Getting my feet wet and considering first rental property

Los Angeles County, California
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Getting my feet wet and considering first rental property

Jonah Rudy
Member since 2023 路 2 posts 路 2 votes

Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!

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Robin SimonBusiness Member
Lender 路 Austin, TX 路 Member since 2022 路 5k+ posts 路 4k+ votes
3y

I would **generally** agree with the other commentators that when diving in for the first rental, thats a lot of money down and a high price point considering a lot of people "learn a lot of lessons" (i.e. make mistakes) on the first one, so its generally better to take a little less risk / $$ exposure when just starting out

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  • Randall AlanPro Member
    Investor 路 Lakeland, FL 路 Member since 2017 路 1k+ posts 路 1k+ votes
    3y
    Quote from @Jonah Rudy:

    Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!

    @Jonah Rudy

    Your best bet is probably to invest out of state.  Your money would go much further in Ohio or other more cost effective states. 

    All the best,

    Randy 

    2Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    3y
    Quote from @Jonah Rudy:

    Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!

    It's easier to give directions if I know where you currently are, where you are trying to go, and what mode of transportation you are using (feet, bicycle, car, public transportation, etc.)

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  • Konstantin GinzburgPro Member
    Member since 2021 路 376 posts 路 242 votes
    3y

    @Jonah Rudy

    There likely won't be too much advice others can offer without more information. Factors such as taxes, insurance, interest rates can drastically affect the expenses for a property while knowing what the expected rent would be is important for calculating the return on investment and gauging whether this is a good investment or not from that data. The price of 800k for a single family home does seem quiet high so it would likely be hard to find tenants that can afford high enough rental prices that would allow you to cash flow on that mortgage but this can't be definitively ruled out without seeing all the numbers. As others have said, Ca is not known as an investor friendly state or a state that currently produced solid real estate investment returns so going out of state might be an option to strongly consider. 

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant 路 San Diego / Phoenix 路 Member since 2021 路 12k+ posts 路 15k+ votes
    3y

    $800k for your first investment property with $100k down doesn't make sense at all.... At least move it over to Arizona where properties are half that much. Or maybe better yet to a state where you can buy multiple properties with your $100k down.

    0Reply
  • Robin SimonBusiness Member
    Lender 路 Austin, TX 路 Member since 2022 路 5k+ posts 路 4k+ votes
    3y

    I would **generally** agree with the other commentators that when diving in for the first rental, thats a lot of money down and a high price point considering a lot of people "learn a lot of lessons" (i.e. make mistakes) on the first one, so its generally better to take a little less risk / $$ exposure when just starting out

    [email protected]
    Harpoon Capital514 Reviews
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  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant 路 San Diego / Phoenix 路 Member since 2021 路 12k+ posts 路 15k+ votes
    3y
    Quote from @Robin Simon:

    a lot of people "learn a lot of lessons" (i.e. make mistakes)


    I like how you worded that so nicely....

    You mean ' get your arse handed to you' 馃ぃ

    0Reply
  • Erik EstradaBusiness Member
    Lender 路 Member since 2022 路 6k+ posts 路 1k+ votes
    3y
    Quote from @Jonah Rudy:

    Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!


     Hey Jonah, 

    Do you own your primary residence? You are looking at a 10% Down Payment on an $800,000 home. Investment property loans are at a 20-25% down payment for something turnkey ready, 15-20% on a flip. 

    Do you have reserves? Most lenders would like to see at least 3-6 months of reserves. 

    You can do as low as 3% down on a primary, live in it and rent it out in the future. As long as you have the income and credit to qualify. 

    [email protected]818-269-7983
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  • Jonah Rudy
    OP
    Member since 2023 路 2 posts 路 2 votes
    3y

    Thank you all for your feedback. To answer some questions, yes I own my primary residence and have reserves. Speaking to a local agent, they mentioned that there are properties around here in the $400k range - around 800-900sq ft for a 1 or 2 bedroom. Average rent for those properties are around $2000-$2500/mo. Doing some basic math, my mortgage would be around $2500 plus any HOAs would be assumed around here for anything in this price range as those would be apartments/condos. So it would not be a way to build monthly income unless I can put more down.

    I hear all the advise to consider out of state and am genuinely interested in learning more about it. As a first time investor, the idea of having a property that I can visit via a short drive makes me more comfortable. Have any of you done the out of state investments and would you recommend it for a first timer? 

    0Reply
  • Travis Biziorek
    Investor 路 Arroyo Grande, CA 路 Member since 2014 路 1k+ posts 路 1k+ votes
    3y

    Jonah, we should connect.

    My wife grew up in Oak Park (right near you) and we're now in Arroyo Grande. But we're down there often visiting her folks. I'll be down in a week and a half for a family reunion type deal if you want to get together and talk shop.

    Anyway, we invest in Detroit and have 12-doors there. It's been extremely good to us and I'm happy to share numbers, stories, advice, etc.

    Full disclosure, I also help people get started in that market by plugging them into my network of off-market deals, our contractors, and our internal property management.

    But even if that's not of interest to you and you're planning to build a team from scratch, I'm happy to talk and offer help where I can.

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant 路 San Diego / Phoenix 路 Member since 2021 路 12k+ posts 路 15k+ votes
    3y

    @Jonah Rudy Check out Northern Arizona. Full of great opportunities. I ended up moving here from CA. Good STR laws and overall friendly to investors. IMHO, you do NOT want to spend your investment dollars in a state that is not business friendly...

    0Reply
  • Akshay Bhaskaran
    Investor 路 Austin, TX 路 Member since 2022 路 68 posts 路 52 votes
    3y

    Go out of state. I myself live in Austin, TX, but invest in Atlanta, GA. Go buy where the houses are cheap, and rentals are moderate. But, always run your numbers. Always! :) 

    1Reply
  • Melanie Johnston
    Real Estate Agent 路 Scottsdale, AZ 路 Member since 2018 路 412 posts 路 366 votes
    3y

    @Jonah Rudy If Metro Phoenix is on your radar, I'm happy to share what our market offers to see if the numbers work for you. Easy to get to and continued economic growth are two advantages!

    0Reply
  • James Wise
    Real Estate Broker 路 Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH 路 Member since 2013 路 30k+ posts 路 20k+ votes
    3y
    Quote from @Jonah Rudy:

    Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!


     You need 25% down to buy a rental, so you won't be able to buy one in either city.

    0Reply
  • Anthony L Amos Jr
    Real Estate Agent 路 Columbus | Toledo 路 Member since 2019 路 607 posts 路 768 votes
    3y
    Quote from @Jonah Rudy:

    Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!


     Invest remotely in more affordable markets in the Midwest

    0Reply
  • Chad McMahan
    Residential Real Estate Broker 路 Sedona, AZ 路 Member since 2017 路 751 posts 路 504 votes
    3y
    Quote from @Jonah Rudy:

    Hi all - would love to get some initial thoughts from you seasoned pros out there. I live in Thousand Oaks, CA. Median home price is around $980k. There is a lower priced neighborhood nearby - Simi Valley (800k). I currently have slightly over $100k saved. For those that have been there before, I'd love to hear recommendations/comments/questions. Appreciate it!

    I'd recommend you aim to spend $50k or less of your cash on your first one, to work out some kinks and level up your experience, knowledge and comfort- and reduce your risk and retain a buffer for unforeseen problems, maintenance, etc.
    0Reply
  • Carlos Valencia
    Lender 路 92703 路 Member since 2022 路 326 posts 路 538 votes
    3y

    Hi Jonah, 

    Other than having the down payment of 100k theres still other factors to consider when trying to figure out where to invest. Theres many loan programs available to help you reach your goals but first you need to know your scenario more in depth to help advise to which loan product best meets your situation. 

    Usually theres 3 main factors lenders look at when pre approving you for a loan. Income, Assets, and credit. If your looking to buy an investment in Simi Valley even to house hack you wont be cash flowing. But if your just wanting to buy for long term and wait for the appreciation and refi in the future to eventually cashflow then thats fine.

    Lets just use the example of 800k purchase price to give you an idea of how the numbers may look. If you have 100k that 100k will need to be used to help cover closing cost plus down payment. Assuming closing cost are 20k your left with 80k. This means your loan amount will be about 720k. In todays market that estimated mortgage payment including taxes and insurance is about $5,760. In order to qualify for that payment someone needs to make at least 13k per month or 156k annually to qualify assuming no debt. 

    Why 13k in monthly income? Because lenders typically use 45-50% of your income for your det to ratio to qualify for a mortgage payment.  This is the reality right now for many people who live in Southern California they need to make at least 156k weather combined or individual to stay here and buy a home. 

    Next question is will you be able to get this single family home to rent out for at least $5760 to cover your mortgage payment including tax and insurance or will you be negative every month? Thats not even considering that lenders can only use 75% of rents to help offset that payment on paper. 75% of $5760 is $4,320 so on paper it will show your still negative. In order to be cash flowing rents need to be at like 8k to be able to net positive. If thats the market rent for a single family home and people are paying 8k then it seems like it would work. 

    In order to invest to long term rentals its best to go out of state as the numbers are really hard to pencil out here on CA right now. Even in San Bernardino county is going to be challenging to find a cashflowing property. 

    Good luck on your search! 

    @Albert Bui @Matthew Kwan @Kin M.

    2Reply
  • Jessie Dillon
    Investor 路 Hopedale, MA 路 Member since 2021 路 321 posts 路 212 votes
    3y

    hi jonah! if you're open to moving, i would highly recommend househacking! get into a multifamily property priced around 1.7mil* with an FHA loan ($60k-ish down, 3.5%, still have $ for reserves and closing costs). bonus points if you want to occupy a unit with extra bedrooms that you can rent out to traveling medical professionals. you could very well live for free doing that. just note that FHA loans do have maximum allowable amounts based on county and unit count, AND the property has to pass an 'fha self-sufficiency test' as well as the fha inspection.

    if you are NOT open to living in a multifamily, what's the highest mortgage that you could comfortably pay if the **** hit the fan? use that # to figure out how expensive of a home you could buy (up to 1.7mil), with extra bedrooms that you could rent out to traveling professionals (this is called 'midterm rentals'), to get your housing cost closer to zero, and free up more of your monthly income for investing. you'll also have a more expensive home that's now appreciating for you, getting debt paydown, etc. 

    if you don't want to live in a multi or househack a single, the next EASIEST path will be investing out of state. but there are a million additional ways to make money in real estate. hope this helps. :)

    1Reply
  • Josh Bowser
    Real Estate Agent 路 Atlanta, GA 路 Member since 2020 路 414 posts 路 233 votes
    3y

    Hey Jonah - I would seriously consider housing hacking if this is going to be your first property and you are in the financial position to do so.

    Sure, you can go out of state and buy more properties in a cheaper market like Atlanta. However, it is unlikely that you will able to offset your living costs with the cashflow out of state on your first few properties. When you are house hacking, you get all of the other benefits of owning an investment property AND it saves you from otherwise paying rent.

    If you're in a position where you are not able to house hack, take a look at David Green's "Long Distance Real Estate Investing" book.

    0Reply
  • Kenny Cho
    Real Estate Broker 路 Los Angeles, CA 路 Member since 2023 路 21 posts 路 1 vote
    3y
    Quote from @Jonah Rudy:

    Thank you all for your feedback. To answer some questions, yes I own my primary residence and have reserves. Speaking to a local agent, they mentioned that there are properties around here in the $400k range - around 800-900sq ft for a 1 or 2 bedroom. Average rent for those properties are around $2000-$2500/mo. Doing some basic math, my mortgage would be around $2500 plus any HOAs would be assumed around here for anything in this price range as those would be apartments/condos. So it would not be a way to build monthly income unless I can put more down.

    I hear all the advise to consider out of state and am genuinely interested in learning more about it. As a first time investor, the idea of having a property that I can visit via a short drive makes me more comfortable. Have any of you done the out of state investments and would you recommend it for a first timer? 


    I'm local in Los Angeles.

    100K for 800K is not a good idea at all.

    There might be some options for you in LA.

    0Reply
  • Tim Ryan
    Investor / Mentor / Contractor 路 Arcadia, CA Buying Out of State 路 Member since 2015 路 654 posts 路 622 votes
    3y

    Here's my motto:  Live Where Ever You Want, Invest ONLY Where it Makes Sense.  WIth $100k you can do a lot out-of-state. In SoCal, not much.  OOS is not for everyone but there is a process to it that most people don't talk about. Probably because they don't know I guess.  DM me and we can go over it.

    0Reply
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