Harbor City, CA · Member since 2017 · 4 posts · 1 vote
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
Wholesaler · Dallas, TX · Member since 2017 · 306 posts · 133 votes
7y
Hello Princeton! The distance over one hour drive is too far. I would not invest farther than that would have to be with experience and a go There is know way to od reputation is a Turnkey company. Your probably in one of the best locations in California. You just might to look a little harder or do something that everybody else does. It may be owner financing through motived people. There is know way to say what is going to happen in the future.
Subject To or Lease Options and Owner Financing may be the way to go. Do not take any unproven solutions and avoid things that have a HOA with your purchase. Your ability to save in a reserve account is a great service of what you do. Anything that has positive cash flow is good when taking debt. Do not assume anything will happen in the future. Base all of your decisions on the current market.
Take advantage of the lower interest rates. Rental units may be the best way to go for your housing because the rentals have a fixed rate on your housing expense, especially on any major repairs. Over about 35 years I have found out that my home owning expenses have been about 3 times what I paid for the house even though I paid off the mortgage at about the 1th year.. I'm lucky its value has gone up about 4 times. A rental unit is more of a fixed rate and home ownership is more of a variable expense. Good luck to you both!
Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes
7y
What do you plan to do with the condo/townhouse to make it into an investment? Are you going to move in? Do you plan to flip? BRRR? House hack? What would be your expected rate of return with and without appreciation?
I guess what I'm leading to is to understand whether buying a house for you is an investment decision or a personal decision. Sounds like you would like to move to a bigger place for your family. Buying a place would be an option. But buying a house without a plan and waiting for it to appreciate on its own is not an investment decision in my opinion. It's a personal decision that might turn out to be a good investment depending on the market. Usually, buying an owner-occupied house is not an investment decision unless you plan to employ some kind of strategy like flip, BRRR, house hack... maybe it'll help if you run some numbers of different scenarios and compare.
Harbor City, CA · Member since 2017 · 4 posts · 1 vote
7y
Fay Chen - To clarify, we are definitely looking to invest rather than buy for personal use. My question was more or less how given my current situation where affordability and market limit what I can purchase. I would love to be able to house hack to build equity and cash flow to fund more purchases using the BRRR strategy; however, it's proven difficult to find multi-family homes that cash flow in LA under $500K. This was the only reason I was mentioning the condo/townhome, because at my current loan amount those were all I was finding.
But I'm sure there are deals out there, I just need help. I'm looking for suggestions on wether or not if it's a good idea to invest in the current market. If so, how given all the details I've provided. Hope this helps.
Real Estate Agent · Orlando, FL · Member since 2017 · 1k+ posts · 2k+ votes
7y
@Princeton Brooks If you are looking to House Hack then your concern should not specifically be to have positive cash flow. I mean yes it would be great if that were the case but since you already have a monthly living cost of $1500 I would look at a house hack where you could reduce your monthly living cost or even if you were to maintain the same cost of living. You would be gaining equity and you would have reduced your living cost allowing you to save more for your next investment or primary home. If you are looking for cash flow then there are turnkey providers in places like Memphis, Kansas City, Birmingham and other locations that could work out.
But I'm sure there are deals out there, I just need help. I'm looking for suggestions on wether or not if it's a good idea to invest in the current market. If so, how given all the details I've provided. Hope this helps.
Combing the MLS and paying retail isn't a good idea in any market. If there aren't that many plexes in your area, every landlord owner should know you are looking. Send them a personal letter.
As you drive around, note high grass, neglected houses. Send absentee owners a letter. Go garage saling and talk to the hosts. 40% of them are getting ready to move or sell. Have business cards that say you buy houses & plexes. Private buyer. Not an agent.
Nothing on fire here. Personally I'd pay off the $17k. It will motivate you to replenish your emergency/DP fund. Househack creatively .
Trying to BRRR with a wife and baby is too much. Live-in renovations are for the single and handy or toughies like @Mindy Jensen or @Brian Ellis. Focus and execute. Or be normal and buy retail and worry about 'the market.'
Los Angeles, CA · Member since 2018 · 326 posts · 279 votes
7y
@Princeton Brooks yes, in the Los Angeles market it is difficult to find a multi-unit that is below $500,000 but if you're willing to be flexible on location and patient it's worth investing in the market for appreciation and debt pay down.
When I say be patient, continue to save money, work on getting approved for a little more than $500,000 and you'll be much closer to getting into a multi-unit. Can you go a little further to Long Beach, or near USC which has properties closer to the $500,000 price point and I believe they'll see good appreciation over the next 8-10 year.
If you're unable to do these things then I think it's still worth it to buy a condo or town home as long as it's a good deal and not just a retail purchase.
Real Estate Consultant · Lancaster, CA · Member since 2014 · 423 posts · 223 votes
7y
If you're looking for investment properties versus personal use, don't invest in CA. Your money goes further in the Midwest or South, where you can use the BRRR strategy to grow your money. You can also spread your money into multiple investments rather than having your eggs in one basket.
I suggest looking at companies that specialize in providing turnkey properties for out of state investors. There is a popular one based on Southern CA(don't want to get in trouble by mentioning their name in the post) that your can research. That will allow you to get your feet wet without a lot of risk. I would only invest in CA if you're looking to flip or betting on appreciation (and I wouldn't recommend that at this time).
Good luck!
Rental Property Investor · Culver City, CA · Member since 2012 · 403 posts · 246 votes
7y
I'd house hack. I wish I had known that strategy when I started.
Question: So you're approved for 500K but if you house hack and the other side or other unit is going to bring in let's say $1500, could you get approved for more than 500K? As you'll have $1500 of additional income? I'm not sure how that works but I've seen people claim you can do that.
One more question for you: In what neighborhood do you work? Makes a big difference in LA cuz you want to live as close to work as possible for quality of life. Personally I wouldn't buy anything, no matter how good, if it means sitting in traffic 4 hours a day. I'd just buy out of state if i couldn't live within a reasonable distance of work.
@Michael T. mentioned some good areas to look at, maybe a little further east of the city too? I saw some interesting deals out by Tujunga and San Bernardino a while back.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y
The first thing I would do is take $17k from the $58k you have saved and pay off the debt. Here's why:
1 - If the monthly payment on the debt is greater than the amount of money you can save per month and add to your current savings, then you are losing money every month.
2 - If the monthly payment on the debt is less than the amount of money you can save per month and add to your current savings, then you are stealing from yourself...and, if you pay off the debt, you should be able to replace the money used for the debt payoff...quickly.
Remember, in either case, once the debt is paid off, you can add the monthly payments you were making on the debt to the contribution you were making to the savings...since there's no more debt anymore.
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
There is just about nothing left in CA to invest in (kinda) many investors from Westcoast to Eastcoast have been investing in the Midwest. Many of them purchase Turnkey properties unless you have boots on the ground. This way everything is done and the property is cash flowing from day 1.
Make sure you go with a true Turnkey Provider and not just a real estate agent showing you a nice listing.
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
I would say this just about covers it.
💪
Did you develop that muscle from stretching...while patting yourself on the back? LOL. Nice work James...as always
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
I would say this just about covers it.
💪
Did you develop that muscle from stretching...while patting yourself on the back? LOL. Nice work James...as always
In my current situation, I'm wondering what I should do. There is a lot of talk about being at the height of the market and a downturn looming. I currently live in Los Angeles, CA with my wife and our 11 month old child. We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing. As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off. We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.
We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet. Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+. These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea. We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow. Especially if the downturn occurs during this process. We would love to invest in LA, but are open to out of state if it makes sense.
If you were in my shoes, what would you suggest my family do? How would you begin your investing career...would you wait? Begin? and how?
Thanks!
Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
Cleveland, Ohio
Dayton, Ohio
Toledo, Ohio
Youngstown, Ohio
Cincinnati, Ohio
Memphis, Tennessee
Birmingham, Alabama
Kansas City, Missouri
Saint Louis, Missouri
Indianapolis, Indiana
Detroit, Michigan
Erie, Pennsylvania
Louisville, Kentucky
Milwaukee, Wisconsin
Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
Make sure your property manager is a licensed real estate brokerage.
Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
I would say this just about covers it.
💪
Did you develop that muscle from stretching...while patting yourself on the back? LOL. Nice work James...as always
I agree with @Tyler Gibson here. If you decide to do a house hack, you might not be able to make money from it or reduce your housing costs to $0, but it will certainly be cheaper than the rent you're paying now. And a house hack will give you experience also. Regarding investing, I'm in the Kansas City area and I can tell you about the KC market. As @James Wise said, rental properties here cash flow pretty well, and aren't as hot (or as expensive) as California markets. If you're interested in learning more about the Kansas City market, we can connect up!
Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
7y
You need to buy a place with a two car garage, preferably detached. Convert the garage to a rental unit and have that $1500/mo start helping you pay your mortgage. It's the only way any normal person can afford a house here in Santa Barbara.
There are signs of a slowdown. Decreased global demand for oil, benchmark interest rate drop, mortgage applications are down for 3+ weeks, freight trucking is way down, gold is up, the stock market is up and down (a lot of emotion there) but I think we are in for a drop, bonds are sliding, quantitative easing will ramp up again. Cycles happen in all aspects of life, so far it seems we can also count on economic cycles. Human behavior hasn't changed much. What I think you an expect for LA at this point, is a decrease in competition and houses siting a little longer on the market - as I've noticed along with listing price drops over the last 18+ months. I'm not saying housing is getting cheaper but things have slowed from the way heights in early 2018. There is so much demand in LA and a lot of big money, sometimes foreign, who I think are inflating prices and can afford to sit on a property they essentially over paid for. I don't yet expect to see 2008. But no one knows what the next contraction will look like or how long it will last. I'm not yet sure we will see any meaningful overall median price drop in LA. Let's see what happens.
Ask yourself what you want. Cashflow? Appreciation? Both are long term plays, but are not the same. So I think, have a longer term focus - maybe 10 years minimum, what do you want to accomplish over the next 10 years? Have you considered buying a condo for yourself in LA? How will mortgages in the price ranges you're looking at stack up against the rent you're currently paying? In my experience, when the market contracts, condo values get hit harder than houses, and IF things get really bad, renters will look for something cheaper, something I'd think about if I were looking at a condo as an investment rental. Not telling you not to, just things to consider. Do the math and understand your position. I like to build in resiliency for worse case situations, especially given the current signals - again, there's no guarantee we are or ever will head into a recession. But we will.
Have you considered paying off that 17k? Unless the 58K you have saved is earning more then 5.5%, you are losing money. It sucks to see savings go down, and by nature, people don't want to let go of it, but it will likely to be to your benefit to pay off the 17k, and instead of paying debt with interest, re-fund your savings with that payment. You will also be a stronger buyer with a lower DTI. Also as far as investment, have you considered a REIT or Fundrise type situation? You're likely to earn more on that than your bank is paying you in interest. Without knowing your banking choices, I'd still say I'm sure anything will outperform your bank. Look at index funds, REITS, Crowdfund RE, to help grow your savings. Look into how these fare during contractions, are you getting a guaranteed percentage on your money?
Now to 500K rentals in LA. Spread out. There's a lot of competition for value add properties but spread out to areas that are lower cost and line up with your investment goals. If it were me, in LA now in your situation, I'd look for something to live in and rent the other half, or rent bedrooms (I know you have a kid) - consider building and ADU out of the garage. Some people will tell you never to do this or that, or tell you what to do. I'm not. I know what I would do but I'm not you, ill help you get to that answer for yourself.
On one hand you buy where everyone considers it a "safe investment". This is typically the B or C neighborhoods where houses will appraise for a traditional loan. If the economy stays positive everyone is happy. If a downturn occurs many will be financially ruined because the bills don't stop coming in and these areas are where most of the mid-level jobs/employees live. These are the first employees that get laid off in a downturn.
On the other hand you buy where you have more Section 8, i.e., low-income areas or as some like to call them war zones. The house may not appraise for traditional loans or look as good but you are buying for stability with cash flow. Stability with cash flow is very different than stability of an economy or area. Even in a downturn you receive your rent if you have Section 8 tenants. More people will need assistance in a downturn so you always have a pool of tenants. The housing authority does criminal, credit, and background checks annually on their participants. If they don't pass they aren't on the program. One less thing you have to worry about with discrimination laws. Your rent is also guaranteed regardless of economic conditions.
I personally only rent to Section 8 and rarely have any issues. Every market is going to be different so you have to decide which market is best for you and which approach.
A lot of people frown on low-income/Section 8 but whether we're in a good economy, recession, or even a depression my bills are paid. Plus, in 5 years or less each house is paid for given the purchase prices and the rent amount received. I'm not financing a property for 30 years thinking I'm making money on it only to pay 3 times as much for it by the time it's paid off by financing it for 30 years.
No investment is safe. You have to find your comfort zone while expecting surprises along the way.
Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes
7y
@Princeton Brooks - congrats on thinking about your investment journey, one more step and you’ll be fully on the road. A few thoughts for you. Robert Kiyosaki’s first book(Rich Dad, Poor Dad) got me thinking differently about investing when I was in my early 20s. A central message of that book is that your home is a liability, not an asset. While my primary residence has appreciated quite nicely over the years, I’m still in total agreement with that message. So a cash-flowing rental property(with some money on the side just in case the fit hits the shan, which it always does!) might make more sense for your nest egg.
Regarding timing, I’d refer you to Jeremy Siegel’s point in Stocks For the Long Run. I’m paraphrasing, but he essentially determined that over multiple decades, if people were omniscient and bought an index fund at exact lows in the market, they did only a few percentage points better than people who were omnisciently foolish and bought index funds at exact peaks, as long as both groups held on to the stocks. Strangely- people who bought at only the peaks did pretty darned well! (Note- index funds didn’t exist back then, but he uses the DJIA as a proxy.) The people who did very poorly compared to both of those prior groups? The market timers who thought they could time the market(they had about a zero percent return,) and the bond investors whose returns were only slightly better than inflation.
So don’t try to time the market- just continue to invest wisely and incrementally, and you’ll be right as rain. ☔️
