Very new the world of Real Estate Investing, but super eager to learn.
Here is my situation, all advice, suggestions, comments are welcome and appreciated!
My wife and I have a SF in Granada Hills, CA. Our house is valued around 420 - 460k. We only have 136k left on our mortgage.
Our combined income is mediocre to say the least (85k/year, soon to be 95 - 100k) and have one car payment (300/m) and some cc debt (10k).
We felt that we had a a unique situation on our hands because of the equity we have on our home, so we decided to do some researching in Real Estate investing and came to the conclusion of doing a HELOC and investing in SFH in Lancaster or Palmdale, CA.
Chase, our lender only approved us for 40k with the condition to pay off our debt and car loan which only leaves us with around 6k.
We are thinking about Lancaster and Palmdale because there are some properties that will fits our budget and fall within the 1 - 2% rule.
Any advice? suggestions? comments?
Rentals in Lancaster and Palmdale may potentially offer better returns than other parts of Los Angeles county - here are some thoughts:
- Drive the streets and get a feel for the specific block/neighborhood. Both Lancaster and Palmdale have a lot of great parts and a lot of not so great ones
- Research Police plotters/crime stats. The LA Times has a great online tool (you can check it out here)
- Develop an idea of what rents go for. I use craigslist a lot and the map feature is an efficient way to estimate rent for a property you're looking at
- You can look at current listings and what prices homes sold for on Redfin
- Shop for financing (2nd loans, HELOC..etc) from as many sources as you can - Chase gave you one option, get other options from other banks and credit unions in the area. $40,000 (for total purchase price) might not get you a SFR in the antelope valley but might get you a mobile home - $6,000 will of course limits your options. Please research this a bit more as I have no experience with HELOCs
I used to live in Lancaster and got a pretty good feel for the areas. In my observation, there are two categories of people up there- 1. "locals" and 2. aerospace professionals (I was the latter). The aerospace people are all going to buy houses, so they aren't going to be your renters. That leaves the locals. As the last comment said, know what area you are buying in because there are a lot of not-so-hot "locals". Since prices are more affordable up there, most higher-end locals will just buy a house. My point is, what is left in the Palmdale/Lancaster population who will be renting houses is, less than high-quality typically? So know the exact area you are buying in and know the tenant base, or you will be in for some potential headaches.
The other, less opinionated and more factual comments I have would be- a) check to make sure the numbers even work for you to cash flow if you buy a property there (they likely won't, and the high desert isn't the place to hope for appreciation) and b) be familiar with CA tenant laws as they are very tenant-friendly, which could put you in an expensive pickle with bad tenants.
I'm not an advocate of buying in CA at all, but if you do, I would look more towards IE or Riverside for lower priced properties than I would up in Palmdale/Lancaster. I have a lot of friends up there and like I said lived there myself, but no one I've ever known lives there by choice unless it is to save money by living cheaper than they can in LA (not a good sign).
Welcome to BP! I'm assuming that you will use the Home Equity Line of Credit as a down payment for your next purchase? If that is the case I would highly suggest shopping around. With your situation and the amount of equity on your home, you represent very low risk for the bank. Local banks or credit unions normally more flexible than national brands and they also understand the local market and demands better. I think with 40k that Chase offer you is kind of low unless it is a non collateral loan or you have terrible credits. You get a free credit report once a year by law, use it to get a copy of your report and see if the banks will accept that instead of running a report ever time you apply. Good luck.
@Ali Boone: I live in Palmdale and have lived in the AV since 1994. I also used to work for the City of Lancaster. Lancaster and Palmdale are bedroom communities for the LA basin. Over 60,000 people travel down the 14 each day to go to work, so the majority of people living in the AV are not associated with the aerospace industry. It hasn't been that way since the late 1980's when the majority of the aerospace industry left CA.
I was an active investor in the AV from 1997 - 2005 (was paid $15K to buy my first house and have owned 3 properties in the AV that had a combined equity of over $350K). My wife currently owns a house in East Lancaster free and clear. We are both becoming active real estate investors again starting in October. We know the AV backwards and forward, inside and out. We also started a Real Estate Network group that meets every Saturday from 10:00 - 12:00. Email me if you're interested in attending and I will give the address. it's FREE.
You can invest in a new KB Home in West Lancaster with as little as $10K cash if you have the right FICO, Debt-To-Income ratios and Salary. I can also help you find a HELOC that will allow you get up to 80% of the value of your house, less the first mortgage balance.
God Bless You!
"You can invest in a new KB Home in West Lancaster with as little as $10K cash if you have the right FICO, Debt-To-Income ratios and Salary."
Is this is a NOO loan? Does it run up against the Fannie/Freddie limits?
Hi Abraham and others,
I've worked in the AV on various projects since 2003, but live in Hollywood. I'm not there every day, but have gotten to know the community somewhat and think it has lots to offer. I was surprised to find that the annual household income in 93551 and 93536 exceeds many parts of LA.
I have purchased a few SFH rentals in the AV between 2010 and 2012 (2 foreclosures and 2 short sales). Prices have definitely rebounded in the area, much faster than rents. During 2010-12, I was able to buy at/under 10x GRM, but now the numbers are closer to 12-14x GRM. Housing prices have gone up about 40-50% in the past couple years, but rents have been more flat, and I don't know that you'll be able to get a property to cashflow with 20% down these days.
Most people say "stay towards the west side" which can be interpreted as west of the 14 or west of Sierra Hwy, but perhaps you can find opportunities elsewhere.
I have used property management companies to find tenants for me and all 6 have worked out thus far, without any missed rent payments over 4 years (knock on wood). Paying a realtor to find you a tenant is money well spent as they probably can do it faster than you (avoiding lost rent) and do the background checks. My 6 tenants have had the following attributes:
House 1 93554
Tenant 1) Long-term renter, worked at Edwards AFB
Tenant 2) Lost Mojave house in foreclosure; Commutes to SFV
House 2 93551
1) Relocate from SFV after foreclosure. Commutes to SFV
House 3 93551
1) Locals who did short term rental during plumbing failure flood
2) Successful musician family moved to AV from LA after foreclosure; work from home studio
House 4 93551
1) Long-term renter, works at Scaled Composites (aerospace)
I hope this provides a little insight.
@Mark Whittlesey: We aren't doing conventional loans, we are doing 100% investor financing. Contact me for more information (don't want to get accused of advertising).
God Bless You!
Thank you everyone for all your input!
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