Hiya! New to this BP forum and podcasts.... but have been an investor for quite some time now with 6 SFR and a 4-plex under my belt in Eagle Rock, Glassel Park area. Heard about BRRRR strategy but i cant seem to find any deals in Los Angeles to make this work... without going negative on rental cashflow. Its like winning the lottery it seems unless you put downpayment on the loan amount to offset the rent.
I know this is question has been covered a million times... Anyone here have any success with BRRRRing in Los Angeles? If so, what strategy are you using?
I have a slightly different perspective than @Cody L. but not really saying he is incorrect. I think to make a BRRRR work in San Diego for a SFR you have to get it below retail which typically means off market (or getting real lucky). If you pay retail you are not likely to be positive after the refinance. Basically I am saying SFR at retail price do not have positive cash flow at 75% LTV (standard refinance, max LTV conventional loan).
However you can get duplex to quad that have a little positive cash flow. What I find is two things: 1) due to low refi appraisals it is very difficult to extract all of the value 2) After the refinance after the value add, the cash flow is virtually the same as it was at purchase. Another way to say this is the rent ratio stays about the same, the cheaper, thrashed RE rents for about the same ratio as the nicer rehabbed RE.
I will use numbers from one of my RE (my last completed value add - I had two concurrent at this time the other one did a bit better but has a lot of similarities but got a slightly better appraisal and is a triplex that helps with the cash flow): purchase $390K (thrashed duplex) with total rent of $2.1K (I have no idea how to set market rent on something as thrashed as this place was but most non rehabbed were going for $1.3K but all were in better shape than these). The ratio is a pathetic 0.54% at purchase. We spent ~$60K on the rehab re-doing everything except roof and heater (inside and out). We refinanced it with a low (which is typical for San Diego) refi appraisal at $544K (my value had it ~$580K). The value add was why we purchased this RE over other possibilities. Note at 75% LTV we are not very close to extracting all our investment (basically we still have ~$50K into it). The rent after rehab was $3.1K (ratio: 0.56% - virtually the same as prior to rehab) which is still likely negative (my projections had it neutral because self managed but it would be negative otherwise).
So at the end of the refi I have $136K equity (using a low refi appraisal) for $50K invested. I have neutral cash flow but negative 10% with PM fees of 10% (negative $310 if paying a PM 10%).
Today: my rents are $400 higher so I have virtually $400 cash flow or $50 with a 10% PM fee; so still not significant cash flow. The RE has $52K of market appreciation since the refinance. So today I have $188K equity for $50K invested and a small amount of cash flow.
Does it work? Not if by work you think at the end you are going to be able to extract all of your investment (challenging to do so). Also not if you think the value add is going to substantially improve your cash flow after the refinance (probably is not going to happen). But if you get $188K of equity for $50K invested that is something. It now has ~$400 cash flow and ~$600 principle pay down each month. I would do it again. So I think it does work just not as good as when @Brandon Turner covers it for his market (or maybe we are not as good at it as Brandon - probably some of both).
I have no illusions that it being easy but unlike some people I think this is true everywhere including in the low appreciation markets that have not changed much (I think they were challenging when San Diego market was cannot miss).
Good luck
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
If I were there though, I'd probably try to BRRRR a little further out east like San Bernardino, Hemut, or Sun City.
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
If I were there though, I'd probably try to BRRRR a little further out east like San Bernardino, Hemut, or Sun City.
I'll be amazed if that house sells for less that $350,000.
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
If I were there though, I'd probably try to BRRRR a little further out east like San Bernardino, Hemut, or Sun City.
Looks like that one is already pending.... another issue with properties here is SoCal... investor saturated market.
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
If I were there though, I'd probably try to BRRRR a little further out east like San Bernardino, Hemut, or Sun City.
I'll be amazed if that house sells for less that $350,000.
Are u an investor @Seth Borman?
@Alvin Uy
I've been keeping up pretty well on new MLS posts in the IE and yes you're right, it's very saturated out here. Everyone is trying to get in on the Southern California market. The BRRRable properties are in contract usually within hours of their posting. I'm a newb so I'm focusing on off market deals. I'm talking to a lot of people all the time and so far this is how I've gotten my most promising leads. I know it's rough out here right now but I think if I can find even some success in this competitive of a market, it will be that much easier when it cools down. Also, now's probably a good time to learn how to invest remotely. Once I get my first house hack I will be focusing my efforts in more cash flowing markets where friends and family live.
Anything is possible but it is highly unlikely that you’ll cash flow after doing the refi in LA. A short term break even deal should be your goal.... even that’s gonna be tough.
Anything is possible but it is highly unlikely that you’ll cash flow after doing the refi in LA. A short term break even deal should be your goal.... even that’s gonna be tough.
I hear you... How about in SD? BRRRR possible in San Diego??? I've been thinking of getting some property there too. I have family there and go down every year for ComicCon.
@Alvin Uy
I've been keeping up pretty well on new MLS posts in the IE and yes you're right, it's very saturated out here. Everyone is trying to get in on the Southern California market. The BRRRable properties are in contract usually within hours of their posting. I'm a newb so I'm focusing on off market deals. I'm talking to a lot of people all the time and so far this is how I've gotten my most promising leads. I know it's rough out here right now but I think if I can find even some success in this competitive of a market, it will be that much easier when it cools down. Also, now's probably a good time to learn how to invest remotely. Once I get my first house hack I will be focusing my efforts in more cash flowing markets where friends and family live.
When you say "in contract" are you referring to wholesalers? I haven't bought anything from wholesalers yet... last 2 wholesalers I spoke too seemed like super shady deals with contracts that do not seem legitimate... plus the double escrow thing makes me nervous. I've always just bought through realtors (since my wife is one... she is anti- unlicensed wholesalers for obvious reasons).
Anything is possible but it is highly unlikely that you’ll cash flow after doing the refi in LA. A short term break even deal should be your goal.... even that’s gonna be tough.
I hear you... How about in SD? BRRRR possible in San Diego??? I've been thinking of getting some property there too. I have family there and go down every year for ComicCon.
More likely than in la but still very difficult. And in SD city.... even more difficult.
Anything is possible but it is highly unlikely that you’ll cash flow after doing the refi in LA. A short term break even deal should be your goal.... even that’s gonna be tough.
I hear you... How about in SD? BRRRR possible in San Diego??? I've been thinking of getting some property there too. I have family there and go down every year for ComicCon.
I live in San Diego. And although I'm not doing active looking for any SFH that would cash flow, I have passively looked and there are a few agents that know that if they fond something I'd buy it (though most are lazy so I doubt they're actively trying to find something. Most just want to setup a search criteria -- that any buyer can do themselves -- for bed/bath/size/price/zip and auto FW results).
So unless by "San Diego" you count BFE burbs to the east or north, it's pretty bleak here for that type of thing.
I have a slightly different perspective than @Cody L. but not really saying he is incorrect. I think to make a BRRRR work in San Diego for a SFR you have to get it below retail which typically means off market (or getting real lucky). If you pay retail you are not likely to be positive after the refinance. Basically I am saying SFR at retail price do not have positive cash flow at 75% LTV (standard refinance, max LTV conventional loan).
However you can get duplex to quad that have a little positive cash flow. What I find is two things: 1) due to low refi appraisals it is very difficult to extract all of the value 2) After the refinance after the value add, the cash flow is virtually the same as it was at purchase. Another way to say this is the rent ratio stays about the same, the cheaper, thrashed RE rents for about the same ratio as the nicer rehabbed RE.
I will use numbers from one of my RE (my last completed value add - I had two concurrent at this time the other one did a bit better but has a lot of similarities but got a slightly better appraisal and is a triplex that helps with the cash flow): purchase $390K (thrashed duplex) with total rent of $2.1K (I have no idea how to set market rent on something as thrashed as this place was but most non rehabbed were going for $1.3K but all were in better shape than these). The ratio is a pathetic 0.54% at purchase. We spent ~$60K on the rehab re-doing everything except roof and heater (inside and out). We refinanced it with a low (which is typical for San Diego) refi appraisal at $544K (my value had it ~$580K). The value add was why we purchased this RE over other possibilities. Note at 75% LTV we are not very close to extracting all our investment (basically we still have ~$50K into it). The rent after rehab was $3.1K (ratio: 0.56% - virtually the same as prior to rehab) which is still likely negative (my projections had it neutral because self managed but it would be negative otherwise).
So at the end of the refi I have $136K equity (using a low refi appraisal) for $50K invested. I have neutral cash flow but negative 10% with PM fees of 10% (negative $310 if paying a PM 10%).
Today: my rents are $400 higher so I have virtually $400 cash flow or $50 with a 10% PM fee; so still not significant cash flow. The RE has $52K of market appreciation since the refinance. So today I have $188K equity for $50K invested and a small amount of cash flow.
Does it work? Not if by work you think at the end you are going to be able to extract all of your investment (challenging to do so). Also not if you think the value add is going to substantially improve your cash flow after the refinance (probably is not going to happen). But if you get $188K of equity for $50K invested that is something. It now has ~$400 cash flow and ~$600 principle pay down each month. I would do it again. So I think it does work just not as good as when @Brandon Turner covers it for his market (or maybe we are not as good at it as Brandon - probably some of both).
I have no illusions that it being easy but unlike some people I think this is true everywhere including in the low appreciation markets that have not changed much (I think they were challenging when San Diego market was cannot miss).
Good luck
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
If I were there though, I'd probably try to BRRRR a little further out east like San Bernardino, Hemut, or Sun City.
I'll be amazed if that house sells for less that $350,000.
Are u an investor @Seth Borman?
Yes, why do you ask?
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
Something is wrong with this listing. Zillow shows the house was in foreclosure with $388K owed. $180K is less than the land value, so unless this is the case of the listing saying needs lots of repairs and it means meth house tear down with lead paint and asbestos and don't forget all those back property taxes owed, it's going to end up selling for way more than the listing price.
Yep, I think heading east makes much more sense for a sustainable source of BRRRR deals.
With the money that is needed to get into these California properties, I don't get why you want to go in on it unless you have 500K sitting around. For the cash you will need to buy these places, you can easily put it in other properties or investments to earn more or close to what you can get with these things.
I don't know much about LA real estate but this looks like a BRRRR to me:
https://www.realtor.com/realestateandhomes-detail/136-W-48th-St_Los-Angeles_CA_90037_M24678-55039
If I were there though, I'd probably try to BRRRR a little further out east like San Bernardino, Hemut, or Sun City.
I'll be amazed if that house sells for less that $350,000.
Are u an investor @Seth Borman?
Yes, why do you ask?
Im new to BP... It says your from Pasadena. Im just wanted to meet like minded folks close by to bounce ideas off with. Pasadena is just a stone throw away from Eagle Rock if there's ever a meet up... Im in!
With the money that is needed to get into these California properties, I don't get why you want to go in on it unless you have 500K sitting around. For the cash you will need to buy these places, you can easily put it in other properties or investments to earn more or close to what you can get with these things.
Yes....I don't disagree with you. Im sure there's better cash flowing investments elsewhere OOS for the $$ right off the bat... But Im a strong believer of investing in areas I know... and where I can personally keep an eye on. Unfortunately for me, OOS investing is just beyond my risk comfort zone because Im very unfamiliar with other markets. I have heard of many horror stories from other buddies that "armchair invested" OOS and lost their shirts. Actually, one of the reasons Im here on BP is to hopefully get educated in other areas for quicker cashflow off the bat... and expand my portfolio. That's my goal for this year.
The one thing about Los Angeles that most investors OOS don't recognize is the crazy equity play potential...unlike many other states. I bought 2 properties within the last 3 years that have doubled their value... and one 9yrs ago that jump 4x in value (bought it for $395k, did some cosmetic rehab... just got it appraised it is now 1.6M)... Its a crazy market. Im in the process of pulling HELOCs on 3 of my properties (roughly about $1.2M), to play with and leverage to buy more. I just wished I can cashflow using BRRRR strategy without downpayment in L.A..
There's got to be a modified BRRRR strategy that works for L.A... I just need to figure out how.
@Alvin Uy I agree with you about the potential here and I totally get about investing local. I am just having a hard time justifying the cost at the moment. This is especially dangerous if you can't find positive cash flow. Since you have equity to pay for the property in cash, the numbers will look better for you than people who have to put up 30% to buy these 400K piece of crap. I wish I can buy a second one here :(
@Alvin Uy. I’ve bought 2 4plexes in Los Angeles that I’ve kind of brrrr’d. I use hard money instead of paying cash for the property, then I rehab, rent (or keep some tenants and just increase rent), refinance and hopefully pull out some or all of the cash I put down on them. U gotta get good deals and have friendly appraisals after to get the cash out but it’s definitely possible to do.
@Alvin Uy. I’ve bought 2 4plexes in Los Angeles that I’ve kind of brrrr’d. I use hard money instead of paying cash for the property, then I rehab, rent (or keep some tenants and just increase rent), refinance and hopefully pull out some or all of the cash I put down on them. U gotta get good deals and have friendly appraisals after to get the cash out but it’s definitely possible to do.
@Alvin Uy. I’ve bought 2 4plexes in Los Angeles that I’ve kind of brrrr’d. I use hard money instead of paying cash for the property, then I rehab, rent (or keep some tenants and just increase rent), refinance and hopefully pull out some or all of the cash I put down on them. U gotta get good deals and have friendly appraisals after to get the cash out but it’s definitely possible to do.
What you mean kinda brrr’d? Lol. Did u pull your “all-in” cash out? Did u break even cash flow wise too? Im assuming the 4plex were vacant at purchase to make this even work since likely Rent Controlled area... right?
Because of Rent Control, Vacant multi units are so hard to come buy and get snapped up pretty quickly. Ive gotten out-bidded 2x even at “all cash” and w/ no contingencies. So much competition.
So now, I was actually thinking of going this route.... finding a small SFR in a big lot on a R1.5 zone, R2, or more ...and perhaps building additional units. Worse case, i can always flip it.
@Alvin Uy I agree with you about the potential here and I totally get about investing local. I am just having a hard time justifying the cost at the moment. This is especially dangerous if you can't find positive cash flow. Since you have equity to pay for the property in cash, the numbers will look better for you than people who have to put up 30% to buy these 400K piece of crap. I wish I can buy a second one here :(
Yeah... no matter what, the down payment just to make it cash positive or break even is the killer. I would still need to cash out “all-in” money to repay back the Helocs.
I do have some ideas to make BRRRR work though... which might involve building additional units. I just need to find the right property.... and possibly more cash. Lol.
@Alvin Uy. I’ve bought 2 4plexes in Los Angeles that I’ve kind of brrrr’d. I use hard money instead of paying cash for the property, then I rehab, rent (or keep some tenants and just increase rent), refinance and hopefully pull out some or all of the cash I put down on them. U gotta get good deals and have friendly appraisals after to get the cash out but it’s definitely possible to do.
What you mean kinda brrr’d? Lol. Did u pull your “all-in” cash out? Did u break even cash flow wise too? Im assuming the 4plex were vacant at purchase to make this even work since likely Rent Controlled area... right?
Because of Rent Control, Vacant multi units are so hard to come buy and get snapped up pretty quickly. Ive gotten out-bidded 2x even at “all cash” and w/ no contingencies. So much competition.
So now, I was actually thinking of going this route.... finding a small SFR in a big lot on a R1.5 zone, R2, or more ...and perhaps building additional units. Worse case, i can always flip it.
I say I “kinda brrr’d it” cause I didn’t pay cash for the property like most out of state buyers do. I used hard money, put 15% down 1 time and 20% the other. The hard money financed most rehab as well. I bought the bell gardens one in November and will be refying next month and from recent comps I would think I’d be able to pull out probly 1/3 of what I put in maybe more. Not sure I necessarily want to as I used heloc for some of the down payment and may just pay that down with cash flow. I pulled more cash than I expected too on a different property so I may just stay put. Still trying to figure that game plan out as I’d like to keep decent cash flow. The 4plexes are in non rent control areas. Bell gardens and east la county. They’re both still pretty fresh so I’m currently in full rehab of the east la one. what a score on ur buy at 395k with appraisal at 1.6mill 9 years later! Rad
@Alvin Uy. I’ve bought 2 4plexes in Los Angeles that I’ve kind of brrrr’d. I use hard money instead of paying cash for the property, then I rehab, rent (or keep some tenants and just increase rent), refinance and hopefully pull out some or all of the cash I put down on them. U gotta get good deals and have friendly appraisals after to get the cash out but it’s definitely possible to do.
What you mean kinda brrr’d? Lol. Did u pull your “all-in” cash out? Did u break even cash flow wise too? Im assuming the 4plex were vacant at purchase to make this even work since likely Rent Controlled area... right?
Because of Rent Control, Vacant multi units are so hard to come buy and get snapped up pretty quickly. Ive gotten out-bidded 2x even at “all cash” and w/ no contingencies. So much competition.
So now, I was actually thinking of going this route.... finding a small SFR in a big lot on a R1.5 zone, R2, or more ...and perhaps building additional units. Worse case, i can always flip it.
I say I “kinda brrr’d it” cause I didn’t pay cash for the property like most out of state buyers do. I used hard money, put 15% down 1 time and 20% the other. The hard money financed most rehab as well. I bought the bell gardens one in November and will be refying next month and from recent comps I would think I’d be able to pull out probly 1/3 of what I put in maybe more. Not sure I necessarily want to as I used heloc for some of the down payment and may just pay that down with cash flow. I pulled more cash than I expected too on a different property so I may just stay put. Still trying to figure that game plan out as I’d like to keep decent cash flow. The 4plexes are in non rent control areas. Bell gardens and east la county. They’re both still pretty fresh so I’m currently in full rehab of the east la one. what a score on ur buy at 395k with appraisal at 1.6mill 9 years later! Rad
Using Hard money and Heloc still counts in BRRRR... doesn't have to be all cash. But Why not do a refi cashout instead of keeping heloc? The rate would be better on a 30yr fixed loan... especially with rising interest rates. You might be overextending yourself too thin when interest go up.
Wait... i thought East LA is rent controlled. Are u sure its not? One way to know for sure... If the utilities are under LADWP, then its definitely rent controlled. Either way, if youre getting it to cash flow after pulling out 1/3 then thats pretty awesome!
Yeah... definitely lucked out. I bought that one property REO 9yrs ago in Eagle Rock right after the housing market crashed. It was boarded up and ransacked. It was an eye sore but i knew it was a gem. It was in the best and most desirable part of Eagle Rock north of Colorado Blvd. I even got it on a rehab show on HGTV called "HammerHeads" so some repairs were done for free. Lol. I hope i can find more properties like it.
With the money that is needed to get into these California properties, I don't get why you want to go in on it unless you have 500K sitting around. For the cash you will need to buy these places, you can easily put it in other properties or investments to earn more or close to what you can get with these things.
>For the cash you will need to buy these places, you can easily put it in other properties or investments to earn more
You would think this may be true but it would be incorrect. Virtually every source that tracks return on buy n hold shows San Francisco, Los Angeles, San Diego, and Orange County have produced the highest return for buy n hold investors virtually every decade starting in the 1970s. Which cities do you think will provide best return for this decade? Unless something very surprising happens in the next 7 months those 4 cities will be in the top 10 large cities for buy n hold return this decade in the US (I am actually expecting each to be in the top 7 or 8)
How? Simple, appreciation. Rent and market appreciation. About a year ago I was looking at the recent rent appreciation for San Diego. In the previous 3 years the average rent increase for an San Diego SFR was ~$500. That was the average so no value add, just accomplished by owning it. There is a difference between initial cash flow and cash flow after a few years of ownership.
At that time (a year ago), the average appreciation for a SFR in San Diego was $152k. Again this was not by value add; this was the appreciation just how owning the SFR.
The more active investors seek out the value adds and can do far better than that average.