Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
I’ve been doing a lot of reading, following forum discussions here, attending MeetUps and trying to network.
I live in Los Angeles but just can’t convince myself that I can 1) afford a decent duplex / triplex in a decent area or 2) plug myself in enough to find a good deal before it’s gone.
Ideally, for my first deal (focusing on either a duplex or a single family w/ ADU), it would be within close proximity to me so I can maximize the learning experience (property management, rehab etc).
However, if I’m priced out of LA, am I better off looking at markets like AZ nearby?
I think both LA and Arizona are good options. LA has great long-term fundamentals. It's a major city with a growing population, increasing foreign investment and a chronic lack of supply. Los Angeles and Honolulu were ranked the most difficult cities in the U.S. to build apartments. That means supply will remain tight and demand will remain high.
Phoenix, on the other hand, is the fastest growing city in the U.S., and is still relatively affordable. However, it's fairly easy to build new construction, so it may eventually be at risk of overbuilding (you might check stats on this). But both are very solid markets.
If I were starting out, I'd stay local, only because familiarity lowers the risk. If you don't plan to live in the duplex, I'd venture into submarkets that are transitioning the fastest. Off the top of my head, Long Beach, South LA, Boyle Heights and East LA are all formerly marginal areas that are improving steadily and are much more affordable than more established areas. There are others, too.
Managing yourself would be a great educational experience, but you might hire a property manager for the first year or two, and watch how they do things.
Hope that helps. Good luck!
Mark
LA has the advantage of being local to you, so you'll have more access to the property and control. If you plan to live in it, location
Have you considered looking at a more remote area around where you are now? Hemut has some pretty affordable duplexes. That way you could still run out there if you needed to in a reasonable drive.
I'd suggest building your contact list with contractors and property managers though for any area you want invest in.
Thank you, Geordy. That seems like very sound advice. I have to focus on building my network. Most importantly I have to identify where I want to buy so I can network with folks in that area.
I will check out listings and purse leads closer to home and see what I can find. I’m not familiar with Hemut but I will definitely look into that area.
I just saw this fresh thread with a new investor who lives in Hemut. You should reach out and see if he can tell you about the good and bad areas or any other questions you may have about the area:
I think both LA and Arizona are good options. LA has great long-term fundamentals. It's a major city with a growing population, increasing foreign investment and a chronic lack of supply. Los Angeles and Honolulu were ranked the most difficult cities in the U.S. to build apartments. That means supply will remain tight and demand will remain high.
Phoenix, on the other hand, is the fastest growing city in the U.S., and is still relatively affordable. However, it's fairly easy to build new construction, so it may eventually be at risk of overbuilding (you might check stats on this). But both are very solid markets.
If I were starting out, I'd stay local, only because familiarity lowers the risk. If you don't plan to live in the duplex, I'd venture into submarkets that are transitioning the fastest. Off the top of my head, Long Beach, South LA, Boyle Heights and East LA are all formerly marginal areas that are improving steadily and are much more affordable than more established areas. There are others, too.
Managing yourself would be a great educational experience, but you might hire a property manager for the first year or two, and watch how they do things.
Hope that helps. Good luck!
Mark
LA has the advantage of being local to you, so you'll have more access to the property and control. If you plan to live in it, location
To build off of what @Account Closed said, Arizona has extremely high population growth (#4 in the nation), with Buckeye being the fastest growing city in the US with a population over 50,000. For the 3rd year in a row, Maricopa County (Phoenix) has gained more people than anywhere else.
Why?
Two reasons: One, there are thousands of other people in your exact same position that are realizing despite the fact that LA has the jobs, it doesn't have affordable housing. And two, we're #1 in net migration for seniors as all the baby boomers turn 65 and get tired of the cold weather elsewhere.
The area's population is set to nearly DOUBLE by 2050 up to 12 million. Lots of growth coming, as we're in the middle of a dessert, so there's always room to build. Right now we have roughly half a month's supply for homes priced under $250k, and we don't hit three months supply until $700k or so. There's just so much demand. Median home price is half what LA is at only $270k or so.
I've been bringing lots of priced-out, few-option California investors this way, as the money simply goes way further. Plus it's only a 6 hour drive from LA and an hour-long flight. Not like you have to take a week off to fly 5 hours to Michigan or Ohio if your property needs your personal attention.
Sounds like you might have some options in Hemut though, and I agree it's much easier to invest a place you're already familiar with. But if that doesn't pan out give AZ a closer look. There's gold to be found here for sure.
It is great to be able to be hands on with your property and the best route to go here in the Los Angeles market is some type of multi unit whether it be 2, 3 or 4 units.
Here in Los Angeles you have to remember that many lenders will not consider the rental income unit on an ADU so it's better to pursue a true multi unit so you can get into it. The FHA lending for the Los Angeles market is very generous for multi units which allows you to get into the market.
Thanks for the heads up! I really appreciate it! I’ll reach out and see if I can obtain any helpful information.
It's rumored that California has high taxes. But then, hey, that's only a rumor. ;-)
You need to calculate profit after ALL expenses to know what a good investment is. How much do you wind up with in your jeans.
We moved from the Seattle market where I had been investing in real estate for about 15 years because of the increasingly higher taxes and landlord hateful atmosphere. We checked out California and it was even worse and going downhill from there.
We checked out Arizona, which has low taxes, great prices, high rents, landlord friendly, no earthquakes or canyon fires or hurricanes, growing population, growing economy and high profits that stay in our jeans. It doesn't take a rocket scientist to compare two choices and run the numbers.
I’ve been doing a lot of reading, following forum discussions here, attending MeetUps and trying to network.
I live in Los Angeles but just can’t convince myself that I can 1) afford a decent duplex / triplex in a decent area or 2) plug myself in enough to find a good deal before it’s gone.
Ideally, for my first deal (focusing on either a duplex or a single family w/ ADU), it would be within close proximity to me so I can maximize the learning experience (property management, rehab etc).
However, if I’m priced out of LA, am I better off looking at markets like AZ nearby?
I’m in the same position and I simply invest out of state and rent in LA. By renting in LA I can live where I want and don’t need to live in a marginal area. By not doing the house hacking thing I’m missing out on appreciation but I’m also keeping my monthly liabilities predictable and I have rent control. I wouldn’t live where I invest, I chose it for the numbers. Even if I lived in the market I wouldn’t live where I invest in that market. So I’m not sure what the right answer is for YOU but I know what I’m happy to rent in LA, live where I want, and invest where I like the numbers but wouldn’t live.
Thank you, Lee and thanks to all the recent responses (still trying to figure out how to tag multiple people on a reply!). It sounds like you have achieved the best of both worlds. I often read the advice in the BP forums to live where you want to live, and invest where you want to invest. My ideal situation would be to live and invest in the same area (as a newbie).
My question now is - if I have less than $100K to invest in the competitive market in or around LA (focusing on duplex), do you think it’s possible to find a deal where I achieve the benefits of both appreciation and positive cash flow?
I have yet to find something that achieves both but I am still learning the basics of deal evaluation and “running the numbers”. I admittedly also have a lot of opportunity to improve my process for finding off market leads. I suppose it will be a learning process.
I don't know where you're willing to live within LA so certainly narrow that down. I will tell you that I would buy a 2-4 unit if I could find one that would lower my monthly out of pocket cash but I haven't found any. My issue is that I only want to live in reasonably nice areas near downtown so being willing to live somewhere that currently isn't as nice would help. One thing to consider in LA is tenants rights so you might want to think about doing a house hack on a SFH (rent or Airbnb rooms) rather than a 2-4 unit. If you do a 2-4 unit you'll want units delivered vacant or you'll want pre-negotiated buyouts with tenants. I would focus mostly on the potential for future appreciation when looking at a 2-4 unit, that's where your returns will be and that's why you're better off picking somewhere in the path of progress that isn't yet nice. There several lenders that do conventional loans with 5% down where you pay PMI upfront at close or you pay higher interest. Much better terms than FHA. I was a newbie just a few years ago and I went out of state. There are certainly benefits to owning in LA, mostly massive appreciation. If you've got equity you can use it to scale up elsewhere or in LA. So there is a couple of thoughts for you and keep us posted on what you go with!
I'm not talking you out of Hemet, but definitely do your research before you jump in. Population, income, also look at mortgage defaults (foreclosures) and average length of tenancy (evictions). I know the area, and I know there was a lot of development in the 2000's. When the financial crash happened in 2008, people were walking away from their gated homes, people weren't paying rent, and there were a ton of vacant homes being squatted in. It's an area that when things are bad, it gets hit hard. There's some risk there, just do your research.
AZ has some solid areas and it's growing. A lot of Californians have moved out that way because of the high cost of living and taxes here. Figure out what's right for you, but you absolutely don't need to live near your rental. I know this is a big fear, especially when you're just getting in. But like a lot of things, once you do it, you'll adjust and get comfortable. So do the work, and don't let the fear hold you back.
CA is also an option, but we need to figure out a plan for you. What you want, how to get it, and if that path ultimately works for you. There are a lot of options as far as location, buying MF with a low down and living in a unit or buying SF and building an ADU. Let's figure out your strategy, whether it makes sense to buy local or AZ.
We all need to get clear on things, and get educated. Otherwise we second guess everything, maybe get desperate, and/or make bad decisions
@Eric Carr thanks so much for the feedback, Eric. I totally agree with you and appreciate your positivity. It’s iust a matter of me doing my due diligence and then having the courage to take action. Knowledge is power. After I finish my first deal, I’m sure it gets much easier for the 2nd and 3rd.
I’m now looking at out of state markets such as PHX, SLC and ATL. Is there a good website or online resource to find the info you highlighted - evictions, foreclosures, rental Income, annual appreciation etc? Even just a quick snapshot?
@Eric Carr thanks so much for the feedback, Eric. I totally agree with you and appreciate your positivity. It’s iust a matter of me doing my due diligence and then having the courage to take action. Knowledge is power. After I finish my first deal, I’m sure it gets much easier for the 2nd and 3rd.
I’m now looking at out of state markets such as PHX, SLC and ATL. Is there a good website or online resource to find the info you highlighted - evictions, foreclosures, rental Income, annual appreciation etc? Even just a quick snapshot?
There are a few websites to pull all of that together, let's put together some metrics and talk shop. I received your DM