Buying a multifamily in socal anyone?
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Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
11yI actually purchased my first rental property, a 4-plex in Koreatown in 2011. This was right about the time I started logging into Biggerpockets. Most people would have told me not to buy it, but I am glad I did as I don't have time to deal with properties not near me and I felt LA properties were kind of a bargain at the time even though they were comparatively expensive to places in the middle of the country. It did cash flow immediately after accounting for capital reserves, management fee, repairs and vacancy and so forth, but barely. However, rents have soared and the place was previously mismanaged some. I ended up buying another triplex in 2013 and did some rehab work that added quite a bit of rental income and value.
SoCal properties, especially those in LA have some pros and some cons. The pros are:
1. There are quite a few 4-plexes as much of LA was developed in the 20's when these were popular to build.
2. There is basically no vacancy if you are a decent manager
3. You often get good professional tenants, because in LA people with even very good jobs can't easily buy a house.
4. The mild weather takes a smaller toll on roofs and property and you don't need big HVAC systems. Most of my units do not have A/C and only basic heating units, which is common.
5. Lots of opportunities and ways to increase rents. If you do nice renovations you generally get paid for it if you are in the right neighborhoods.
6. It is easy to sell your property when you need to exit. Tons of buyers unless you overprice.
7. Prop 13 is a huge benefit that few people really appreciate.
Cons are:
1. It is hard to get in as you need a lot of money, especially considering that you need big money to renovate to.
2. It is harder to score a great deal and competition is fierce for properties.
3. Properties tend to be older, so when you do a rehab you often need to replace electrical, piping, etc...
I think newbies look too much at the current rent ratios cash flow and not enough on the vision for adding value and increasing rents. It is like buying a stock solely on the basis of its dividend yield. You gotta dig a lot more to really see if it is a good investment.
If you buy well located CA property in a downturn you will do very well. I grew up in a nice middle class area but it was near a very wealthy area. Many of the people here had made their money in real estate. I wanted to be more like them and not so much like my Dad who was the last one in the neighborhood to come back home from work every night. Many people say that was a product of the 70's and 80's and can't happen again, but they are proven wrong again and again from people who bought during the downturns of the 90's and 2009-2013.
36 Replies
- Investor · El Cajon, CA · Member since 2015 · 50 posts · 12 votes11yNo, but I'd like to. Just can't afford to. Unless you can put up a large down payment, you'll be hard pressed to even get the 1% rule, let alone 2%. I've been looking at multi families for about 6 months and I can't find anything that will cash flow if I live in one unit and I can't afford to put 20% down for me NOT to live in one unit. So if you're in a similar scenario as me, the options are rather limited. But you might be able to find something a few hours away if you look hard enough.
- Investor · Pacific Grove, CA · Member since 2015 · 34 posts · 12 votes11y
@ Arvin Tjahjadi
I attest to what Traver is saying, I live in Monterey county, and the cheapest duplex sells for $ 750K, and it needs rehab for $ 50K or more. If you live in one and rent the other for $1800, you will be losing you time and money. This is California for you, Enjoy.......
- 11yJo-Ann LapinPro MemberLoan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
\Will this be hold or flip? Yes, ambgoius but not impossible.
- Professional · Jacksonville, FL · Member since 2015 · 397 posts · 34 votes11y
Originally posted by @Arvin T.:
Did anyone ever bought a multifamily in southern California as their first investment?
Where exactly in Southern California where you looking at?
- Civil Engineer · Oceanside, CA · Member since 2015 · 4 posts · 0 votes11y
Originally posted by @Traver Freeman:
No, but I'd like to. Just can't afford to. Unless you can put up a large down payment, you'll be hard pressed to even get the 1% rule, let alone 2%. I've been looking at multi families for about 6 months and I can't find anything that will cash flow if I live in one unit and I can't afford to put 20% down for me NOT to live in one unit.
So if you're in a similar scenario as me, the options are rather limited. But you might be able to find something a few hours away if you look hard enough.
What is the 1% and the 2% rule? I'm still learning about investing. Thanks.
- Care Review Processor · Long Beach, CA · Member since 2014 · 15 posts · 4 votes11y
@kristal the 1% or 2% rule is the amount of rent you should charge your tenants compared to the amount you owe for the property. For example if you find a property for $60,000, rent should be at $600 for 1% of $60k or $1200 for 2% of $60k. Hoped that helped...you can also find more info on the free E-book by BP written by Brandon Turner
- 11yArvin T.Investor from Southern California · gardena, CA · Member since 2015 · 12 posts · 5 votesOP
Originally posted by @Account Closed:
Originally posted by @Arvin T.:
Did anyone ever bought a multifamily in southern California as their first investment?
Where exactly in Southern California where you looking at?
I'm looking to move to these cities possibly to live in one unit and also rent out the other units.
Monterey Park, San Gabriel, Alhambra, Rosemead
or
Lakewood, Cypress
I came across this one but it is located at a less desirable place
https://www.redfin.com/CA/Lakewood/11704-205th-St-...
- 11yArvin T.Investor from Southern California · gardena, CA · Member since 2015 · 12 posts · 5 votesOP
Originally posted by @So Heng:
@kristal the 1% or 2% rule is the amount of rent you should charge your tenants compared to the amount you owe for the property. For example if you find a property for $60,000, rent should be at $600 for 1% of $60k or $1200 for 2% of $60k. Hoped that helped...you can also find more info on the free E-book by BP written by Brandon Turner
it seems the 1% or 2% rule will not apply to california properties at all.
https://www.redfin.com/CA/Lakewood/11704-205th-St-...
for this property at $550k, rent would have to be $5500 to meet the 1% rule.
- 11yArvin T.Investor from Southern California · gardena, CA · Member since 2015 · 12 posts · 5 votesOP
Originally posted by @Ramsey Kheshen:
@ Arvin Tjahjadi
I attest to what Traver is saying, I live in Monterey county, and the cheapest duplex sells for $ 750K, and it needs rehab for $ 50K or more. If you live in one and rent the other for $1800, you will be losing you time and money. This is California for you, Enjoy.......
It seems this is the reason why ca investors are going out of state to invest.
- 11yLogan AllecBusiness MemberAccountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
I just did a few weeks ago. Fourplex in Santa Clarita purchased using FHA financing. I live in one of the units. We'll see how it turns out.
Now I'm just trying to decide whether or not to buy another fourplex in SoCal or to put money out-of-state...or to sit on cash. Curious to hear others' thoughts as well.
Clarita CPA Group516 Reviews - Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes11y
@Logan Allec Congrats! Can I ask what percentage of rent did they allow you to use for qualifing or maybe that did not need to come into play?
- Investor / Contractor · Aliso Viejo, CA · Member since 2015 · 26 posts · 10 votes11y
Originally posted by @Logan Allec:
I just did a few weeks ago. Fourplex in Santa Clarita purchased using FHA financing. I live in one of the units. We'll see how it turns out.
Now I'm just trying to decide whether or not to buy another fourplex in SoCal or to put money out-of-state...or to sit on cash. Curious to hear others' thoughts as well.
We're looking OOS, AND sitting in cash, feeling a cyclical change coming, nothing big, (rubber band effect), just a return of a bit of common sense. (Think herd mentality)
Nothing new, been through a few of them,.....I checked that one prop the OP posted, those are everywhere, non cashflow, lots of renovation needed types of places.
I say, "let 'em sit for awhile and stew" better deals for those that wait and keep looking around I'm thinking.
Yes, LA has a housing shortage currently, and it's not the first time.
We're in no hurry to buy at the top of any cycle, especially considering the sq ft costs being achieved right now in sales.
Might be cheaper to build new in another state than pay $279 per sq. ft here with less than grade A tenants,...
Unless throwing 120k - 150k down is easy for you for 1 property,....I say go.
I'm not so rich I can afford to be cheap, (or silly) with my dough.
my .02
- Investor / Contractor · Aliso Viejo, CA · Member since 2015 · 26 posts · 10 votes11y
BTW,
Logan, congrats on your deal.
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes11y
Originally posted by @Arvin T.:
Originally posted by @Ramsey Kheshen:
@ Arvin Tjahjadi
I attest to what Traver is saying, I live in Monterey county, and the cheapest duplex sells for $ 750K, and it needs rehab for $ 50K or more. If you live in one and rent the other for $1800, you will be losing you time and money. This is California for you, Enjoy.......
It seems this is the reason why ca investors are going out of state to invest.
The reason CA investors go out of state is because they can only invest in under $100,000 properties. CA properties are more profitable but if you don't have the money or smarts to buy in CA then you settle for less profitable areas.
- 11yArvin T.Investor from Southern California · gardena, CA · Member since 2015 · 12 posts · 5 votesOP
Originally posted by @Logan Allec:
I just did a few weeks ago. Fourplex in Santa Clarita purchased using FHA financing. I live in one of the units. We'll see how it turns out.
Now I'm just trying to decide whether or not to buy another fourplex in SoCal or to put money out-of-state...or to sit on cash. Curious to hear others' thoughts as well.
Congrats on your purchase!
- 11yArvin T.Investor from Southern California · gardena, CA · Member since 2015 · 12 posts · 5 votesOP
Originally posted by @Account Closed:
Originally posted by @Arvin T.:
Originally posted by @Ramsey Kheshen:
@ Arvin Tjahjadi
I attest to what Traver is saying, I live in Monterey county, and the cheapest duplex sells for $ 750K, and it needs rehab for $ 50K or more. If you live in one and rent the other for $1800, you will be losing you time and money. This is California for you, Enjoy.......
It seems this is the reason why ca investors are going out of state to invest.
The reason CA investors go out of state is because they can only invest in under $100,000 properties. CA properties are more profitable but if you don't have the money or smarts to buy in CA then you settle for less profitable areas.
Or they have not yet won the RE lottery :)
- 11yLogan AllecBusiness MemberAccountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
Hi @Matt R., thanks! That metric did not really come into play. The real kicker was the requirement that 85% of the monthly rents equal or exceed the monthly PITI. That requirement alone excluded a lot of properties within the rent-controlled city limits of Los Angeles, hence the reason I had to look a little further out (like Santa Clarita). I wouldn't call it a great deal, but here are the metrics nonetheless:
Purchase price: $435k reduced by seller credit of $15k for net $420k
Down Payment: $15,225
Monthly Rents: $1,025 1-bed + $995 1-bed + $675 studio (hasn't been raised in 15 years) + $650 (bedroom in my unit) = $3,345. I am eventually going to raise the rents on the studio to $750 and rent out the unit I currently live in for $1,000, making the total rents $3,770.
Monthly PITI: $2,862For only $15k up-front, it was worth it for me since I was kicking money out the door every month in rent previously, despite the fact that the property is older, and I know it will have lots of maintenance (such as ). So let's say I need to put $10,000 in repairs over the next few weeks before El Niño (which scares the crap out of me, and I'm pretty sure will not be pretty for lots of people with older properties in SoCal...but that's a different story). Even so, I'm in this thing for only $25k, and I've certainly done sillier things with $25k, and plus now I'm not paying rent and am now getting landlording experience on a cashflowing property in Southern California (though I know a lot of that cashflow will go toward maintenance...I'm not spending or investing any of the cashflow...keeping it all in reserve...who knows what the rains will bring with them?). Would I have gotten into this property for $100k+ (25%) down? Not a chance. But for $25k, why not?
I suppose to the original poster @Arvin T. above) can give some better advice.Clarita CPA Group516 Reviews - Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes11y
@Logan AllecSweet, does that have septic and propane? Have you taken the train to downtown?
- 11yLogan AllecBusiness MemberAccountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
@Matt R., yes septic (which also worries me with the rain...just got serviced in May and supposedly in good shape...passed FHA inspection...but who knows...it'll be an adventure...just have to keep a lot in reserves I guess) and propane. And yup, been working from home since I bought the place, but will be taking that Antelope Valley Line soon enough.
What's your next move in terms of real estate?Clarita CPA Group516 Reviews - Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes11y
Right on @Logan Allec Should be fine if it passed fha. Jv triplex coming up in Santa Barbara and then my crowdfund project 2016. Let me know how the train goes..Thanks
- 11yLogan AllecBusiness MemberAccountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
Cool @Matt R., good luck with that man, hope our paths cross in person someday.
Clarita CPA Group516 Reviews - 11yArvin T.Investor from Southern California · gardena, CA · Member since 2015 · 12 posts · 5 votesOP
Originally posted by @Logan Allec:
Hi @Matt R., thanks! That metric did not really come into play. The real kicker was the requirement that 85% of the monthly rents equal or exceed the monthly PITI. That requirement alone excluded a lot of properties within the rent-controlled city limits of Los Angeles, hence the reason I had to look a little further out (like Santa Clarita). I wouldn't call it a great deal, but here are the metrics nonetheless:
Purchase price: $435k reduced by seller credit of $15k for net $420k
Down Payment: $15,225
Monthly Rents: $1,025 1-bed + $995 1-bed + $675 studio (hasn't been raised in 15 years) + $650 (bedroom in my unit) = $3,345. I am eventually going to raise the rents on the studio to $750 and rent out the unit I currently live in for $1,000, making the total rents $3,770.
Monthly PITI: $2,862For only $15k up-front, it was worth it for me since I was kicking money out the door every month in rent previously, despite the fact that the property is older, and I know it will have lots of maintenance (such as ). So let's say I need to put $10,000 in repairs over the next few weeks before El Niño (which scares the crap out of me, and I'm pretty sure will not be pretty for lots of people with older properties in SoCal...but that's a different story). Even so, I'm in this thing for only $25k, and I've certainly done sillier things with $25k, and plus now I'm not paying rent and am now getting landlording experience on a cashflowing property in Southern California (though I know a lot of that cashflow will go toward maintenance...I'm not spending or investing any of the cashflow...keeping it all in reserve...who knows what the rains will bring with them?). Would I have gotten into this property for $100k+ (25%) down? Not a chance. But for $25k, why not?
I suppose to the original poster @Arvin T. (and keep in mind that I'm pretty much a newbie too), this shows that you can find cash-flowing quads in SoCal on the MLS, just likely not in the locales you listed. But you might have to look on the road less traveled, like me. Outskirts of LA (like Santa Clarita), Inland Empire, etc. And of course that may not work for your personal situation. I'm young and relatively unattached and do a lot of work from home. But I see you're a family man, and I'm not sure what you do for work, so obviously you may be constrained in what part of SoCal you're looking in.
Again, take this all with a grain of salt, but I think my personal strategy right now is to wait until the market cools again to pick up more buy-and-holds in SoCal or maybe if I'm lucky find a distressed property. I'm betting that some SoCal landlords/homeowners will get burned--or should I say flooded--come El Niño, finding themselves in a bind they don't have the cash on-hand to get out of, and may be willing to part with their properties quickly to a ready cash buyer...or maybe I'm just dreaming. Pick one of those up and either do the work that needs to be done on it and flip it or just keep it as a buy-and-hold and cash-out refi. But this is just talk right now, I'm just trying to get used to landlording for the moment.
Also keep in mind that some SoCal sellers are unloading right now are unloading older properties with lots of deferred maintenance ahead of El Niño (as was the case with my property). Thankfully, I understood that substantial roofwork would have to be done upfront before buying the property, so this came as no surprise to me. But again, I'm just a kid, and I'm sure people who have been in this game a lot longer in SoCal than I have (like @Matt R. and @Steve Short above) can give some better advice.Thanks for sharing your purchase Logan. I'm currently paying rent so I would like to house hack and get into a muiltifamily. That way at least I get experience as a landlord and start RE investing, pay down the house instead of just renting which I don't mind for now but not forever or long term.
- 11yLogan AllecBusiness MemberAccountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
Yup @Arvin T. that's what pretty much did it for me. Would I have made this move if I was already living in a home I owned? Probably not. But given that I was throwing $700 away in rent every month, making somebody else rich, and I could get into this property with only $15k down, it just made sense. Even if I somehow lose $700 a month on this property in unexpected repairs and maintenance or whatever, that's still $700 of expenses that are both 1) tax deductible (or at lease tax depreciable) and 2) better my asset in some way. These two things cannot be said about rent, which is just money down the drain into somebody else's pocket every month. Why pay off someone else's mortgage/build their balance sheet when you can pay down your own mortgage and build your own balance sheet or, better yet, have three other people working hard every month to build your equity? It just seemed like a no-brainer for me, especially given my stage in life (single 20-something with no kids).
Also (and again, I'm new), I wouldn't put too much stock in the 1% or 2% rules if you're investing in California. I'll take $100,000 in appreciation 10 years from now that I will be able to 1031 my way out of paying taxes on (or just cash-out refi) over cashflowing an extra $200/month with little-to-no appreciation on a 2%-rule property in Cleveland. If I really wanted an extra $200/month, I could just spend a few hours transcribing on rev.com or something. I was actually pretty set on buying turnkeys out-of-state until I really thought about the numbers and what a gold mine California is in terms of appreciation. And I may still buy a turnkey out-of-state given that I've now placed my bets on California appreciation, but as I mentioned above I'm still trying to figure out my next move.
And don't worry if it takes time. I was looking for a fourplex before in summer of 2012 (man, I wish I had pulled the trigger back then) and then picked the search up again last November and didn't close on a property until a few weeks ago (September 10).Clarita CPA Group516 Reviews - Care Review Processor · Long Beach, CA · Member since 2014 · 15 posts · 4 votes11y
Originally posted by @Arvin T.:
Originally posted by @Account Closed:
Originally posted by @Arvin T.:
Did anyone ever bought a multifamily in southern California as their first investment?
Where exactly in Southern California where you looking at?
I'm looking to move to these cities possibly to live in one unit and also rent out the other units.
Monterey Park, San Gabriel, Alhambra, Rosemead
or
Lakewood, Cypress
I came across this one but it is located at a less desirable place
https://www.redfin.com/CA/Lakewood/11704-205th-St-...
@Arvin I have a friend that live near that neighborhood, the property looks unkempt but the neighborhood itself is nice.
- Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes11y
Originally posted by @Ramsey Kheshen:
@ Arvin Tjahjadi
I attest to what Traver is saying, I live in Monterey county, and the cheapest duplex sells for $ 750K, and it needs rehab for $ 50K or more. If you live in one and rent the other for $1800, you will be losing you time and money. This is California for you, Enjoy.......
So, where in CA can you buy a single family home that someone will pay you $1800/month towards your mortgage? If you're paying silly prices anyway for a SFH (assuming you're not moving somewhere cheaper, out of Monterey County), why not at least get your mortgage payment subsidized by someone else by $1800/month?
If you want to buy for cash flow, local (to you) in CA is obviously not going to work. If you want to purchase a home for yourself and have someone else subsidize it, you should consider a MFH where you live now.
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