House Hacking in Southern California

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House Hacking in Southern California

Hector Bastida
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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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!!!

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  • Account Closed
    Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
    9y

    @Herman Stevens That is awesome! I'm not familiar with the Lake Isabella area, I'd love to learn more. 

    1Reply
  • Kristina Heimstaedt
    Real Estate Agent · Newport Beach, CA · Member since 2017 · 259 posts · 293 votes
    9y

    @Hector Bastida The comment that I would add is that your best value as an investor, no matter where it is, is know your rents. As an investor, your income comes from your rent and your relationship with your tenant. I had a client who passed on a vacant property because he was unsure of the potential rental income. I tried to tell him that we could look at a property down the street that I had just rented and he was just not ready to pull the trigger. As a result, he missed out on a 6% return rate on the peninsula in Newport Beach. Because my client missed out on this opportunity, I've made a point to track rental rates throughout all of Orange County. Those numbers are your best indicator of your bottom line, not the "under market value" or the "pro forma" numbers. There are many ways to skin a cat, but the rents are your proof in the pudding every time.

    0Reply
  • Hector Bastida
    OP
    West Covina, CA · Member since 2017 · 16 posts · 2 votes
    9y

    @Kristina Heimstaedt Thanks for the input and insight.  I've been so focused on the location that I haven't thought about how rental rates of the areas I'm looking into.  What would you recommend are good ways to look up and track rental rates?  

    0Reply
  • Kristina Heimstaedt
    Real Estate Agent · Newport Beach, CA · Member since 2017 · 259 posts · 293 votes
    9y

    Hi @Hector Bastida. It takes time. I look at the following:

    Active Data: Volume, low price, high price, average price, median price

    Leased Data (last 30 days): Volume, low price, high price, average price, median price, average days on market.

    More often than not when you're looking at leased properties, there's a magic price number. It's not typical that a landlord lists their property for rent and then pulls it from the market because they've changed their mind. That's an income property and a body who can pay rent, needs to be in there. As a result, there are some adjustments in price, but it's typically more about the days on market and getting someone in there to pay your mortgage. 

    You can try to pull old data, but that's challenging. I recommend tracking it yourself via any rental market site. You might be able to find some data through some of the larger commercial real estate companies, but I like to be hands on and specific. 

    Hope this helps and don't hesitate to reach out if you have any other questions!!

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    $600k mortgage will not get you much more than a small condo in Marina Del Rey ... forget about a MF with a shorter commute than what you have now. Sorry to burst your bubble. You could perhaps get a 2 BR condo and rent out the 2nd room, long term tenant or perhaps AirBnB ...

    0Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 295 posts · 150 votes
    9y

    Hello Hector,

    Inglewood adjacent 90047 has some duplex deals below $600k.  Also, this area is mostly non-rent control and only about 1.5 miles from the new Rams stadium being built.  Also consider San Pedro, Im expecting Pedro to have a Inglewood like demand soon.  Closing a duplex for my sister next week at $430k with a $17,500 seller credit to relocate the remaining tenants. 

    0Reply
  • Hector Bastida
    OP
    West Covina, CA · Member since 2017 · 16 posts · 2 votes
    9y

    @Clarence Johnson Thanks for the input.  I was actually thinking of Inglewood adjacent.  I figured that would be a hot area with the new stadium being built.  And it would be pretty close to the Westside and my work.  I love the San Pedro idea...although that does put me farther away from work.  

    Is your sister going to owner occupy one unit and rent the other?  What type of rent does she expect to receive in that area?

    0Reply
  • Clarence Johnson
    Real Estate Agent · Inglewood, CA · Member since 2015 · 295 posts · 150 votes
    9y

    No problem, my sister is using the money we negotiated from the sellers to vacate the tenant from the front unit so she can occupy it.  The back unit is a single and was previously renting for $900, but with some rehab we believe we can get around $1100-1200.  Keep your eyes open for off market deals, a lot of deals are happening at these real estate mixers and events.

    0Reply
  • Chad Gaither
    Long Beach, CA · Member since 2016 · 44 posts · 21 votes
    9y

    @Hector Bastida I've been working with the same criteria as yours for the past few months, looking locally in Long Beach, San Pedro, and surrounding areas. I've met a lot of people that have made it work here but the deals go fast and require creativity. Pretty amazing to see what places are selling for around here given the amount of violent crimes that occur within a few blocks of my neighborhood (DTLB). If you're ever in the neighborhood would be happy to show you around and share the knowledge I've been building. Keep at it and you'll find something that will work. You only need one to start!

    @James M. Great to hear your story and would be awesome to grab a beer and talk real estate sometime.

    @Account Closed Thanks for sharing! It seems like that area is a great investment opportunity if you find the right block and are in the path of progress. Would love to hear how you guys found the right block around that area. Not sure how much "driving for dollars" I want to do around there given my limited knowledge of that location.

    0Reply
  • Account Closed
    Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
    9y

    Hi @Chad Gaither, I'm hosting a Bigger Pockets South Los Angeles meeting this Saturday, August 26th at 10 AM if you're interested in attending. We're going to discuss the different neighborhoods of South LA, the current and future development projects in South LA and also address any questions that participants have. I'll include the information below and if you're interested, feel free to come and meet other investors in the area!  (It's also open to other people if anyone else reads this and wants to come!)

    0Reply
  • Account Closed
    Los Angeles, CA · Member since 2016 · 156 posts · 113 votes
    9y

    @Chad Gaither

    FIRST SOUTH LOS ANGELES REAL ESTATE INVESTORS MEETING

    Date: August 26th Time: 10:00 AM Place: Vermont Square Branch Library Address: 1201 W 48th St, Los Angeles, CA 90037

    Please PM your email address please so I can contact you about any changes or other meetings.

    Things to Bring: Lawn Chairs & Questions/Ideas/Experiences

    This will be an informal first meeting and I still want it to be valuable so please feel free to send me questions/topics/suggestions for the first meeting as well as any future meetings. I have a few ideas for discussion topics which include the following:

    1. Introductions

    2. Different Areas of South LA

    3. Current and Future RE Development Projects in South LA

    4. Any Questions

    Again, feel free to contact me if you have any questions/suggestions and I look forward to seeing everyone on August 26th! 

    0Reply
  • Account Closed
    Rental Property Investor · New York, NY · Member since 2019 · 12 posts · 2 votes
    7y

    Anyone still looking at MFHs in South LA?  Anyone able to share their story or case study?

    Curious to learn and see what type of deals folks are finding on the market (recently). 

    0Reply
  • Tom Wagner
    Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes
    6y

    I am curious as well!

    0Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Hey Hector!

    I'm house hacking in Los Angeles and on my second property. The first was a condo (rented the other bedroom) and now bought a house and did a remodel and ADU using my own cash and an FHA 203(k). Currently my wife and I live in the ADU while we rent out the main house.

    Thinking of only putting 3.5% down, I don't see the numbers working anywhere in the LA area where you can live for free/cash flow.  However, considering that you own the place and would be paying rent for something comparable, it is still a win.

    Unfortunately $600K doesn't go far, even for Single Family anymore. Think about your long term goals and consider looking in areas closer to Inglewood where you can buy a SFR with a detached garage. Then utilize a loan (FHA 203k, construction, partner, other) and do the garage conversion. This way you are building a second unit. You will have to be able to manage the loan by yourself while the construction happens (figure about 4 months). With FHA 203k loans, if you haven't maxed out the loan you could finance those payments for a few of the months.

    Happy to discuss if you would like.

    Best,

    Rick

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