Here's another thing to consider - its really hard to buy a deal in Los Angeles but you can MAKE a great deal in Los Angeles if you learn the laws and think creatively (consult a lawyer as well).
We bought our duplex (two - 2bed/1ba units) in south LA (walking distance from the coliseum and LAFC stadium) in 2017 for $400k; we got a deal because it had one rent control tenant.
We used FHA financing 3.5% down, moved into the vacant unit, transferred our mid-city rent ($2000) to a mortgage and collect minimal rents ($515) which helps pay our mortgage. Our P&I + PMI + Taxes + Insurance = $2570.
We're paying about $27k for eviction of our tenants including legal + relocation fees.
Total renovation fees will be about $25k (it's all cosmetic and we're doing much of it ourselves).
Vacant and renovated duplexes sell for about $600k-$750k in our area.
Rents in our area for 2bed/1ba are currently $1600-$2400 depending on the proximity to school and renovations. According to rentometer, average rents are $2052 and median is $1995.
When searching for properties in LA, look at all the potential opportunity and try to calculate how to make something a deal.
That's a personal choice. Are you looking for cash flow or what are you trying to accomplish? You can cash flow more out of state with relative ease compared to CA but you will experience less appreciation. There are more affordable homes in palmdale, lancaster, san bernardino, riverside, etc, then in downtown LA.
@Alex K. What are your long term goals?? Im pretty much in the same boat as you are. I am looking to find something in LA to buy and hold ( house hack + reno) but I also just acquired a 4 unit in San Antonio Texas a few months ago with a partner (rehab currently 2/3 completed, looking to brrrr it) for cash flow.
@Mark Christopher Javier I would like to learn more about the deal do you mind sharing the numbers I've also been looking in sa , but didn't find one yet .
Its different for every person based on your cash, credit, income situation. We decided to buy a property in Los Angeles first so we transferred our rent payment to a mortgage payment while receiving a tiny bit of income and pretty sizeable returns over the longterm. Now that we have our LA property (and a place to live), we're investing OOS for cashflow.
70k- rehab (full gut) - so far in it for 78k (unaccounted for insulation since they had no idea, roof didn’t have plywood, and a minor leak.
350-375k - exit
2 beds rents for 900-1000k each (there is one fairly larger than other)
1 beds 700-750
Strategy is to cash out refi after we get tenants in place. Might have to do 75% refi in order to get all our cash out.
If we don't get the anticipated ARV we will sell it, ideally we want to keep it.
Anticipated cashflow is 400 ish depends on final number. This doesn’t account that we won’t have capex for a few year as everything will be warranty for 3 years per contractor agreement
@Alex Ko bought it from a wholesaler. We initially declined it but they ended up lowering the ask and helped on the closing cost so it worked out. Will actually be in Texas the rest of the week to walk thru project with pm, contractor, agent; also to look at more units.
If you’re free March 7th, I started a meet up in Silverlake. Let me know if you want to go. We can chat more there or you can meet other out of state investors as well as in state. It’ll be a great way to network with investors. This meet up is strictly networking.
@Alex K. in Los Angeles there are definitely opportunities to purchase properties that appreciate but to find something that cash flows it is more difficult.
There are cash flowing assets here in the Los Angeles area but most of Southern California is about appreciation. Ultimately it depends on what your goals are and what you want to achieve whether that is immediate cash flow or if you're okay waiting for appreciation.
I personally invest here in Los Angeles and Inglewood for appreciation and then out of state for cash flow.
Here in the greater Los Angeles area the best thing to do is to purchase a multi unit 2-4 units, live in one, rent out the rest. Again, you may not cash flow but at least you'll get appreciation and debt pay down.
@Alex K. in Los Angeles there are definitely opportunities to purchase properties that appreciate but to find something that cash flows it is more difficult.
There are cash flowing assets here in the Los Angeles area but most of Southern California is about appreciation. Ultimately it depends on what your goals are and what you want to achieve whether that is immediate cash flow or if you're okay waiting for appreciation.
I personally invest here in Los Angeles and Inglewood for appreciation and then out of state for cash flow.
Here in the greater Los Angeles area the best thing to do is to purchase a multi unit 2-4 units, live in one, rent out the rest. Again, you may not cash flow but at least you'll get appreciation and debt pay down.
I am a first time buyer and I am looking for a multiunit property as well. Any suggestion?
@Uday Raju that is great! Welcome to the world of multi unit investing in Los Angeles!
There are definitely opportunities here in the area and everyone's situation is different so it takes time to find the right opportunity for each individual investor.
Just an fyi, evicting a bad tenant in LA (rent control) is a slow moving train wreck. May take up to several months and relocation fees in some circumstances. Definitely not for the faint of heart.
Here's another thing to consider - its really hard to buy a deal in Los Angeles but you can MAKE a great deal in Los Angeles if you learn the laws and think creatively (consult a lawyer as well).
We bought our duplex (two - 2bed/1ba units) in south LA (walking distance from the coliseum and LAFC stadium) in 2017 for $400k; we got a deal because it had one rent control tenant.
We used FHA financing 3.5% down, moved into the vacant unit, transferred our mid-city rent ($2000) to a mortgage and collect minimal rents ($515) which helps pay our mortgage. Our P&I + PMI + Taxes + Insurance = $2570.
We're paying about $27k for eviction of our tenants including legal + relocation fees.
Total renovation fees will be about $25k (it's all cosmetic and we're doing much of it ourselves).
Vacant and renovated duplexes sell for about $600k-$750k in our area.
Rents in our area for 2bed/1ba are currently $1600-$2400 depending on the proximity to school and renovations. According to rentometer, average rents are $2052 and median is $1995.
When searching for properties in LA, look at all the potential opportunity and try to calculate how to make something a deal.
@Matt Millard I agree, the south has much more favorable laws but we can also recognize that Oklahoma isn't as desirable as a location and OK doesn't experience the population growth or RE value appreciation that LA provides.
@Alex K. and @Mark Christopher Javier The key to finding reasonably priced properties in an expensive market is to find off-market leads. Sometimes easier said than done.... But a mailing to potential sellers with motivation has been effective for a lot of investors.
Most investors are sending to Absentee Owners. A good group except that they are often getting multiple offers. Consider working with a list broker. They can suggest segments with motivation where your letter or postcard can stand out. This might include Seniors with Long-Time Ownership and Owners with Low Financial Stability Scores (FSS)
These segments are also attractive because they probably haven't done much updating in a while and might defer maintenance. They shouldn't expect the same selling price as the neighbor with the fancy gourmet kitchen and a fresh paint!
@May Emery great insight May. Absolutely agree with you as that will be my next plan in order to get better deals. I’ll be reaching out to a local title company to get owners name and addresses (if not under an llc) and see if I’m able to write hand intentional notes to specific sellers close proximity to my current project.
@Alex Ko I also live in LA and I’ve had the ability to purchase 11 rental properties in my first year... Not a single one is in the state of CA. I’m buying in small to mid-size markets and my returns/metrics are strong. I see more potential in developing markets given how the “established” markets are pricing a lot of people out. But I know there are also a lot of people that have invested in CA and have been very successful doing so. There’s no right or wrong answer - you need to determine what your goals are and what market(s) give you the best chance to reach those goals.
@Sydne Gutierrez first and foremost, make sure you have a solid understanding of the markets you want to invest in and why you want to invest in them. Might sound obvious but this is often overlooked. Surround yourself with a team you can trust - an agent, a lender and a property manager. I’m very lucky to have all three of these in multiple markets but it took a while, and some trial and error, to develop those relationships (well worth it, by the way). Find an agent that has your back (i.e. puts your own investment interests above their ability to collect a commission check - telling you when to walk away when it isn’t a sound investment), a lender that will work with you to find the best loan package for you on each, individual investment, and a PM that not only manages the properties, but manages the tenants so they won’t try to take advantage of you (can’t tell you enough how important that last part is). If you have these in place it will certainly help make you more successful.
I’m happy to share any contacts I have in the markets I work in because I trust them and I know they’ll treat anyone and everyone they work with the same way they treat me.
@KJ L. So $27k isn’t a typo? Curious you mentioned relocation. Is that required or did you offer that as some type of olive branch?
This 27k eviction is blowing my mind lol
Hey Derek, I worked in Dyersburg TN a few years ago, it's a pleasant city.
No $27k isnt a typo haha. We're paying about $7k in legal fees & $20k in relocation fees. Relocation fees in LA (for rent control properties) are from $7550-$21k depending on the landlord status and tenant type (disabled, elderly, have young kids etc). Cash for keys offers can run from $10k-$50k because the value of a vacant unit exceeds the cost of removing the tenant. The city requires relocation fees for rent control properties because they don't want the evicted tenants to end up homeless. For instance our property purchased at $400k will be worth about $500k-$550k+ once made vacant; completely flipped and vacant duplexes in our area go for about $550k-$750k. Our long-term tenants currently pay $515 but once they're evicted, they wont be able to find a 2bed/1ba for $515 because rentals in our area are about $2k a month (which will keep going up because we're walking distance to the new George Lucas museum, USC Coliseum, LAFC stadium). Most likely the tenants don't have the funds for deposit + first month rent + moving expenses + additional deposits for setting up utilities so the city requires relocation fees to help prevent people from ending up on the street. It's an asinine concept and I hate it but $20k is a drop in the bucket compared to the property value increase and prospective rent income.
As hard as the cost of an eviction and relocation in LA is, @KL J is right. LA is very very tough cashflow market for new investors. Deals have to be made.
I just bought a fourplex in rent control and the MINIMUM amount to relocate a tenant in rent control who is protected (over 62, disabled or single mother over 3 years tenancy) is $20,450. That is a number set by HCIDLA, the oversight committee in LA for all Rent controlled areas. I just paid out a tenant last week and she was happy to get a small payday. But she was paying 824 and her unit would go for 1500-1600 in my area. After rehab I will make that back in 27 months so the first few years are tough and new LA investors need cash to get things going and stable. But being that I got the property for 725,000, when nearby fourplexes are 900-1.1, Ill get it in appreciation and market rents.
@Jonathan Taylor Did you get a signed W-9 from your tenant so you can issue them a 1099 for the relocation amount paid? We're trying to figure out the best way to get the tenants to sign the W-9 so they'll pay taxes on the money received and we can write it off as an RE expense.
Funny you mention HCIDLA relocation requirements because I thought those relocation amounts were set in stone by law but apparently it's not because the Judge in eviction court can request owners to pay tenants more funds.
We initially offered our tenants a cash for keys deal of $20k and they declined. We filed eviction paperwork through the city and HCIDLA set our initial relocation fee amount to $7550 but the tenant didnt move by the required date. So then we filed unlawful detainer and went to court. The Judge reviewed the documents from HCIDLA but questioned why we weren't paying the tenants more money so we told the Judge that the city determined the relocation fee of $7550. Judge suggested that we pay more so we offered the tenants $20k again while we were in court. At first the tenants declined but the judge told the tenants to accept our offer because if we go to trial, they will receive no money from us and they'll be removed by the sheriff in three weeks. The tenants got the message and signed the settlement. Land-lording in LA is not for the faint of heart.