Expensive Southern California investing still?

Question

Ali Boone · Answer

Well if nothing else at least it gives you comparison factor. I've always found that the more deals and things I look at, the better picture I can see of where/what I want to focus in on. Weighing the pros and cons of everything.

Todd Fithian · Answer

Thanks everyone! I appreciate your input and opening up my eyes a bit to solution.  @David Faulkner Great post, I appreciate the info.  I'm actually getting somewhat close to finishing up my Real estate courses to becoming an agent, which will go well with working as a contractor on flips for many years, so you couldn't be more right about having that back up plan.  If you dont mind me asking, whats your "investment of choice" in this market? are you still investing in MF? or just flips, just curious.   Ive heard that a couple times recently that theres some deals to be had up there.  Definitely not out of question, seeing as though Ive bought in Hemet, and that by FAR not crime free.  Thanks @Ali Boone! Ive been thinking of looking out of state a bit, I guess the homebody in me has just kept me here, maybe time to start looking.

Jeff Gates · Answer

59% of all household creation in the next four years will be rentals.

Ali Boone · Answer

The reality is prices are just super high right now. Nothing much you can do about that. You can either invest here and risk the appreciation levels, wait until a lull (no idea when that's coming but I'm as antsy about it as the next guy), or buy elsewhere. I live in LA and have always only bought-of-state. Plenty of deals out there that make sense. Totally up to you.

David Varvaro · Answer

@Todd Fithian The investors I know that are having the most success are buying older outdated MF and rehabbing them or doing value adds such as converting old large 1 BR units into 2 BRs. Another strategy being employed is buying 5+ unit MF that most smaller investors can't afford due to financing but that are too small for big investors. There are definitely ways to still make money in this market but it requires some extra effort and creativity.

David Faulkner · Answer

A few ideas to help (hopefully) ... you will need to work hard to succeed in this environment. If you want to buy and hold, this hard work may come in the form of searching for deals with enough margin to insolate you from market risk of buying in a hot market, and having the discipline and patience to pass on deals that don't have sufficient margin. You could further minimize market risk by flipping ... you still need to find great deals with margin but your hold times are shorter, thus lower market risk, but you may have higher risks in other places. Or you could work as a RE agent ... if nothing is a good deal to buy, as you state, then by definition it is a good time to sell, and RE agents are in the business of selling RE they don't own, so zero hold time and zero market risk, but it is a JOB not an investment. If none of those options work out, your final sensible option IMO is saving up to build your war chest for if/when the market corrects. You should in fact pursue this option in parallel with trying the other options. This is what I ended up doing "by accident" in 2006 as I couldn't find anything sensible to buy, so by the time 2009 rolled around I was sitting on a pile of cash that I'd been saving to invest and was already educated and familiar with the markets having been searching for awhile ... good times! Not saying it will go down that way this time around, but it certainly worked out nicely for me last time and my patience, persistence, and luck were handsomely rewarded.

Joe Abughazaleh · Answer

@Todd Fithian I know some investors personally who are still buying in the Palmdale/Lancaster area. They have some good areas, I know they get a bad wrap sometimes for crime and stuff like that. But people (familes) are still moving out because of the affordability. Last time I read they are continuing with the speed train which will run through there.

Todd Fithian · Answer

@Pete Perez @David Varvaro Thanks for the replies guys!  Truly I couldn't agree more, and by all means am I always interested in a good deal, regardless of market, but sometimes it just seems a bit overwhelming when you see a property that was selling for $180k 9 months ago, and now its selling for $260k+, but still cash flows because of rent increases, but its just the $80k increase is disheartening.  Anyway Im a bit of an overthinker and need realize a good cash flowing deal when I see one.  You guys have any good success stories recently? Always interested in a success story.  Thanks again!

David Varvaro · Answer

@Todd Fithian There are always deals to be had regardless of the market. It definitely goes up and down but just like the stock market it is very hard to time. You really don't know when the lull will come and could miss out on opportunities waiting for a turn in the market. If it cash flows, looks like an area that has potential to appreciate, and doesn't look like it a headache property, I wouldn't hesitate to pull the trigger.

Pete Perez · Answer

@Todd Fithian

I've read a few forums with people in the IE that are successful and also talked with some at meetups. The common theme is that they market directly to sellers for their deals. Waiting for a lull would work for sure, but there are deals to be had now. Again I am just relaying what I've read and talked to people about.