When it comes to investing in Los Angeles multifamily properties, not all buildings are valued equally. Duplexes, triplexes, and fourplexes—often referred to as "2-4 unit buildings"—are assessed differently compared to larger multifamily buildings like five-unit complexes and up. Understanding these differences is crucial for both novice and experienced investors, as they impact everything from pricing to long-term investment potential.

Let’s explore how these smaller properties are valued and what factors come into play, including market comparables, zoning, and building characteristics.

The Advantages of Investing in 2-4 Unit Properties

Duplexes, triplexes, and fourplexes offer distinct advantages that set them apart from larger multifamily buildings. First, they’re more accessible to individual investors due to their lower price points. Investors can often qualify for residential financing, which tends to come with more favorable interest rates and down payment requirements than commercial financing typically required for larger properties.

Additionally, smaller properties allow for greater flexibility. Owner-occupants, for example, can live in one unit while renting out the others to cover the mortgage, effectively "house hacking" their way into real estate investing. This makes these properties attractive to first-time buyers and those seeking supplemental income.

Market Comparables and Metrics That Drive Value

The valuation of duplexes, triplexes, and fourplexes in Los Angeles heavily relies on market comparables, or “comps,” which are recent sales of similar properties in the same neighborhood. Investors closely look at metrics such as price per square foot, price per unit, and Gross Rent Multiplier (GRM). Here’s a breakdown:

• Price per Square Foot: This is a direct measure of the property’s size in relation to its price. It’s especially important in areas where land is scarce, like Santa Monica or West Hollywood.

• Price per Unit: The price assigned to each rental unit. This metric is valuable when comparing properties with a similar number of units in the same location.

• GRM (Gross Rent Multiplier): This is the ratio of the property’s sale price to its gross rental income. It’s a useful tool for understanding whether a property’s income is aligned with its price.

The Role of Zoning in Property Value

Zoning in Los Angeles plays a pivotal role in determining the value of duplexes, triplexes, and fourplexes. Non-restrictive zoning, which allows for denser development, can significantly elevate a property’s worth—sometimes even more than the current income it produces.

• LAR4 - 1 unit per 400 square feet of land, presenting the potential for higher-density development.

• LAR3 - 1 unit per 800 square feet, offers slightly less density but is still a significant value driver\

• R2 - one unit per 2,000 square feet of land

• RD1.5 - one unit per 1,500 square feet of land

When assessing a property’s value, savvy investors look beyond the existing units and income, carefully considering zoning as a key factor. For example, a duplex on an LAR4 lot in Koreatown may hold more value as a redevelopment opportunity than a stable income property in an R2-zoned neighborhood. The potential to add units or build a larger complex can make or break an investment decision.

Distinct Characteristics and Charm that Affect Value

While zoning and market metrics are critical, the unique characteristics of a building also play a role in determining its value. Not all 2-4 unit buildings are created equal. A charming, Spanish-style fourplex in Santa Monica may command a higher price than a standard 1960s boxy fourplex in Mid-City, even if the rental income is similar. Architectural appeal, vintage charm, and location all contribute to a property’s marketability and price.

In neighborhoods like Echo Park or Los Feliz, where classic architectural styles are highly coveted, a property’s aesthetic can be just as important as its income potential. Buyers are often willing to pay a premium for buildings that have historical character, particularly when located in desirable neighborhoods close to amenities, cafes, and parks.

Conclusion

Understanding how duplexes, triplexes, and fourplexes are valued differently than larger multifamily buildings is crucial for investors navigating the Los Angeles market. Smaller properties offer flexibility, residential financing, and owner-occupant opportunities but come with limitations like reduced cash flow and greater vulnerability to vacancy loss.

As always, when considering investing in 2-4 unit properties in Los Angeles, working with a knowledgeable real estate professional is essential to navigating the nuances of market comparables, zoning, and development potential.