To Rent Or To Buy?

Pasadena, CA · Member since 2015 · 31 posts · 19 votes

10y

Hello @Fay Chen,

Thanks for posting about this. I think a lot of people are running those scenarios, too! In fact, I am doing similar calculations for Pasadena! While I am focusing my search in Pasadena; but I'm open to surrounding areas, too (Alhambra, San Marino, Altadena, even as far north as La Crescenta/Montrose, La Canada).

I'm POSITIVE that there is a way to finance a small multi-family using FHA or a similar program in that area. Since you have some time to search until you want to move in June, it seems that you still have enough time to find a property whose numbers will work for you. There's an article by @Logan Allec about how he purchased a small multi-family via FHA in Santa Clarita here.

A couple of questions:

1) How have you been searching: Redfin et al? Or realtors? Craigslist?

2) Are you working with a lender now (e.g. to get pre-qualified) or are you looking for a property first? Have you considered private money?

Also, here's a list of "Low and No Money Down Mortgages" from "The Mortgage Reports." https://www.biggerpockets.com/forums/50/topics/262800-for-2016-low--and-no-money-down-mortgages

Let me know your thoughts!

RD

3 Reply

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@RD Delgado, Let me answer the questions before I forget:

1). I've been looking on Redfin.

2). I have a lender I've been using for years. She would usually give me a pre-approval in a day (pre-qual usually takes a little longer). Although I should ask her about the FHA loans. Thanks for bringing it up.

2.2) I haven't considered using private money because I don't know any rich ppl :(

There's only a small area in Pasadena I want to live (Old Town or Lake by CalTech). I used Logan's spreadsheet. Nothing in that area meet the FHA self-sufficiency rule. The reason I'm so fixed on that area is because I moved away for 2 years and missed the area almost everyday.

So I wander if I should forget about getting a multi-unit where I want to live. Instead, follow the famous saying "live where you want to live, but invest where the numbers make sense."

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

10y

@Fay Chen There are many and or most places you are better off renting long run. Check Schillers (Case Schiller) take. Pasadena historically has not been one. That saying live where you want and invest where numbers make sense...is a marketing come on to sell you something far away. That is plain really dumb advice if you live in Pasadena.

Eric Dowling

Real Estate Agent · Los Angeles, CA · Member since 2015 · 201 posts · 82 votes

10y

Fay Chen that is the same dilemma we are in. We are very set on living in a specific area of west LA, so buying is almost out of the question for now. A couple of years ago we bought a house in Palm Springs and we rent it as a vacation rental, and we rent here in LA. It is working out well. Obviously it is better to buy, and house hacking is a great way to do that, but when you have such a limited area it makes it hard. If you can expand your search FHA owner occupied multi is a great way to start.

3 Reply

Pasadena, CA · Member since 2015 · 31 posts · 19 votes

10y

Hey @Fay Chen

Got it. Thanks. Well, I'm an optimist, so I think you'll find the "right" place eventually. But I'd definitely agree that it's best to prudently approach business decisions especially when one's emotions can cloud the decision making process.

Pasadena, CA · Member since 2015 · 31 posts · 19 votes

10y

Originally posted by @Eric Dowling:

Fay Chen that is the same dilemma we are in. We are very set on living in a specific area of west LA, so buying is almost out of the question for now. A couple of years ago we bought a house in Palm Springs and we rent it as a vacation rental, and we rent here in LA. It is working out well.

Obviously it is better to buy, and house hacking is a great way to do that, but when you have such a limited area it makes it hard.

Hey @Ericdowling

Are you guys considering house hacking?

Eric Dowling

Real Estate Agent · Los Angeles, CA · Member since 2015 · 201 posts · 82 votes

10y

@RD Delgado yes I have been seriously considering it. It is half a finding the right place/deal where we want, and half a convincing the wife it is a good idea.

I house hacked back in college and it worked out great and I still have the property as a rental. There are a few more things to consider this time around.

Pasadena, CA · Member since 2015 · 31 posts · 19 votes

10y

Originally posted by @Eric Dowling:

@RD Delgado It is half a finding the right place/deal where we want, and half a convincing the wife it is a good idea.

Ain't that the truth. Haha.

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Eric Dowling, hmmm...

Maybe buying a multi unit on FHA in another area and try it for a year. If I still miss Pasadena, I can always move again. It's always easier to find a place to rent than it is to find a cash-flowing property in LA. You can try that on your wife too "We can try it for a year. If you don't like it, we can always move again." Good luck! :)

Eric Dowling

Real Estate Agent · Los Angeles, CA · Member since 2015 · 201 posts · 82 votes

10y

@Fay Chen yes you have a good point. For you I feel like you wouldn't have to get to far away from Pasadena either to find a decent deal. Or maybe even find another area in Pasadena. Do you work in Pasadena as well?

Kinga Dorosz

Architect · Pasadena, CA · Member since 2015 · 6 posts · 4 votes

10y

@Fay Chen I find these helpful New York Times Rent vs Buy Calculator and this one Rent vs Buy . And when you move to Pasadena come on down to one of the FIBI meetings :)

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Eric Dowling, I work in DTLA. I love Pasadena because it's close to work, yet it still feels like a getaway when I go home. It's walkable, yet still parking friendly. It's close to all the authentic Asian restaurants, but not too close to get all the crazy drivers (not including myself of course). It's less than 30 min from the beach, the hiking trails, the nightlife, and my family and friends :)

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Kinga Dorosz, thank you for the links! I'll check them out. Can you please send me a link to the FIBI meetings? I go to Pasadena almost every week.

David Faulkner

Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes

10y

There are personal reasons for buying vs renting that you will need to figure out on your own. As for the investment side, if you are buying in Pasadena, that is an appreciation play (both forced and market appreciation), not a cash flow play. IMHO, the best way for an appreciation play is to buy a distressed SFR at a discount (motivated private seller or bank REO, smallest, ugliest, least expensive home on a nice block with no HOA), then roll your sleeves up and put in some serious sweat equity while you live there, then rent some rooms to offset some of your mortgage. Then, after 2+ years you can choose to sell at profit (assuming you bought and renovated it right, make sure you do) or rent it if/when rents go up enough to turn it cash flow positive. Rinse and repeat as necessary and desired. This is how I got my start right up the road in Glendale, CA and the reason I can now afford to raise my family a mile from the ocean in Huntington Beach. Save up a decent down payment, make sure you have sufficient and stable income to hold as a primary indefinitely if you need, and make sure you get a really good deal ... if any of these elements are missing, keep renting and saving and don't pull the trigger until you figure out how/when they all come together. Don't let your emotions or fear of "missing out" get you into a bad deal. Good luck!

2 Reply

Account Closed

Investor · Canton, GA · Member since 2015 · 88 posts · 63 votes

10y

Originally posted by @Fay Chen:

Dear BP family,

I have a difficult decision to make and would like your opinion.

Decision: I'm looking to move to Pasadena, CA in June. Should I buy or should I rent?

Background:

I love Pasadena! I regretted moving away few years ago and would love to move back.
For a 1-bed apartment, the rent is ~$1900
To purchase a 1-bed condo with FHA, the downpay+closing is ~ $15,000; monthly payment is ~ $2300 (including PITI, PMI & HOA)
My investment goal is to purchase 1 property a year, which is why I don't want to put 20% for a primary residence
A multi-unit in Pasadena is out of reach for me. I don't have enough for 20% down. And the rents are not high enough to qualify for multi-unit FHA

Options:

Buy a condo in Pasadena with FHA. Hold on to the rest of my cash in case an investment opportunity comes up later 2016.
Rent in Pasadena. Purchase a multi-family as "primary residence" somewhere the numbers make sense.
Others (please advise).

Fay, I would try to purchase some investment property before you move out to Pasadena. I would also NOT purchase a condo. I used to live in a condo for about 3 years, and regardless of where you live, condos typically are harder to sell off down the road. I had a heck of a time selling mine in the sprawling city of Atlanta in the middle of spring/summer, while SFR's around me sold like hot cakes. Also, the HOA fees were very high and the HOA rules did not allow many units to be rented out (most condo complexes have rental caps). I highly recommend purchasing an investment out of state in ripe areas around the midwest and south USA. California, especially Pasadena will suck your wallet dry. While I understand and appreciate your desire to move to a beautiful place (I've visited Pasadena before), I would consider the money you'll be throwing away in rent compared to what you could get back in cashflow elsewhere. Setup your cashflow first, then figure out what you can afford to rent based on the new income.

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@David Faulkner, I've considered live-in flips but have not looked for small, ugly homes and adding rooms (I think that's what you are implying). Since I'm not handy, I'm a bit afraid to get into something too big. But there's a first in everything! :D If all fails, I can always set up tent on my Pasadena lawn and shower at the gym. Hahaha... I'm going to save a search for small ugly homes in Pasadena. Maybe something good will come up. Thank you for the tip!

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Account Closed, I owned a condo before too. Almost forgot how much I hated the HOA. Thank you for the reminder. It definitely weighs in my decision. I have a couple of investment properties: one near me in CA, another in TX. The duplex in TX is less than a month old. I'm kinda using it to test the water as an out-of-state investment. Before I add more units out-of-state, I need to feel more comfortable with my PM and handyman there.

David Faulkner

Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes

10y

Originally posted by @Fay Chen:

@David Faulkner, I've considered live-in flips but have not looked for small, ugly homes and adding rooms (I think that's what you are implying). Since I'm not handy, I'm a bit afraid to get into something too big. But there's a first in everything! :D If all fails, I can always set up tent on my Pasadena lawn and shower at the gym. Hahaha... I'm going to save a search for small ugly homes in Pasadena. Maybe something good will come up. Thank you for the tip!

I didn't necessarily mean to imply adding rooms, though that would also be a good option if the numbers work. Plan the final floorplan 1st, fix up the existing footprint with the end in mind in the short term (Phase 1), and pull permits and build out as an "owner builder" long term (phase 2) may be a good roadmap for that, though. Rather than a tent, maybe a "tiny home" kit placed on a large lot that you can rent out separately later. Options are almost endless, and you get none of those options + HOAs with a condo, which is kinda my point. All options above also work in Eagle Rock, Glendale, Altadena and other less expensive hoods with "Pasadena like" charm if you can't comfortably swing a SFR in Pasadena. I had no idea and was not handy when I 1st started too ... how do you think I learned? :) Food for though ... Good luck!

Kinga Dorosz

Architect · Pasadena, CA · Member since 2015 · 6 posts · 4 votes

10y

@Fay Chen the next FIBI meeting is on January 21st. There is also an LAREIA meeting next Wed night.

https://www.biggerpockets.com/renewsblog/2014/01/1...

Ali Boone

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

10y

Here's what I've always thought in terms of the same question for myself (I live in Venice)-

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Kinga Dorosz, thanks! I just joined the meetup. Excited to meet all the peeps soon!

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Ali Boone, the article is pretty accurate. I bought my first property to live in and was lucky it turned out as an investment. So learning from that, it's a given that I will buy investment properties. My goal is one a year. The decision I have to make is whether to rent or buy. For the same monthly rent, I can buy a property...Thanks for the link! Maybe one day, I'll work my way up to a place by the beach too :)

Lee L.

Investor · Los Angeles, CA · Member since 2014 · 285 posts · 142 votes

10y

@Fay Chen Just a few random thoughts after reading the thread (interesting read by the way).

-- I've looked at condos in Pasadena and some of the HOAs seem pretty outrageous ($600 - to almost $1000). HOA period, dissuades me from condos, but that's just me. One of the things about HOAs is that if they were low, the association is often not very well funded, which could lead to poor upkeep/condition of the building, impending HOA increases, or special HOA assessments later on. If you'll be purchasing a condo with low HOA pay special attention to the overall condition of the property. Ask about how well funded the HOA is. And check for deed restrictions that would make it difficult to sell. On the other hand, paying a high HOA pretty much just sucks and makes renting rather than buying a bit more attractive.

-- Pasadena has appreciated a lot in the last few years. A nice chunk of it has come from Chinese buyers, especially younger folks with parent money. This makes it harder to not overpay especially with FHA. I don't see this letting up. But if it becomes less convenient for these buyers due to global economic or geopolitical reasons, Pasadena would be affected more so than other communities, IMO.

-- I'm sure you've considered adjacent communities. I really like west Alhambra up by Main and Poplar, and further west into El Sereno. Some of the homes are gorgeous, and cheaper than Alhambra, San Gabriel and of course South Pas. I think there are much better appreciation opportunities here. Also I really like the Lincoln Corridor in Alta Dena is interesting with the Cafe de Leche and all.

Congrats for moving so far along in REI! Good luck on your next property!

Vincent Crane

Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes

10y

Buying a one bedroom condo is the WORST MISTAKE any real estate investor can make.... you get zero help from roommates helping pay your mortgage, and you have to pay HOA fees. No, don't do it. Rent, save up and just buy a 3/4 bedroom house, duplex, or keeping renting and buy an investment property elsewhere that's cheaper.