What would you in Los Angeles with $60K cash

141 Replies

Hey ! Let' say you are currently paying a rent, you ready to buy your first property, you live and work in Los Angeles and you got $60K cash. What would you do ? (really, don't advice me... tell me what YOU would do in your current situation). 

I'd get preapproved for a FHA loan and put 3.5% down on a 2-4 unit.

Originally posted by @Jeremy Pelle :

@Karl B. Thanks Karl ! House hacking I guess?

Yes. A good way to not put a lot down and get into the game. If you got a 4-unit the nice thing is (during the time you're living in one of the units) 75% of the rents go toward your mortgage VS only 50% if it's a duplex. There aren't a lot of 4-units in L.A. but I've seen a few pop up on the MLS.

 

@Jeremy Pelle

With all the unrest in some of these liberal cities, I would be very careful right now. Last thing you want is to go all in and then find out a 12-month eviction moratorium has been mandated. I aint gonna lie, the west coast scares me right now!!!

I'd house hack. Either a small multi or buy a larger SFH and rent out room by room. Start there so you can learn the ropes. Rinse and repeat this to get your portfolio started.

Originally posted by @Dennis Maynard :

@Jeremy Pelle , slow down on the duplex.  You need to have a plan as to getting the units rented if vacant.  I'm in LA.  There are over 30k rentals available right now.  Massive amount of inventory.  Connect with me and let's discuss...

This. I am doing nothing but waiting to see what the fallout from the pandemic is. I am not about to invest in a rental property where I could quite easily inherit tenants who may not be paying rent or find new tenants who may decide not to pay (because they can). I don't think there is anything to lose by being patient.  

 

Originally posted by @Jeremy Pelle :

@Frank Wong here is a creative idea. Did you invest in Arizona yourself? Sounds interesting to me.

I invest in TX, but if I was in this position u described and lived in LA w $60k no properties and buying my first I would go AZ. Closer to LA.  

@Jeremy Pelle , if you're a first-time homebuyer, definitely go with a duplex or triplex on an FHA loan. For a duplex in LA County, you max purchase is just under $1M, but the down payment will only be $35K. It's important to keep some cash reserves to cover the full payment if you lose your tenant (or spend a month finding a new tenant).

A duplex beats a SFR for two big reasons: one, a duplex isn't significantly more expensive than a SFR, neighborhood-by-neighborhood. I live in a $2M duplex down the block from $2M SFRs. Secondly, you'll have more rental income when you eventually move out. Having a duplex with two 2/1 units, in almost every neighborhood in LA, will generate more rent than a 3-bed house you're renting to 3 individuals.

And if you have a day job, I wouldn't go out-of-state. Buying an inexpensive SFR or multifamily in a less-expensive market will certainly produce a little more cashflow, but you'll lose out on the appreciation we see in LA -- which is a massive builder of wealth. As a friend and mentor and BP podcast guest once told me, cashflow is just your buffer; equity is your wealth. So, if you don't need the cashflow today, buy an LA duplex that would pay for itself if fully rented. Move in, live there for a few years, and when you move out, the property will cashflow. Plus, if you buy a $1M property today, it'll likely be worth $1.2M+ in five years with no additional effort on your part. I'd rather see no cashflow for five years while building equity than see $100/month for five years while building much less equity.

Anyway... I'm working on a project right now to database all the residential multifamily (2-4 units) properties for sale in LA county by metrics that actually matter to househackers and investors. If you're interested in exploring duplexes, I'd love to help you out. It'll help me build a better database!

Best,

Jon

@Jonathan Schwartz @Jeremy Pelle - you don't need a database, you need a broker. We already have that information. And there is a contraction happening in the high end SFR market right now. Taking 60k and dumping it into an expensive duplex is not ideal. There are distressed buyers out there right now, but you have to be prepared for not having a tenant. Maybe you didn't see my previous post, 30K+ units / houses available for rent in LA right now. And when tenants start realizing they can go rent a house for less than your apartment, they are not going to stick around. There is going to be a massive shift in rental pricing in LA. It's already started.

Originally posted by @Dennis Maynard :

@Jonathan Schwartz @Jeremy Pelle - you don't need a database, you need a broker. We already have that information. And there is a contraction happening in the high end SFR market right now. Taking 60k and dumping it into an expensive duplex is not ideal. There are distressed buyers out there right now, but you have to be prepared for not having a tenant. Maybe you didn't see my previous post, 30K+ units / houses available for rent in LA right now. And when tenants start realizing they can go rent a house for less than your apartment, they are not going to stick around. There is going to be a massive shift in rental pricing in LA. It's already started.

Dennis, I did misread your post! I thought you were saying there are 30k rental properties listed on the MLS. My bad!

Is 30K more than usual? I always assumed there were so many available rentals because there are so many people -- 4M! How many units were available this time last year?

As a landlord, I'm concerned about massive shifts in rents! Could you tell us more? I'm expecting a dip in the next year, but nothing massive. What's creating the massive shift?

Thanks!! 

@Jonathan Schwartz. Great question.  Low affordability. Shutdown of the economy due to covid.  Do I need to say the rest from the events of the last 60 days...

LA is hospitality and entertainment driven economy.  Both are shutdown for those in that line of work.   CBRE is predicting a 10% decline in rents in the next year nationwide.  For LA, I think more.  Last year at this time, there were maybe 4k units available.  You can check this stuff, go to apartments dot com and type in city of Los Angeles in the search bar.  That's a massive shift in vacancy.  People were already leaving LA at a rate of 5k per annum net since 2017.  The current situation has created a shift in where people want to live.  I'm see townhomes coming up for sale in transition neighborhoods where someone could buy it for less than paying rent...  The shift is happening.

@Jonathan Schwartz

Hey Jonathan ! Like the idea, I know that it’s one of the best strategy for that type of situation. Just not sure about the idea of being a landlord of a mutli with this pandemic situation. What do you think?

Originally posted by @Dennis Maynard :

@Jonathan Schwartz. Great question.  Low affordability. Shutdown of the economy due to covid.  Do I need to say the rest from the events of the last 60 days...

LA is hospitality and entertainment driven economy.  Both are shutdown for those in that line of work.   CBRE is predicting a 10% decline in rents in the next year nationwide.  For LA, I think more.  Last year at this time, there were maybe 4k units available.  You can check this stuff, go to apartments dot com and type in city of Los Angeles in the search bar.  That's a massive shift in vacancy.  People were already leaving LA at a rate of 5k per annum net since 2017.  The current situation has created a shift in where people want to live.  I'm see townhomes coming up for sale in transition neighborhoods where someone could buy it for less than paying rent...  The shift is happening.

Were there really just 4k units available this time last year??? Oi vey.

I actually checked apartments.com as soon as I read your last post, but just to check my immediate neighborhood. I have a really well-located 1920s duplex a few blocks from Larchmont Village. I rent a 3-bedroom unit for about $1000/mo more than a 3-bed cookie-cutter unit up at Melrose and about $1000/mo less than the comparable houses near me. A quick check on apartments.com shows that, in my neighborhood at least, the rent movement hasn't been too profound yet.

I see you do a lot of development. What's your strategy in this environment?

What transitions neighborhoods are you looking at that have these inexpensive townhomes?

I really appreciate your experience and viewpoint, Dennis! Thanks for your time and thoughts!

Originally posted by @Dennis Maynard :

@Jonathan Schwartz. Great question.  Low affordability. Shutdown of the economy due to covid.  Do I need to say the rest from the events of the last 60 days...

LA is hospitality and entertainment driven economy.  Both are shutdown for those in that line of work.   CBRE is predicting a 10% decline in rents in the next year nationwide.  For LA, I think more.  Last year at this time, there were maybe 4k units available.  You can check this stuff, go to apartments dot com and type in city of Los Angeles in the search bar.  That's a massive shift in vacancy.  People were already leaving LA at a rate of 5k per annum net since 2017.  The current situation has created a shift in where people want to live.  I'm see townhomes coming up for sale in transition neighborhoods where someone could buy it for less than paying rent...  The shift is happening.

For someone to "buy for less than paying rent" requires them to have been able to save up some kind of down-payment and have a good credit score. Lenders are much more risk adverse these days.