New to Real Estate · Los Angeles, CA · Member since 2020 · 40 posts · 22 votes
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).
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.
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.
@Caleb Brown @CJ M. Yes, you both are on the right track. There are opportunities to be found. It really depends on personal goals and timeline. I'm here if anyone has questions about what is happening here.
@CJ M. Exactly what I had in my head, I'm glad you're confirming it ! I might wait a little or target something smaller like a SFH and rent the others room.
@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.
@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!
@Jon 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.
@Jon 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?
@Jon 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.
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?
@Jon 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!
@Jon 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.
Thanks for your insight into the LA market. I am looking to house hack in LA with small multi family. My question is how to finance a property just under 1M, as you mentioned, with only 35k down using an FHA loan. I was under the impression that loan size is capped at about 765k which would mean a maximum purchase price of 800k. Or is that what you meant? Thanks!
@Frank Wong Thank you Frank ! Not sure how to handle long distance rental but will def educate myself!
Have you considered the IE? I bought a SFR (REO) in the San Bernardino mountains for a pretty ridiculous price in 2011. In hindsight, I wish I'd have gone for a multi family in the IE, but I have had the same renters in the entire time. They don't give me any problems and it cash flows, so I can't complain.
I am not sure that even the IE would cash flow in this market (you'd have to crunch the numbers) but it might be an easier target than LA. For myself, I would even wait and see for the IE. If there are some deals to be had in the next year or two in LA, there will be some crazy deals there. I don't know that I would go out of state unless my real estate investments were my full time job. Not to mention that we don't know how long any travel restrictions will last.