordable housing projects in the multifamily sector. With rising property prices and higher interest rates, developers are increasingly opting for state-backed low-income housing projects. The state has introduced incentives such as faster approval processes, reduced restrictions, and increased density bonuses, allowing developers to build more units and generate more revenue.
Challenges Faced by LA Real Estate Investors:
The primary challenge affecting real estate investors in LA is low inventory. Due to recent interest rate hikes, fewer traditional home sellers are entering the market, making it difficult for investors to find viable properties. Many homeowners with low interest rates are unwilling to sell, leading to a scarcity of fix-and-flip opportunities.
Inflation and high property prices have also squeezed profit margins. Investors must now focus on adding value through creative strategies, such as vertical expansion, purchasing land for development, or leveraging ADUs to increase profitability. Simple cosmetic rehab projects are no longer as viable as they once were, requiring investors to seek out more complex, high-value opportunities.
Investment Strategies: Fix & Flip vs. Rehab-to-Rent:
On the rehab-to-rent side, investors are becoming more strategic. Instead of traditional single-family rental investments, they are looking to convert single-family homes into duplexes or triplexes, incorporate ADUs, or take advantage of state low-income housing programs that allow for increased density. By leveraging these options, investors can increase cash flow and optimize property value.
Preferred Rehab Projects for Lending:
Sam’s firm favors light cosmetic rehabs due to their lower risk and quick underwriting process. However, they also finance heavy rehab and ground-up construction projects, though they become more selective with borrowers based on their experience and track record. While larger projects offer higher profit margins, they require careful vetting to ensure successful execution.
Rehab Loan Program Overview:
- Loans range from 75% to 90% of the purchase price, depending on the borrower’s experience level.
- 100% of the rehab cost is covered, as long as the total loan amount does not exceed 70% of the After Repair Value (ARV).
- Borrowers should have a minimum credit score of 660, with a preference for 680+.
- Financial liquidity is required to cover 5-10% of the budget for contingency and reserve interest payments.
- The lending program extends nationwide, providing fix-and-flip bridge rehab financing to investors and brokers.
Sam Chivitchian provided valuable insights into the evolving real estate investment landscape in Los Angeles. With increasing ADU and affordable housing developments, investors must adopt creative strategies to navigate inventory challenges and rising costs. His firm remains committed to financing a wide range of rehab and new construction projects, ensuring that investors have the support needed to capitalize on market opportunities.
