Investor · Las Vegas, NV · Member since 2015 · 45 posts · 12 votes
Hi everyone,
Posting a newbie question here, but wanted to get your opinions since I joined BP last week and I am still at the books/webinars research phase.
I'm currently in Los Angeles (Century City/Beverly Hills area) and my lease ends in February 2016. I've been renting for about 5 years since I haven't been sure about staying in LA until now, and my fiance and I would like to buy a primary residence. Problem is, as I'm sure you know, we keep reading that the market is insanely high right now, even for LA. That said, we're paying so much in rent anyway that it still almost makes sense to buy one of the cheaper condos in Century City, rehab it, and live in it for at least a couple of years before renting it out if we want.
Our goal is to live in LA and then invest in multi-families (and eventually apartment complexes) either in the outskirts or out of state, where our dollars will go a lot further. I initially wanted to find a duplex/triplex/fourplex in the city and live cheaper in one of the units (probably can't live rent free in this city), but I'm finding that even the ugliest of those are still around $2M+. If I just cared for owning just a few units, I could probably do that but again, my goal is to build scale.
Just wondering if you guys have any advice for me as to what you'd do in my situation? I've got to live near Century City/Beverly Hills/Westwood area for work, so I'm pretty limited in the area (again, for primary residence only). Should I keep renting for a bit if prices may come down? Buy a cheap condo in the city/rehab it? Are there any close areas with cheaper 2/3/4-plexes that I should look into?
@Michelle Watt If you're considering buying a small multifamily in order to live in one of the units while renting the others, you're talking about something @Brandon Turner call "House Hacking". A big advantage with this approach is that you can afford to put more of your own money into the deal than you'd want to in a pure investment deal. The downside is you probably aren't going to find to many financing options besides going to the bank.
It's really tough to find properties that will cashflow in the nicer areas of Los Angeles these days. That means you need to put more of your own money into the deal. If you can raise the down payment and closing, you can buy your multi as your primary residence and consider any rent on the other units as a subsidy to your mortgage.
This strategy doesn't really fit well into the regular investment calculators, so you'll have to invent the means to determine whether or not a deal is a great deal. There's plenty of help out here in the forums. If you find a potential deal that you need help to evaluate, send me a message and I'll show you the math I'd use for that particular situation. When you close on the deal we'll make a blog post of it.
Then main thing is to get creative. Think like an investor. A buddy of mine was trying to do the same thing you're talking about but in the Studio City / No Ho area. He couldn't find anything, so he started searching for a place to rent. He found a place that he loved in a 4-plex in Studio City. The landlord wanted to rent the place to my friend, but another prospective tenant was threatening legal action. The landlord was ready to throw up her hands. My friend called and told me the story. He said he may not get to rent this unit. I said, "don't rent it, buy it! Get the seller to carry, buy the 4-plex and use the rents to pay the mortgage." Think like an investor.
Finally, you may want to consider widening your search just a bit and consider a little more commuting. If you go just a few miles further out you'll likely find a lot more opportunities. The difference in price could more than make up for the inconvenience in most cases.
I hope this helps and gives you a couple of ideas to develop.
I too live in southern California, in Orange County after selling my place in the bay area. I'm currently renting as well because it doesn't make much sense investing here. I too thought about taking my profits and investing in a duplex/triplex in the Los Angeles area but after doing the numbers, I would still be paying money to live there although it would be subsidized.
I currently invest out of state via turnkeys, and so far it's worked out. I'm in the process of getting another one. Hope this helps.
@Michelle Watt If you're considering buying a small multifamily in order to live in one of the units while renting the others, you're talking about something @Brandon Turner call "House Hacking". A big advantage with this approach is that you can afford to put more of your own money into the deal than you'd want to in a pure investment deal. The downside is you probably aren't going to find to many financing options besides going to the bank.
It's really tough to find properties that will cashflow in the nicer areas of Los Angeles these days. That means you need to put more of your own money into the deal. If you can raise the down payment and closing, you can buy your multi as your primary residence and consider any rent on the other units as a subsidy to your mortgage.
This strategy doesn't really fit well into the regular investment calculators, so you'll have to invent the means to determine whether or not a deal is a great deal. There's plenty of help out here in the forums. If you find a potential deal that you need help to evaluate, send me a message and I'll show you the math I'd use for that particular situation. When you close on the deal we'll make a blog post of it.
Then main thing is to get creative. Think like an investor. A buddy of mine was trying to do the same thing you're talking about but in the Studio City / No Ho area. He couldn't find anything, so he started searching for a place to rent. He found a place that he loved in a 4-plex in Studio City. The landlord wanted to rent the place to my friend, but another prospective tenant was threatening legal action. The landlord was ready to throw up her hands. My friend called and told me the story. He said he may not get to rent this unit. I said, "don't rent it, buy it! Get the seller to carry, buy the 4-plex and use the rents to pay the mortgage." Think like an investor.
Finally, you may want to consider widening your search just a bit and consider a little more commuting. If you go just a few miles further out you'll likely find a lot more opportunities. The difference in price could more than make up for the inconvenience in most cases.
I hope this helps and gives you a couple of ideas to develop.
I currently invest in Memphis TN, via Memphisinvest. I'm currently in contract with a second property with them although this one is in Texas. I closed on the first property with them late last year, and so far so good.
I bought the house for 107900, 20% down, and it's renting for $1145 a month, on a one year lease. I don't have exact numbers on hand, but I know I cash flow $389 a month including property management. I didn't include capex or vacancies, since it's fully rehabbed when I bought it.
I did go out there and checked out their operations including my house mid-rehab. They did a really good job. What impressed me more was the whole operation. I know it's still early, but their property management and numbers quoted seem to be spot on. So far, I've been satisfied with the results.
I live in Sherman Oaks Studio City and I agree with you you need to think creatively in Los Angeles
Find a problem and offer a solution that's where you going to get the value
On small apartments or 6 to 8 to 10 units find a mom-and-pop landlord that is pulling their hair out
You can take a look at master lease options which you leased the property on the master lease, and have an option to buy the property based on the low noi or net operating income
I would use private money to turn the property around and raise rents and increase services and decrease costs
Apartment accounting is a little confusing and I do enjoy @anthony chara s training on apartments
@Michelle Watt indicated that she might be interested in a plex to live in, so the math is a little more complicated than normal, but not necessarily as involved as apartment calculations. Basically, if she's gonna be a tenant in her own multi, she'll want to separate the personal finance from the investor finance in order to evaluate the deal.
I do agree that some form of seller financing should be considered, including MLO. Let's find out what kind of deal she finds. What financing fits is likely going to depend on the situation. Perhaps a simple seller carry or mortgage wrap would suffice. Just saying it depends.
If apartment math is needed, I have to agree, @Anthony Chara knows his stuff. I've heard him speak. The man is a genius. I hope to take his training one of these day.
Anyway, I'd like to grab a cup of coffee and talk about it one of these days. I'm only 10 miles from Sherman Oaks. Let me know.
Sounds like you got your primary residence area picked out. Grab a condo nearby and fix it up how you like seems ideal. Option 2 multi is cool too. This might take longer to locate a deal in the nicer areas whereas the condos are more plentiful. There are some sweet sfh pockets near Century City. I personally would not overlook those if they are doable vs the condos. You would have considerable more forced appreciation opportunities with a westside SFH vs almost all the condos. Option 3, keep renting and wait for an EQ or downturn. Outside of the GFC your area is pretty stable even when the rest are not.
@Michelle Watt Have you thought about the Mid-City area in L.A.? Definitely up-and-coming, many plexes, relatively affordable, gets good rents and pretty close to the Westside. Definitely pretty hot especially as people are getting priced out from the West. Perhaps area in and around 90019.
I was born and raised on the westside so I know exactly the situation you are talking about. My father still lives in the home he bought back in 1964. It's just below Westwood. Prices have skyrocketed in the past decade, as well as the traffic.
Lots of good advice here so far. You didn't mention a budget, which is a big part of the equation. You are right, multiplexes probably won't cover living in that part of town. Current owners are either long-time holders or burning funds to cash in on appreciation.
I would suggest looking outside the immediate area, probably towards the east and/or south-east. West towards SM is humbling. What about the valley? (I know, it was taboo growing up on the westside to even consider it!)
If you need a connection investing in the midwest (Missouri), let me know, there is a ton of opportunity out here for cash flow.
Thank you for all of your advice, guys!! Very helpful to get all of your perspectives, I really appreciate you putting in the time to give me your opinions. I'm sorry I didn't state earlier - my budget is still being worked out since Im still learning to do the math and what I can afford in other cities. Currently, we pay about $3400 in rent per month - fortunately with our two jobs we're still able to save up a lot. My initials thoughts were to get a $600K-800K condo in the city that I could later rent out to professionals/young couples, and use the remainder for properties (type tbd at this point based on math) out of state or on the outskirts of the city. I've got in-laws in Glendora/San Dimas within CA, as well as Albaquerque, and I also go to Vegas a lot so am also researching those markets (seeing 12 units for $480K in vegas?? insane compared to the city or LA in general!!).
Individually:
@Jonas Masikat - thank you! It's definitely expensive here, isn't it? No exception in the bay area either. I'm guessing you feel there will be a correction at some point if you're still renting? I thought about turn keys, but my goal is to get my hands wet and potentially go full time, so I'm looking for something that will require some work for me. However, I've not written turnkeys off yet and I keep hearing so many great things about Memphis Invest.
@Tom Mole- yes I've definitely read a lot about househacking, it makes me wish I had gotten into it when I first graduated from college and it was a good time to buy, even in LA. The things I wish I knew! I'm going to be looking a few miles out of Century City for these multiplexes, my fiance and I currently work long hours so it does mean more to us than the average couple to stay close to the city for health/lifestyle reasons, but you are right - looking a few miles out is DEFINITELY worthwhile. My concern with some of these areas though is that the school systems don't seem to be as good (Average/Below Average) and while they may be gentrifying as prices on the westside climb, there are still bars on the windows - thinking that may hamper my ability to find good tenants as fast as I'd like, but Im still doing research. Hard to imagine plunking down $1M+ on a fourplex with those characteristics, when I look online and can get like 12 units at $480K in Vegas, where I often go? That said you are right, I need to think like an investor and get deals at smarter terms. Keeping that in mind as I do my search, thank you! Should I find a deal, I will definitely take you up on the math help and I really appreciate your offer on that. I'm good with numbers...just new to the real estate math :) and absolutely on the seller financing note.
@Brian Gibbons - thank you very much for your post. Will look into @Anthony Chara. A few questions for you:
-Curious, are prices any better in sherman oaks/studio city? I can't live that far from work, but I would absolutely consider it for my subsequent investment properties.
-And I know this question has been asked before, but is it possible to go from no real estate investing experience to even a 10 unit apartment complex? I'm assuming I'd need a good team in place which I'm also networking to find, but I've heard yes and no - I am smart with numbers, just don't want to bite off more than you think I can chew.
-Lastly, may I ask why you think SFR in my area is not good for buy/hold? I was looking at places like cheviot hills and hancock park where the houses are a bit older but the neighborhoods are nice (and still pricey, unfortunately). It seems there is an abundance of professionals with young kids who go the house route, so before I cross it off my list, if you could just elaborate a little bit I'd appreciate it.
@Matt R. - just based on total cash outflow for something in the city, it does seem like the $600K-$800K condos may be ideal but you are right. Haven't given up on SFRs that present good deals yet. How do you like investing in Sherman Oaks? As I asked Brian up above, curious to your opinion on prices in the valley. And may I ask why there are more forced appreciation opportunities for SFRs vs condos in the city - is that a general rule since it is probably easier to add extra rooms, etc? or is that LA city specific?
@Lee L. - always comforting to hear someone understands my pain! Since I work long hours and with the crazy traffic, I'm trying hard to stay in the city while minimizing my cash outlay for my primary residence, so that I can still invest elsewhere. Hence, the condo. I have absolutely no issue with the valley, where the cash flow is, I will go. Still researching other markets I have ties to, but should those not work out, I may reach out re MO. Thanks for offering, that's very kind of you :)
I have not spoken to brokers yet (located a few on CCIM for starters) or agents, but seems like the cheapest multi-families are about $1.5M at the minimum – and those are duplexes. Haven’t yet gone out and tried to “think like an investor and find a good deal”, but these multi-families I’m looking at are already in somewhat rougher, more affordable areas, so I’m skeptical if I could get any lower when a decent one (still outside the city) would be $2.5M+. That said, will put my investor hat on and see if I can get anything that makes sense. Will continue snooping around but I do appreciate ALL of your advice, it has been VERY helpful to a newbie like me. I will keep you posted :)
Sherman Oaks is a lessor version of Century City price wise. Flipping with tear downs or major rehabs to capture high sqft prices are common. Multi developement or custom homes are what is happening currently. Buy and hold long term should be solid as well. Your take on forced appreciation is correct.
The valley has many B+ areas that are lets say less rough than the majority of the city. Here is a partial list as well as pockets exist all over. Toluca Lake, Valley Village, Studio City, Sherman Oaks, Encino, Tarzana, Woodland Hills, Calabasas, West Hills, Bell Canyon, Chatsworth, Northridge( majority), Porter Ranch, Granada Hills. Your classic LA suburbs, above average schools, lower crime etc...
Perhaps check out podcast 113. This seems to be close to your philosophy.
@Michelle Watt I would say always go for the investor hat, i mean when you throw away 200k (say 15% of 1.5M income on a fix) on a duplex, that's just a no brainer, with a little push that could be your equity already. Buy a fix and hold, with all that cash inflow from work, I am sure the banks will come crawling to you. If I remember correctly it was something like 43% of your income could go to your monthly loan (less all cards, mortgages, other monthly expenses), a family member had to use debit cards for 4 months instead of credit and pay off the car, to increase the loan capacity. There are a lot of discussions about local vs out of state investment, you might want to read on those thread.