Should I buy in Los Angeles before it is too late?
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesIMO, it is a bad business decision to buy a house at that price level unless you are paying cash. Yes, even counting the wonderful Cali appreciation.
If you run the numbers at 50% down, @ 7%, PITI is $4500 per month! For 30 years! You talk about being shackled and you are right. It's just not smart. Once again, IMHO.
So why would you want to do that? You could be making real money by investing wisely.
Also, I wouldn't be sure that Cali will always appreciate at the rate that it typically has. I took advantage of that for many years, but many people think that with the ongoing exodus of people from Cali, plus the continually increasing taxes and fees courtesy of your Governor, that Cali could very well start to fail. Yes it is just specualtion, but if you are basing your future on guaranteed appreciation, imagine having that huge amount to pay every month and NOT having the appreciation to reward you at the end. Just think about it. Remember, nothing is guaranteed.
25 Replies
- Investor / Mentor / Contractor · Arcadia, CA Buying Out of State · Member since 2015 · 655 posts · 622 votes2y
Hey Kevin,
I say continue to buy rentals and of course needs to be out of state because of where you live. You can build up good cash flow and equity. Los Angeles is not the only place to gain appreciation - although it is really good - but you pay for it...
Anyway, I have stories about people who focused on rentals before buying their primary home and they've done great.
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
IMO, it is a bad business decision to buy a house at that price level unless you are paying cash. Yes, even counting the wonderful Cali appreciation.
If you run the numbers at 50% down, @ 7%, PITI is $4500 per month! For 30 years! You talk about being shackled and you are right. It's just not smart. Once again, IMHO.
So why would you want to do that? You could be making real money by investing wisely.
Also, I wouldn't be sure that Cali will always appreciate at the rate that it typically has. I took advantage of that for many years, but many people think that with the ongoing exodus of people from Cali, plus the continually increasing taxes and fees courtesy of your Governor, that Cali could very well start to fail. Yes it is just specualtion, but if you are basing your future on guaranteed appreciation, imagine having that huge amount to pay every month and NOT having the appreciation to reward you at the end. Just think about it. Remember, nothing is guaranteed.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
Why can't you do both?
Because I bought in LA, I used the appreciation to buy rentals. For example, I started with a condo, did a HELOC to buy my second LA house hack. Later I sold the condo and did a 1031 exchange to bought properties out of state. I also used a HELOC on my current house hack to buy. One strategy is to leverage the appreciation here to buy elsewhere.
Right now the data is showing continued appreciation in the LA area. There isn't enough land to build and it is mathematically impossible to build affordable housing.
I also don't recommend you stretch yourself so thin. That could be dangerous as well. Consider a house hack here to help offset the costs. I understand house hacking isn't for everyone, but it also doesn't have to be forever.
- 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Kevin L.:
I qualify for up to 850k at the absolute MAX and I am able to pick up a 4 bed 2 bath in the San Gabriel Valley. All my friends and family are here and I lived here my whole life. It has always been a dream for me to own but I am scared to pull the trigger. If I do I will essentially be house poor and shackled to this mortgage for the rest of my life.
My initial plan was to purchase enough rentals to help offset some of the mortgage of my future home in LA. I currently have 1 and I am looking for another but I feel like this plan can't catch up with how fast LA is appreciating.
My question is in the title. Should I just pull the trigger and buy in Los Angeles and give up on investing? Or do I keep investing for another few years hoping that I don't get priced out? Any advice is appreciated.Just because you qualify for it does not mean you should. I would advise to look at homes that are less than $850k which would mean looking out of that city. If that's not a possibility because of work, etc.. then you should work on getting a high income to comfortably afford an $850k home if you wish to remain in state.
DO not give up on investing lol. A primary home is not an investment, as it's not producing you any return other than appreciation which you have access to only selling or taking out loan. Just be realistic with your expectations and do not shoot for the stars when you don't have the means yet. Consider a smaller starter home or condo and then work on your income to upgrade into a home.
LuxePrivate Investments LLC 572 Reviews - 2yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 715 votes
Can you find a value add SFH or multifamily that you can house hack? This would offset some of your payment and when you move out you'll have risk distribution from multiple tenants. I also agree that if 850 is your max unless you have some good reserves try to buy below that. Also is there a way to increase your income with a second job, a promotion to increase your monthly income to save more for reserves or another down payment?
- 2ySamuel DioufBusiness MemberReal Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
Why not keep buying out-of-state in other areas of the country where properties are still relatively cheap but still appreciating a ton.
Reafco - Samuel Diouf528 Reviews Quote from @Tim Ryan:
Hey Kevin,
I say continue to buy rentals and of course needs to be out of state because of where you live. You can build up good cash flow and equity. Los Angeles is not the only place to gain appreciation - although it is really good - but you pay for it...
Anyway, I have stories about people who focused on rentals before buying their primary home and they've done great.
Hi Tim,
I see. Yea, it would be more financially sound to stack up on income producing assets over a liability. Where are the people you know investing out of state?
Quote from @Samuel Diouf:
Why not keep buying out-of-state in other areas of the country where properties are still relatively cheap but still appreciating a ton.
LA has an been appreciating incredibly fast. I'm already pushed to the edge at 850k. I might not be able to afford anything in a year or 2 anymore in LA.
Quote from @Bradley Buxton:
Can you find a value add SFH or multifamily that you can house hack? This would offset some of your payment and when you move out you'll have risk distribution from multiple tenants. I also agree that if 850 is your max unless you have some good reserves try to buy below that. Also is there a way to increase your income with a second job, a promotion to increase your monthly income to save more for reserves or another down payment?
I think the only way to do that is to increase my loan to get some multi families I see in the 1.1 mil range. It would help with the mortgage immensely and I would have to pay less compared to a normal single family. I have been looking for a 2nd job but the market is tough unfortunately...
Quote from @Rick Albert:
Why can't you do both?
Because I bought in LA, I used the appreciation to buy rentals. For example, I started with a condo, did a HELOC to buy my second LA house hack. Later I sold the condo and did a 1031 exchange to bought properties out of state. I also used a HELOC on my current house hack to buy. One strategy is to leverage the appreciation here to buy elsewhere.
Right now the data is showing continued appreciation in the LA area. There isn't enough land to build and it is mathematically impossible to build affordable housing.
I also don't recommend you stretch yourself so thin. That could be dangerous as well. Consider a house hack here to help offset the costs. I understand house hacking isn't for everyone, but it also doesn't have to be forever.
If I buy at 850k I would have very little expendable income left to invest. I have yet to consider leveraging equity to invest because I'm not too familiar but I will do some research.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
Some properties have a higher probability of appreciating faster than others. We cannot bank on appreciation but conceptually a 3% increase in value on an $850K property is more "cash" than a 3% appreciation on a $200K property.
You wouldn't need the capital if you get the HELOC (this is assuming you qualify). If you are stretching yourself thin, then the HELOC approach may not be best. It just depends on the property.
- Lender · Nationwide · Member since 2023 · 362 posts · 237 votes2y
Nobody can say for sure if its "too late". All I know is the socal area doesn't have good rent to price ratios so its like you will be in a large negative cash flow situation. This will probably mean at least 1k or more out of your pocket every month and if some kind of emergency happens, you will be in a really tough spot. This is exactly why I've been staying away from markets like LA and focusing on midwest markets. I'm based in Seattle, so similar situation. However, other than my primary, I've been only investing in Memphis and Detroit where I find cash flow positive deals and appreciation has been good as well. Happy to connect and knowledge share if you are interested.
- 2yAlfath AhmedBusiness MemberReal Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
Quote from @Kevin L.:
I qualify for up to 850k at the absolute MAX and I am able to pick up a 4 bed 2 bath in the San Gabriel Valley. All my friends and family are here and I lived here my whole life. It has always been a dream for me to own but I am scared to pull the trigger. If I do I will essentially be house poor and shackled to this mortgage for the rest of my life.
My initial plan was to purchase enough rentals to help offset some of the mortgage of my future home in LA. I currently have 1 and I am looking for another but I feel like this plan can't catch up with how fast LA is appreciating.
My question is in the title. Should I just pull the trigger and buy in Los Angeles and give up on investing? Or do I keep investing for another few years hoping that I don't get priced out? Any advice is appreciated.Los Angeles is a very tough market with the price to rent ratio. Horrible landlord laws. I would get a smaller house a little further and invest out of state. You are better off buying cashflow properties that have the potential to double every couple years than buy a property and be stuck.
Ohio and Indiana are markets you should look for. Connect with good agents that can connect you with your core-4. If you buy aggressively every year, you can refinance several deals in 5-7 years and buy the same property and afford it with the cashflow from those rentals all while you have equity gains and appreciation with tax benefits and cashflow.
ReafCo | Ahmed Group 539 Reviews - Investor / Mentor / Contractor · Arcadia, CA Buying Out of State · Member since 2015 · 655 posts · 622 votes2y
Quote from @Kevin L.:
Quote from @Tim Ryan:
Hey Kevin,
I say continue to buy rentals and of course needs to be out of state because of where you live. You can build up good cash flow and equity. Los Angeles is not the only place to gain appreciation - although it is really good - but you pay for it...
Anyway, I have stories about people who focused on rentals before buying their primary home and they've done great.
Hi Tim,
I see. Yea, it would be more financially sound to stack up on income producing assets over a liability. Where are the people you know investing out of state?
Mid-west is popping. South is still good but you need to be careful as many of those areas are already on a downturn. I look for newer growth areas.
- Granada Hills, CA · Member since 2019 · 100 posts · 313 votes2y
@Kevin L. Regarding your fear of getting priced out, please check out this infographic https://advisor.visualcapitalist.com/growth-in-u-s-house-pri... (make sure to use the arrows in the graphic to change the timelines)
I love visual capitalist. As you can see CA isn't outstripping the rest of the country as a percentage, it just feels that way in absolute terms because a 300% increase is a lot more when your starting point is $800K vs $200K. But if you buy four $200K houses then it's apples to apples and you're not going to fall behind.
For what it's worth, I'd be concerned that if you over extend yourself buying a primary home you'll create a larger scale issue than just being house poor. A few folks have talked about leveraging a HELOC in the future, but if you don't have other assets to back up that play and things go south it could force you to sell your primary home - that gets real dark real quick. And you already noted the high mortgage is also going to make it really hard to get your investing going.
Would you buy a C8 Corvette today and then try to bootstrap your way to being able to comfortable afford it after the fact? Owning a $850K home as your primary residence isn't much different. As a side note I live in the Valley, so I get that that's just what starter homes cost but the comment still holds.
If you really feel the need to buy here, could you buy here and rent it out for a few years? Or Househack? That way you could get a property in CA and still have some money coming in to start looking at investing somewhere else. Best of luck, I feel for you.
- The issue of looking at appreciation on a state level is that markets vary significantly within a state as large as CA. Comparing coastal cities compared to Fresno county and imperial county cities there is large difference in appreciation rates.
Quote from @David Lutz:
@Kevin L. Regarding your fear of getting priced out, please check out this infographic https://advisor.visualcapitalist.com/growth-in-u-s-house-pri... (make sure to use the arrows in the graphic to change the timelines)
I love visual capitalist. As you can see CA isn't outstripping the rest of the country as a percentage, it just feels that way in absolute terms because a 300% increase is a lot more when your starting point is $800K vs $200K. But if you buy four $200K houses then it's apples to apples and you're not going to fall behind.
For what it's worth, I'd be concerned that if you over extend yourself buying a primary home you'll create a larger scale issue than just being house poor. A few folks have talked about leveraging a HELOC in the future, but if you don't have other assets to back up that play and things go south it could force you to sell your primary home - that gets real dark real quick. And you already noted the high mortgage is also going to make it really hard to get your investing going.
Would you buy a C8 Corvette today and then try to bootstrap your way to being able to comfortable afford it after the fact? Owning a $850K home as your primary residence isn't much different. As a side note I live in the Valley, so I get that that's just what starter homes cost but the comment still holds.
If you really feel the need to buy here, could you buy here and rent it out for a few years? Or Househack? That way you could get a property in CA and still have some money coming in to start looking at investing somewhere else. Best of luck, I feel for you.
using neighborhoodscout looking at Los Angeles shows it is 10/10 for this century and 9/10 for last 19 years (when lots of markets had great appreciation).
https://www.neighborhoodscout.com/ca/los-angeles/real-estate
my market is San Diego. I have properties that have appreciation over $10k/month over the hold. No way to know if this appreciation will continue, but it is very difficult to catch up if you are not in the market.
I do agree that the initial cash flow is poor and negative on MLS purchases. However, it improves fast. I suspect my average rent increase over the last year was ~$200 per unit. It does not take many units for the increase to add up fast.
Best wishes - 2yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Kevin L. buy a home that you can improve and add value, including turning the garage into an ADU.
Also, take the ugliest room and rent out the rest to generate income to offset the mortgage payment or to accrue cash for improvements or additional investments.
Logical Property Management4.9460 Reviews - Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes2y
Quote from @Kevin L.:
I qualify for up to 850k at the absolute MAX and I am able to pick up a 4 bed 2 bath in the San Gabriel Valley. All my friends and family are here and I lived here my whole life. It has always been a dream for me to own but I am scared to pull the trigger. If I do I will essentially be house poor and shackled to this mortgage for the rest of my life.
My initial plan was to purchase enough rentals to help offset some of the mortgage of my future home in LA. I currently have 1 and I am looking for another but I feel like this plan can't catch up with how fast LA is appreciating.
My question is in the title. Should I just pull the trigger and buy in Los Angeles and give up on investing? Or do I keep investing for another few years hoping that I don't get priced out? Any advice is appreciated.It seems like the coasts are much more volatile than most of the rest of the country. So market timing could be an important thing. Nonetheless I think it's good to own real estate. I would worry more about buying the right property than so much on the over all market timing of things
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Bradley Buxton:
Also is there a way to increase your income with a second job,
So now he's a slave to that high mortgage, plus has to work his life away? For what? Just to live in LA? Lol.....No thanks, life is too short.....
- Granada Hills, CA · Member since 2019 · 100 posts · 313 votes2y
@Dan H. Love that you're taking a nuanced view of CA coast vs inland. I'd just point out that it holds for other states as well.
Los Angeles has certainly done well. But the ranking's in Neighborhood scout don't give any scale. You could be appreciating 10% higher or 0.2% higher than other states, you'd still be ranked above them. The hard numbers listed next to them are more telling. You mentioned Fresno, it's average appreciation since 2020 is <1% lower than Los Angeles (5.39% vs 6.26%). Phenoix is 5.66%, Atlanta is 4.14%, Nashville is 5.49%. Bakersfield is 5.2% since 2000 but has actually outperformed Los Angeles over the last 10 years.
Not sure the interstate variance is as much as you're implying. Plus, population/housing density is also going to mean that the major urban area's of a state are going to skew the state's averages.And what you lose in appreciation in those other markets you tend to make up in cashflow since the rents are higher compared to home value. Obviously that starts down a whole different conversation about preferred investing strategies which all have their merits.
My only point here is that I don't think investing in other markets means you're going to miss out on the opportunity to ever buy in Los Angeles.
- "Live where you want, invest where it makes sense". It wasn't clear in the original post if this is a primary. I'm assuming it is. Like others have said, your primary is not a great investment. I won't argue whether it is or isn't an investment, but my opinion is it's not a great one. I think a lot depends on where you are in life. Can you "house hack" it and rent out one or more bedrooms? Can you keep searching for something more affordable off market? Can you buy something much smaller, live in it for a year, then move, rent it out, and do this every year until you're happy? I suggest not signing up for a loan that is going to leave you house poor and unable to save or invest.
- >Love that you're taking a nuanced view of CA coast vs inland. I'd just point out that it holds for other states as well.
Quote from @David Lutz:
@Dan H. Love that you're taking a nuanced view of CA coast vs inland. I'd just point out that it holds for other states as well.
Los Angeles has certainly done well. But the ranking's in Neighborhood scout don't give any scale. You could be appreciating 10% higher or 0.2% higher than other states, you'd still be ranked above them. The hard numbers listed next to them are more telling. You mentioned Fresno, it's average appreciation since 2020 is <1% lower than Los Angeles (5.39% vs 6.26%). Phenoix is 5.66%, Atlanta is 4.14%, Nashville is 5.49%. Bakersfield is 5.2% since 2000 but has actually outperformed Los Angeles over the last 10 years.
Not sure the interstate variance is as much as you're implying. Plus, population/housing density is also going to mean that the major urban area's of a state are going to skew the state's averages.And what you lose in appreciation in those other markets you tend to make up in cashflow since the rents are higher compared to home value. Obviously that starts down a whole different conversation about preferred investing strategies which all have their merits.
My only point here is that I don't think investing in other markets means you're going to miss out on the opportunity to ever buy in Los Angeles.
I would think in general states with less environment diversity would not have such extremes. A state like California that has ocean, wooded forests, flat land that would be good farm land if it were not for water issues, and hot, dry desert all within a single state has many different markets. San Diego, oc, Los Angeles San Jose, San Francisco are very different from Modesto, Fresno, bakesfield which is different than Julian, mammoth, Idyllwild, which is different than borrego springs, Palm Springs, 29 palms, etc. each area has nice features but they are different in valuation
>the ranking's in Neighborhood scout don't give any scale.
neighborhoodscout provides percentages in addition to the numeric comparison score I find more useful because it is not as easy to recognize if a certain percentage is good or bad over a period of time.
>average appreciation since 2020 is <1% lower than Los Angeles (5.39% vs 6.26%). Phenoix is 5.66%, Atlanta is 4.14%, Nashville is 5.49%.
4 years is not long enough to be an indicator. This is even more so if the 4 years has an impactful event such as Covid.
>Bakersfield is 5.2% since 2000 but has actually outperformed Los Angeles over the last 10 years.
10 years is better, but still too short to provide a long term historical appreciation. It is why I used the longest duration that neighborhoodscout provides.
>what you lose in appreciation in those other markets you tend to make up in cashflow since the rents are higher compared to home value.
historically this has not been the case. I use the data case Shiller used to publish on total residential RE return for large cities for this century (it is my belief it is no longer published as I have not seen it in a few years). The top markets were all high appreciation markets. The last one I saw had San Fran #1, Los Angeles #2, San Diego #3. The top was all high appreciation markets. You had to go fairly far down the list to find the first non high appreciating market. There is 2 reasons for this 1) the appreciation return dwarfs cash flow return. 2) the initial rent ratio on a long hold has less impact on the cash flow than the rent growth. Rent growth has shown significant coupling to appreciation. If you spent $100k on property in cheap Midwest market in 2000 and $100k on property in San Diego (assuming same amount of leverage and terms), the San Diego property would have resulted in significantly higher total income. The Midwest market would start with the better cash flow, but San Diego’s cash flow would catch the cheap Midwest town a few year in and by year 25 would be crushing the Midwest purchase. It is simple math that the market with higher rent growth will surpass the lower rent growth market with time (such as a long term hold).
>My only point here is that I don't think investing in other markets means you're going to miss out on the opportunity to ever buy in Los Angeles.
I think in general your statement historically is incorrect but no one knows what will be the case going forward. What I do know is if you own Los Angeles RE, there is no opportunity to miss out. It could be going forward Los Angeles has worse appreciation than 10 out of 10 and not crazy rent growth. Maybe 10 years from now we see Columbus 10/10 for this century and Los Angeles 5 out of 10 for this century (basically reversing the current numbers). No one knows.
The best way to be sure you are not priced out of a n RE market is to own RE in that market.
good luck - 2yKiKi ChaseBusiness MemberReal Estate Agent · Indianapolis, IN · Member since 2022 · 184 posts · 75 votes
Hi Kevin! Great question. I struggled with this myself when I was trying to decide if I should buy a primary home or invest my money! I totally understand. I am a local Realtor in Indianapolis, IN, and I specialize in helping out of state investors invest here! I also co-own a property management company with my finacé, where we manage 60+ rentals. I would love to help you! Reach out if you need anything or have any questions!
Brentwood Collective54 Reviews - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
You mentioned that you already have one rental. Is that in the LA area? Or out of state?
When you said $850k is max you can buy in San Gabriel Valley, can you househack in your area so your renters help pay some of that mortgage? With 4 bedrooms, you could potentially have 3 roommates so I'm not sure if you're okay with that. Maybe look for a smaller less expensive home.
Not to pry too much but is current rent reasonable? If you have a high rent and no rent control, without knowing anything else about your financial situation, lifestyle etc. I would lean toward buying in LA and househack.
I've been attending local meetups, in particular one that discussed the historic appreciation of San Francisco and what's happening in the current market down to specific neighborhoods. I tend to favor buying a few high quality properties in coastal CA (Bay Area, LA, San Diego) over buying lots of less expensive properties in other states.
If you feel uncomfortable with that $850k price tag, I would pause and recommend attending RE meetups in your area and getting feedback from other local experienced investors on San Gabriel Valley and other parts of LA. Having actual conversations with people might be more helpful that getting one dimensional answers from BP. They might give you better suggestions none of us have thought of here very specific to LA area. I found that actually talking networking in person or the very least a Zoom call much more helpful. Good luck!
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