House Hacking in Southern California

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House Hacking in Southern California

West Covina, CA · Member since 2017 · 16 posts · 2 votes

Hey BP folks after much research, books and countless hours listening to the BiggerPockets Podcast.... I have decided that it's time to take some action. My goal is to house hack and buy a multi-plex closer to work since my commute is sucking the life out of me. For over 3 1/2 years I've been commuting from West Covina to Marina Del Rey. About 35 long LA miles. Each way. Every day.

I've talked to a mortgage broker about getting an FHA loan for a duplex and based on my income and info (I have no debt of any kind and I pay no rent since I live with family) I'll most likely only qualify for a $600K mortgage. That includes factoring in the income I would be receiving from the 2nd unit. $600K isn't much for a multi-plex here in Los Angeles and even if I do get a duplex I'll most likely be stretched pretty close to my debt to income ratio.

I've come to find that multi-plexes are very expensive here in SoCal and very difficult to purchase coming in with an FHA loan (too much competition from cash investors). I've also learned that cash flowing in SoCal also difficult.

Would this still be a good way to enter the RE market here in LA? I won't be cash flowing but at least I'll have a tenant helping me pay down the mortgage. And if I'm Iucky, I can force a little appreciation and be in a better position a few years down the road.

I'd love to hear what y'all think. Many many thanks!

Newbie,
Hector

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Most Popular Reply

Los Angeles, CA · Member since 2016 · 156 posts · 113 votes

9y

This is my second attempt to post on this thread and hopefully I have no technical issues =]

Hi @Hector Bastida

Hopefully my SoCal House Hacking story will shed a little light on your adventure. About 11 months ago, my boyfriend and I decided that we were going to find a 2-4 unit property in Los Angeles. For 9 LONG Months (as long as it takes to develop a child), we drove for dollars, drove neighborhoods, sent over 200 letters, explored open houses, searched various markets including Alabama and Arkansas, submitted multiple offers and scoured the MLS + ZILLOW. In my heart of hearts, I believed that South LA had a lot of untapped potential - nice structures, decent lot sizes, good zoning, proximity to downtown Los Angeles and various development. So around month 7, my bf (he's a commercial and residential RE agent) set up alerts on the MLS to fit the criteria of price, unit, and zip codes that I was looking for. I received daily alerts of new properties on the market and visited the new properties every weekend. 2-4 unit properties in South LA range from $350K-$700K depending on size, vacancy/tenant rents, proximity to USC or the Inglewood Stadium and modern updates. Investors are slowly creeping in to the neighborhood and the prices are slowly moving up. We purchased a duplex (two 2bed/1ba units) 3 blocks from the Coliseum and new soccer stadium and our monthly mortgage payment is the same as the monthly rent we paid for our 2bed/1ba apt in Mid-Wilshire. Our commute to downtown is maximum 20 minutes and about 12 minutes to Koreatown. The area is growing and maybe it'll be worth checking out. If you have any questions, feel free to send me a message or I can connect you with my bf since he was the brains behind this house hunting process. Best of luck!!!

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Daniel Travis
Investor · Redlands, CA · Member since 2016 · 7 posts · 3 votes
9y
Could be a good plan. What's your exit strategy? Do you want to live in a place long term? If you moved out could the rent the units for enough to have a positive cash flow?
I'm in SoCal also and it can work depending your goals and plans.
Daniel
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@Daniel Travis I'm planning to buy and hold. Ideally I'd live in the plex for a year maybe longer before renting out the space I was occupying. In that time, hoping to save up more cash for a down payment on another property.
I haven't thought about the what the units would rent. I'm not there in my analysis just yet. I'm still trying to search for the best areas that are close to work that would make sense. But you make a good point about whether or not it would cash flow once I moved out. Thanks!
Hector
0 Reply
James M.
Rental Property Investor · Seal Beach, CA · Member since 2016 · 115 posts · 85 votes
9y
Hey what's going on hector?! I did the same thing about a year ago. I bought a place in 2 on 1 in Long Beach. It was a pretty distressed property but I have been working my *** off to get it all done. I can tell you that when I bought the property, the cash flow was essentially 0, with my intentions of being long term growth and knowing that eventually it would cash flow. When I bought, rentometer stated avg rent was about 1800 for by 2bd 1bths, although they were renting for 1900 at the time. Well as of today, the avg rent in my area is now up to 2200 and each of my units will bring about 2500 -2600 a piece which means I cash flow roughly 1000 a month. With all that. Wing said the journey for me was scary as hell and a ton do work, but I am seeing the light at the end of the tunnel now. Pull the trigger and you won't regret it! Also, I was under the impression you could only get a conventional loan with a minimum of 15% down. That's what I had to do anyway and it was tough to find banks to finance 15% bc most wanted 20%. Anyway, good luck!
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@James M. Thanks for your feedback! That's awesome that after some hard work you're finally cash flowing. I hope to do what you've done!
When you bought the duplex in Long Beach did you live in one unit and rent the other? Also, how did you find your deal? On the MLS? Off market deal?
I was actually approved for a conventional loan with only 5% down. But I can only use that for a single family home. For a duplex I'd have to put 20% down. Which is why I'm trying to get a FHA loan. I'll be able to put 3.5% down and use it for the duplex.
0 Reply
Max Gradowitz
Bakersfield, CA · Member since 2016 · 378 posts · 307 votes
9y
If you can handle a commute to work, there are cities North of Los Angeles that would work much better for a multi-unit house hack: Bakersfield/Palmdale/Landcaster areas come to mind. Otherwise, it'll be extremely hard to find a cash flowing multi-unit in the Los Angeles area given the current purchase prices.
0 Reply
James M.
Rental Property Investor · Seal Beach, CA · Member since 2016 · 115 posts · 85 votes
9y
Sorry I wasn't very clear. I actually live in my rear unit right now and I will be moving out around the 1st of the year. I was very fortunate to inherit a great tenant who virtually lets me do anything I want on his unit any time. I have a good friend who has been in the real estate game for a bit, so he was just sending me listings off the MLS. At the time I don't think my property was super attractive to most investors because the margins were too small if you were paying to get all the work done, but I've done everything for about 25% of what a contractor would have done it for. I did a lot of negotiating while in contract to get the seller to give me money back for repairs, which helped. I'll be honest when I bought the property it was hard to see the upside, but looking back it was well worth it. In retrospect, I probably could have got a better deal, but because of how my units are set up, I knew they would bring great rental value. My biggest piece of advice would be to buy something distressed so the property is discounted, ensure your rents can be raised once you are done with your rehab. Obviously there are many other important factors like location, but I knew that even if I wasn't getting a killer deal, I could put some love into the property (while uses tax benefits to get money back, house hacking, etc), and raise the rents at the end. And I didn't mention that because of how multi families are appraised, once you raise those rents, your property values, jump way up, allowing you to refi and grab some cash for your next property. I am still new to all this, but I'm learning along the way!
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@Max Gradowitz I've thought about Palmdale/Lancaster but the commute would be brutal. I already commute 90mins in the morning and 120min in the afternoon. Those areas would set me back an additional 45mins each way.
Wish I could buy and rent it without house hacking but then I'd need 20% down. Trying to use the FHA for the 3.5% down route.
0 Reply
James M.
Rental Property Investor · Seal Beach, CA · Member since 2016 · 115 posts · 85 votes
9y
Like Max Gradowitz said, Bakersfield actually does have some descent areas which cash flow. If you do decide to go this route, let me know for I lived there for 3 years.
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@James M. thanks for your insight. That was very helpful. Yeah I think I'm going to target properties that need some TLC. I like your idea of making the improvements and repairs yourself. That must have saved you lots of money. I guess the only way to learn is to do it, right!?
Just curious, besides Long Beach, what other areas were you looking into? My goal is to be as close to Marina Del Rey as possible. I've also thought about Gardena or maybe San Pedro. What you think about those areas?
0 Reply
James M.
Rental Property Investor · Seal Beach, CA · Member since 2016 · 115 posts · 85 votes
9y
I was mainly looking in Long Beach, But I had my eye open in San Clemente and Dana point as well.
0 Reply
Account Closed
Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
9y
This is my second attempt to post on this thread and hopefully I have no technical issues =]
Hi @Hector Bastida
Hopefully my SoCal House Hacking story will shed a little light on your adventure. About 11 months ago, my boyfriend and I decided that we were going to find a 2-4 unit property in Los Angeles. For 9 LONG Months (as long as it takes to develop a child), we drove for dollars, drove neighborhoods, sent over 200 letters, explored open houses, searched various markets including Alabama and Arkansas, submitted multiple offers and scoured the MLS + ZILLOW. In my heart of hearts, I believed that South LA had a lot of untapped potential - nice structures, decent lot sizes, good zoning, proximity to downtown Los Angeles and various development. So around month 7, my bf (he's a commercial and residential RE agent) set up alerts on the MLS to fit the criteria of price, unit, and zip codes that I was looking for. I received daily alerts of new properties on the market and visited the new properties every weekend. 2-4 unit properties in South LA range from $350K-$700K depending on size, vacancy/tenant rents, proximity to USC or the Inglewood Stadium and modern updates. Investors are slowly creeping in to the neighborhood and the prices are slowly moving up. We purchased a duplex (two 2bed/1ba units) 3 blocks from the Coliseum and new soccer stadium and our monthly mortgage payment is the same as the monthly rent we paid for our 2bed/1ba apt in Mid-Wilshire. Our commute to downtown is maximum 20 minutes and about 12 minutes to Koreatown. The area is growing and maybe it'll be worth checking out. If you have any questions, feel free to send me a message or I can connect you with my bf since he was the brains behind this house hunting process. Best of luck!!!
5 Reply
Alex J.
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
9y
@Account Closed
So you moved to South LA? AWESOME! Tell us more about the experience. I find that to be fascinating, where about in South LA (major intersection) I have a couple 4plexes in the area, near westmont adjacent to inglewood.. I think the area in general is VERY VERY close to downtown, westside etc. but still has a lot of very rough pockets. Id love to hear more of your story
0 Reply
Account Closed
Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
9y
Hi @Alex J.
We are at 43rd place and Vermont (closer to Vernon & Vermont) literally 3 blocks from USC/King Blvd/Coliseum. There are rough pockets however there has been more policing activity in the area so things are starting to quiet down in the area. I would like to host a meeting of owners in South LA to get a better understanding of what they're seeing and sharing information about future planning because even our little block is seeing some development. What do you think of the idea?
2 Reply
Alex J.
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
9y
Originally posted by @Account Closed:

Hi @Alex J.
We are at 43rd place and Vermont (closer to Vernon & Vermont) literally 3 blocks from USC/King Blvd/Coliseum. There are rough pockets however there has been more policing activity in the area so things are starting to quiet down in the area. I would like to host a meeting of owners in South LA to get a better understanding of what they're seeing and sharing information about future planning because even our little block is seeing some development. What do you think of the idea?
great idea I think the area is doing a lot of things to make it a much safer, and reasonable living area. I personally live in houston tx now but invest almost exclusively in LA ... feel free to stay in touch and if i get more "current events" in the area i will post here for everybody to see. I am invested in 101st and also around 92nd... a little more south, and a little bit more rough, but very close proximity to Inglewood and the 110 and the 405
0 Reply
Nathan Yee
Porter Ranch, CA · Member since 2015 · 51 posts · 13 votes
9y
Originally posted by :

I was actually approved for a conventional loan with only 5% down. But I can only use that for a single family home. For a duplex I'd have to put 20% down. Which is why I'm trying to get a FHA loan. I'll be able to put 3.5% down and use it for the duplex.
Have you looked into a FannieMae Homestyle Renovation Loan? It's the only loan product I've seen that is similar to FHA's 203K - also a renovation loan. Down payments are as low as 5% w/higher mortgage limits for multi-units (). Additionally, you can wrap the costs of rehab into a single loan. With this loan you can avoid FHA's upfront Mortgage insurance premium (MIP) costs of 1.75% of the loan amount and the lifetime monthly MIP (~0.85% to 1%) as long as the loan is in force. In speaking with others, FHA's MIP can really eat into cash flow which already difficult to achieve in LA.
Check to see if you qualify for this loan without the requirement for putting a higher % down for multi-units. I've read you'll need a good credit score 700 and above to qualify for better rates.
1 Reply
Herman Stevens
Bakersfield, CA · Member since 2015 · 9 posts · 4 votes
9y
You said that you only qualified for 600k on a duplex. Did this factor in 70% of the rents from the other unit?
It may be easier to buy a 4 unit than a 2 unit due to the fact that you are occupying a smaller percentage of the property and have more help paying the mortgage. 70% of the rents from the other 3 units would be included in your income to help you qualify for the FHA loan.
My girlfriend and I each have an FHA 4 plex in Bakersfeild. It's an amazing tool.
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@Account Closed - Thanks for sharing your story! I've never thought about that area but it would definitely be something to consider. It would make it only a 30-40 min commute to the Westside which would be perfect for me! I'll definitely reach out if I have any additional questions.
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@Nathan Yee - Thanks for the tip. Being a newbie I've never heard of the FannieMae Homestyle Reno Loan. Sounds like a great tool so I'm definitely going to research into it. I have excellent credit (low 800s) so I have that part covered.
0 Reply
Hector Bastida
OP
West Covina, CA · Member since 2017 · 16 posts · 2 votes
9y
@Herman Stevens That is correct, the 600K factored in the rent from one unit (since I'd be occupying the 2nd). It was only a rough calculation, the mortgage broker that gave me that didn't officially run any numbers. He guesstimated based on several factors like my income and the maximum threshold of my debt-to-income ratio.
Okay so that's the frustrating part. I keep hearing different rules on how FHA loans can be used. One lender said FHA can't be used in CA for multiplexes. Another lender (the mortgage broker who quoted me the 600K) said FHA can only be used for up to 2 units not 3 or 4. Where can I get more clarification on that?
0 Reply
Herman Stevens
Bakersfield, CA · Member since 2015 · 9 posts · 4 votes
9y
Originally posted by @Hector Bastida:

@Herman Stevens That is correct, the 600K factored in the rent from one unit (since I'd be occupying the 2nd). It was only a rough calculation, the mortgage broker that gave me that didn't officially run any numbers. He guesstimated based on several factors like my income and the maximum threshold of my debt-to-income ratio.
Okay so that's the frustrating part. I keep hearing different rules on how FHA loans can be used. One lender said FHA can't be used in CA for multiplexes. Another lender (the mortgage broker who quoted me the 600K) said FHA can only be used for up to 2 units not 3 or 4. Where can I get more clarification on that?
Get a better lender. You can find FHA limits (state and county specific) for 2, 3, and 4 unit buildings with a simple google search. You can definitely do it in California and up to 4 units.
0 Reply
Max Gradowitz
Bakersfield, CA · Member since 2016 · 378 posts · 307 votes
9y
Originally posted by @Hector Bastida:
@Herman Stevens That is correct, the 600K factored in the rent from one unit (since I'd be occupying the 2nd). It was only a rough calculation, the mortgage broker that gave me that didn't officially run any numbers. He guesstimated based on several factors like my income and the maximum threshold of my debt-to-income ratio.
Okay so that's the frustrating part. I keep hearing different rules on how FHA loans can be used. One lender said FHA can't be used in CA for multiplexes. Another lender (the mortgage broker who quoted me the 600K) said FHA can only be used for up to 2 units not 3 or 4. Where can I get more clarification on that?
FHA will do up to 4 units, although there are price limits in each county depending on the amount of units. Lenders will sometimes choose not to do certain loan terms themselves, perhaps because they know their underwriter won't sign off on the loan or something like that. Shop around for lenders and be upfront about wanting an "owner-occupied FHA loan for up to 4 units (fourplex) where I intend to reside in one unit", and they should let you know right away if they'll do it or not. I know lenders in CA that will, PM me if you'd like more info.
2 Reply
Lee L.
Investor · Los Angeles, CA · Member since 2014 · 285 posts · 142 votes
9y
@Hector Bastida Another thing to consider when you're buying 2-4 unit buildings is rent control. Most multifamily buildings in L.A. City are under rent control. This would apply to South L.A. If a unit is occupied, and you intend to live in the unit, you can go through the city and pay the tenant relocation fees. This could range from $7K - $20K+ depending on variety of factors, including how long the tenants have lived there, whether or not there are children, senior citizens etc. You can also negotiate cash-for-keys. Anyway, it's more cash you need to cough up.
On the other hand, if you're buying in L.A. County (ie: Long Beach, City Terrace, but not Boyle Heights.), there's no rent control currently, and you can occupy the unit after giving proper notice, and no relocation fees are required
0 Reply
Account Closed
Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
9y
@Herman Stevens That's awesome that you and your gf already have 8 units!!! Thanks for sharing
1 Reply
Account Closed
Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
9y
@Hector Bastida Yes, Lee is correct about rent control tenant expenses but also consider that a 2-4 unit property in South LA with rent control tenants is usually much cheaper than purchasing a 2-4 unit that is already receiving market rents. If you have less than 4 units, you're considered a mom & pop property owner and you qualify to pay a lower amount in relocation fees (Check with LA RSO). If you evict tenants or provide cash for keys and then bring rents to market rate, then you're essentially adding value to your property.
0 Reply
Herman Stevens
Bakersfield, CA · Member since 2015 · 9 posts · 4 votes
9y
Originally posted by @Account Closed:

@Herman Stevens That's awesome that you and your gf already have 8 units!!! Thanks for sharing
We're doing well. My partner and I also have 19 units in the Lake Isabella area, soon to be 29 units. This is all in 7 months. Let me know if you want to talk about our markets.
0 Reply

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