House Hacking in LA - Too Late?

Question

Hi all,

I just had a super discouraging talk with a real estate agent who invests/flips himself in the LA area. He told me I'm too late to the game and basically won't make any money house hacking with a FHA loan. He believes the market is due to reset soon, and the only way to get a somewhat good deal is all cash & finding the property before it hits the MLS. Wondering if anyone else in the LA area agrees with any of this?

Chris Mason · Answer

If you're defining the objective as "live rent free!" in a duplex wherein rent from one half covers the full PITI, that never really happened in hot CA markets anyways. Some of the legacy articles on this website were written by folks in 2012 that at the time lived in low appreciation midwest markets.

A reasonable California (Bay Area or SoCal) goal post to see is if your "slice" of that PITI after collecting rent and paying expenses is more, or less, than what you would otherwise pay in rent for a comparable living situation.

For example: Renting a 3/2 in that neighborhood is $2500/mo.

Or you own a duplex comprised of a pair of 3/2s, and the PITI is $4000/mo plus $350/mo in maintenance (some months you will have zero maintenance, other months you're replacing a water heater, this is a super rough long term average number, adjust accordingly if it's a 100 year old home instead of a 25 year old home, etc). We just said that renting a 3/2 is $2500/mo, so that means you are pulling in $2500/mo. You are cashing a $2500 check, and writing checks for $4000 and $350.

So you're paying $1850/mo to live in that type of property in that area, as an owner building equity etc. As opposed to renting a substantially identical unit for $2500/mo. Ahead $650/mo, before considering any potential equity gains from paying the balance down, appreciation, tax write offs, etc.

Carlton Chestnut · Answer

Excellent question Kate Bogart and response Chris Mason. I am also working on figuring out how to make the LA market make sense/cents for me - This information was beneficial.

Lee Ripma · Answer

@Kate Bogart

No one wants an FHA loan. So can you do a 5% down conventional loan instead? It'll be tough to get an offer accepted on the house that everyone else wants without cash, that's true. The LA market is competitive and hot. Are people buying and figuring out ways to make money in LA right now? YES. Listen to the recent episode of BP with the investor from Ventura, he's got some CA gold. I am an RE investor and I rent in LA. I invest both in CA and out of state. So I don't confuse investing in real estate with living in real estate. Lots of people get started with a primary residence but I've never owned one. So do you want to buy a house? Do you want to buy a house and make it less expensive? Do you want to be a real estate investor? Just a couple questions to ask yourself. SFH have never made any sense to me, so I've never bought one.

Kate Bogart · Answer

@Josh Castellanos Hi Josh, thank you for the words of encouragement. I would love to get connected with your lender. I really appreciate!

Carlton Chestnut · Answer

Super useful info Lee Ripma ! I am getting started myself weighing the options of renting here while investing out of state or buying here and waiting to invest until further down the line. Good to hear from someone with similar thinking regarding investing v.s. living in real estate and SFH.

Josh Castellanos · Answer

@Kate Bogart As my grandmother would say you can hardly ever go wrong with real estate. It’s because of that advice I purchased my first home in the San Fernando valley in 2012 at 22 years old. It’s never too late to get started, real estate is always a long term investment and not a rich overnight investment. You can easily get in a 5% down first time home buyer product live in it for a few years and make small upgrades at a time and rent it out down the road.

Happy to get you in touch with the lender that I have used for my purchases and refinances.

Ashley Willis · Answer

@Lee Ripma thank you

Lee Ripma · Answer

@Ashley Willis

My input is to look for ways to increase value that YOU can control and are not market dependent.

Ashley Willis · Answer

@Kate Bogart

I was wondering the same thing. I was "hoping" to purchase an investment property in LA area using a conventional loan. My hopes is that it would grow fast in equity and I could do a heloc/cash out refinance on the property to purchase more out of state investments. I have 3 other out of state  properties. My partner feels that we should stay away from LA because  the LA market is overpriced and there is no guarantee our property will increase in value being that prices are already near the top.  I'm interested in obtaining feed back from BP?

House Hacking in LA - Too Late?

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