Newbie from Los Angeles, CA

Arcadia, CA · Member since 2015 · 7 posts · 5 votes

Hi All,

My name is Tony. I'm a newbie to this forum and relatively new to the real estate investing world. I'm interested in buy and hold as the rental income could be a great source of passive income. I do have a rental property; however, the rent could only cover mortgage, insurance, and property taxes (may be Southern California is not the best place for me to invest in). Anyways, I'm hoping to learn a lot of information on finding the right properties to invest, and gradually helping other people with similar interests.

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Karen MargraveBusiness Member

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Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes

11y

@Tony Chen Don't get sucked in by all the naysayers that tell you to invest out of state! Southern California has high prices for a reason, it's called high demand! High demand drives up values. Though you may not be getting a big cash flow from the property, IF it's in a decent location, with a solid demand, more than likely it will appreciate in the years ahead. Many times that appreciation far surpasses any cash flow you might have in lesser valued areas, and when it's time to sell, it will probably sell faster than other areas out of state. In addition, we have a strong economy in southern California, meaning more qualified tenants.

Personally I'd take a California property in a good area over any other state!

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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
Good luck with your investing in CA Tony. I'm sure you can do well there; there are less expensive markets to consider, if you can find good contacts, of course. [edited]
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Larry Fried
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
11y
@Tony Chen
Hi Tony and welcome to BP. It is difficult to extremely difficult to achieve significant positive cash flow in buy and hold rentals anywhere on the West Coast, especially if it is going to be passive. That is why all my investments are out of state working with companies that provide a full service - locating and purchasing the properties, rehabing, placing tenants, and continuing to manage or have an affiliate PM in place.
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
11y
@Tony Chen Don't get sucked in by all the naysayers that tell you to invest out of state! Southern California has high prices for a reason, it's called high demand! High demand drives up values. Though you may not be getting a big cash flow from the property, IF it's in a decent location, with a solid demand, more than likely it will appreciate in the years ahead. Many times that appreciation far surpasses any cash flow you might have in lesser valued areas, and when it's time to sell, it will probably sell faster than other areas out of state. In addition, we have a strong economy in southern California, meaning more qualified tenants.
Personally I'd take a California property in a good area over any other state!
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Lee L.
Investor · Los Angeles, CA · Member since 2014 · 285 posts · 142 votes
11y
Welcome to BP @Tony Chen . There are deals here in socal. As @Karen Margrave mentioned, although CA doesn't cash flow as well, it's a very high demand area, which provides opportunities for appreciation. And because of L.A.'s quirks, there are many opportunities for 'forced appreciation'.
Let me know if I can help answer any questions for you. I bought a small MFR last year near downtown and it's worked out pretty great so far.
Are there certain areas you're focusing?
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Marco Santarelli
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
11y
Hi @Tony Chen,
Welcome to BiggerPockets!
Glad to hear that you want to get started in real estate investing. It's a great time to be building your real estate portfolio. California is very expensive and the numbers don't make sense here. You will find better deals in more affordable markets with higher rent-to-value ratios.
If you do find a good deal that cash-flows and has a good cash-on-cash return in SoCal then more power to you. There may be some out there but they are probably difficult to find and I'll bet the competition for them is fierce.
Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.
Continues success!
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Dave VisayaPro Member
Moderator
Audio Engineer and Investor · Cebu City, Cebu · Member since 2013 · 7k+ posts · 881 votes
11y
Hey @Tony Chen welcome to BiggerPockets! This is certainly a great community and it is also a perfect place to learn more about REI. Feel free to jump in and never hesitate to ask your questions. See you around!
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Paul Timmins
Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
11y
@Tony Chen
Welcome.
Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook
Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need.
You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.
Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over
http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book
Good luck
Paul
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Sean Hurwitz
Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
11y
Welcome @Tony Chen
Yeah man, I feel like the other posts said it before me, but getting nay cash flow in So Cal
is a hard thing to do.
I'm more into the flipping game at this stage in my life, but if I can help, don't hesitate to reach out!
2 Reply
Ewa RezaPro Member
Real Estate Agent · Los Angeles, CA · Member since 2009 · 146 posts · 75 votes
11y
@Lee L. Downtown Los Angeles is the place to be if it comes to SFR. Especially Chinatown. That's where "big fish" buy everything they can put they're hands on these days.
Otherwise small 2-4 units is the way to go.
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
11y
@Tony Chen As you can see there are a variety of opinions here on BP. For my part, we moved from an area of northern California that was very hard hit by the crash. We could have moved anywhere in the country, and chose southern California. Why? Because it is ALWAYS the first to rebound, due to the many positives it offers. We knew that no other market would allow us to rebuild faster than southern California.
- Low unemployment
- Broad based economy, rather than depending on one sector
- Highly educated workforce
- High demand for properties
- Huge variety of properties to invest in
- Perfect year round weather
- Several universities and medical centers
- Amusement parks, zoos, professional sports teams, and so much more!
- Beaches
- Airports that service every airline
All of these things draw people wanting to do business here, live here, and visit. Those things all create a very healthy economy, meaning a higher number of people can afford mortgages and rents.
It may take some digging, or having to broaden your search to other types of properties, but there are properties that can cash flow, and others that will have a very healthy appreciation, etc.
I'm sorry , but for those like @Marco Santarelli that specialize in selling out of state, of course they are going to point out the negatives in southern California, saying that "California is very expensive and the numbers don't make sense here" is a very simplistic statement, so take it with a grain of salt!
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Marco Santarelli
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
11y
Hey @Karen Margrave,
You outline some great points about SoCal's desirability and reasons for it's ability to rebound in property values. Those are appreciation related, and that's why I believe one can make out well in California if they are rehabbing and flipping properties at retail, building new homes for retail, developing new projects, etc. But it becomes difficult with buy-and-hold investing for cash-flow. Here's why:
A new study from USC’s Lusk Center for Real Estate projects that rents will climb 8.2% in Los Angeles County by mid-2016, to $1,856 a month, on average. In Orange County, the prediction is 8.6% growth, to $1,806. And in the Inland Empire, the study forecasts 9.9% rent growth to $1,246 a month.
The median sales prices for those same three counties in December 2014 according to the California Association of Realtors is $464,650, $683,490, and $322,020 respectively.
This results in a rent-to-value ratio of 0.39%, 0.26% and 0.39% respectively. These are well below the desired minimum of a 1.0% rent-to-value ratio, and a more balanced market.
Simplistic or not, these are the facts. If you run the numbers on a buy-and-hold "investment" property here you will find that the cash-on-cash returns are anemic at best. That's on top of the large down-payment required to acquire the property -- which can be better utilized and leveraged into more properties in other markets where the returns are higher and the land value risks are lower.
I like living in southern California, but it's the second last place I'd want to buy and hold property for cash-flow, when you can get it. (The first place would be New York.)
Continued success!
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Derrick Craig
Memphis, TN · Member since 2013 · 969 posts · 524 votes
11y
@Tony Chen
Welcome to Bigger Pockets!! Congrats on your rental property purchase!! The cash flow may not be the best out there on the West coast but I guarantee your Investment is most likely appreciating in value a lot better than us out here in the Mid West and down south!!! Although we cash flow much much better!!
You are in the right place the forums post a question and you get a ton of answers from different people with different perspectives of real estate investing!! It's up to you to decipher what works best for your investment strategy!! DON'T GIVE UP!!
"Many of life’s failures are experienced by people who did not realize how close they were to success when they gave up."
Author - Thomas Edison
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Lee L.
Investor · Los Angeles, CA · Member since 2014 · 285 posts · 142 votes
11y
@Ewa Reza
I agree with you in saying that downtown area has a lot of potential. I'm heavily looking into areas all around downtown, in every direction basically but more northeast and east. Thus Chinatown would fit this bill perfectly. But where are these Chinatown SFR's you are referring to? I haven't really seen much listed on the MLS at an affordable price point. Are you talking more along the lines of Lincoln Heights?
I'm wondering if there are still a lot of people in the Chinatown SFR's from way back when, and they just need someone to knock on their door and put their house on the market.
Lee
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Account Closed
Investor · West Los Angeles, CA · Member since 2014 · 230 posts · 239 votes
11y
Tony Chen First of all welcome to the site! As you can see you are already encountering a variety of opinions on investing which is great! One thing that I want to make you aware of is sometimes members have a biased reason for giving you advice. This is especially true if they have something to sell (turnkey property). California is a great place to invest as are other states and there are pros and cons to everything. Personally I invest in Los Angeles and OC via forced appreciation. However what works for me doesn't work for all. Karen Margrave gave great advice about the benefits of Southern California. Best of luck to you in all your endeavors.
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Ewa RezaPro Member
Real Estate Agent · Los Angeles, CA · Member since 2009 · 146 posts · 75 votes
11y
@Lee L. I used to work for commercial developer in DTLA and we tried doing marketing for Chinatown and failed miserably. These people did not want to deal with us. So I think you have a great advantage here! :) The old school, personal approach is best with them. A lot of these properties change hands without ever hitting MLS.
I have to say one thing though... vast majority of these properties are in need of some serious work.
1 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
11y
Originally posted by @Ewa Reza:

@Lee L. I used to work for commercial developer in DTLA and we tried doing marketing for Chinatown and failed miserably. These people did not want to deal with us. So I think you have a great advantage here! :) The old school, personal approach is best with them. A lot of these properties change hands without ever hitting MLS.
I have to say one thing though... vast majority of these properties are in need of some serious work.
They calculate it this way, 10 properties at 100 is the same as 2 properties making 500. i sometimes do too.
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Tony Chen
OP
Arcadia, CA · Member since 2015 · 7 posts · 5 votes
11y
Hi All,
Thank you guys for all your opinions. I was shocked to see how many people responded to my post. Again, thank you!!
From reading all your posts here, i think California is probably a good place to invest if the goal is investing in property appreciation. On the other hand, if we're looking for good cash flow, then other states would be a better area to invest. I think both sides have their pros and cons, so i would need to decide which side that i feel more comfortable with. I'm more comfortable with southern California as i know the neighborhoods a little more than other states. As of now, i have only Zillow, Redfin, Trulia, and Realtor as my sources to find out the neighborhood information, and sometimes i don't know how much trust i can put into it. So staying in the area that i'm familiar with is the only way i can do now.
anyways, thank you for all your inputs
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
11y
@Tony Chen As a new investor, I would highly recommend that you keep your money close to where you are and can keep an eye on it, and KNOW your market.
Too often some of the turn key operators are quick to jump on the bandwagon, with a ready made list of all the reasons why investors shouldn't invest in California. However; what's usually missing is where they recommend that you put your money. Never yet have I seen one list the deal they would propose for an investor, and have it on here for all to see and scrutinize. Note, I am not talking about Marco, as I have no clue as to what deals he has or hasn't done, etc., nor if they're good or not.
However; I've heard stories of new investors buying supposed great cash flowing properties out of state, only to find out the properties are in high crime districts, with high unemployment rates, the houses are in disrepair, and the tenant doesn't quite have the track record promised, nor does the property manager.
Unless you can afford to go to where the properties are yourself, I'd encourage any new investors to keep their money in their local market. On the other hand, if your local market is that bad, then be sure to do a thorough check of references, on the people you plan to do business with, learn about the economy and local market of the area where the properties are, and the background of any tenants, etc. before investing. In fact, you might want to find other ways to invest with more experienced investors if your local market is dead.
Just my .02 worth. Maybe @Jay Hinrichs can weigh in too, as he has extensive knowledge on the turn key market. Also, maybe @Marco Santarelli can weigh in on the properties and markets that he prefers over California, and why.
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Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
11y
I know of a gentleman who invested out of state. He purchased 14 units in 1995 for 365k. Those 14 units are now approved to be redeveloped into 24 condos that would sell for about 600k each or 12 million in total. Not bad right...kind of lottery winnings maybe. Well he lives in Sweden and invested in Los Angeles, CA. From all accounts, he has been inside the property once...when he bought it. That is about as passive as I can find. Good luck with your search!
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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
I see rookie investors in our market here that do not understand how we are able to make so much money on houses, as well as our investors. It all comes from knowing the market intimately, knowing how to find the cheap deals, how to get rehab done cheaply and properly (how MUCH rehab to do varies tremendously by neighborhood where we are) and so on.
I just think buying in expensive markets can work fine, but it's hard for newer investors with 25k to break in. Here and other places such as KC and Dayton, it's easy. :)....WITH proper guidance. You can lose your butt in a cheap market too if you are a rookie.
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Gaurav M.
Investor · Irvine, CA · Member since 2014 · 53 posts · 27 votes
11y
No matter where you decide to invest, it all boils down to doing your research thoroughly. It is equally easy to lose money buying in your backyard compared to buying 1500 miles from where you live. Take your time and do your due diligence. Some important things that I usually consider when buying rental property
1. Survey the area down to the neighborhood. Visit the area of interest and spend some time there.
2. Look at the demographics, jobs, incomes, schools, employers, etc to start with. Talk to a lot of people about the area.
3. Get a real estate agent who knows the area very well.
4.Find a trusted contractor and a property manager. Establish the team mostly through referrals.
5. Check the sales and rental comps in the area.
6. Find out tax rates from county records. Don't rely on zillow, trulia, etc.
7. Call up insurance agents to find out how much it would cost for landlord insurance.
8. Finally, use a very conservative approach to calculate you cap rates,cash on cash, ROI, IRR or whatever metric you want to use.
This is not a comprehensive list but just something to get started. I'm not a investing expert by any means but this approach has worked for me investing out of state. Even if were to invest in close to where I live I don't think I would do anything differently.
Whether you're buying turnkey or not, the process is basically the same. Do your due diligence. Most people assume that turnkey is totally hands off approach. It is actually not. In fact you have to be very diligent when you buy turnkey. Most (probably all) turnkey providers will market a very rosy picture. They will over estimate rents and under estimate expenses.
Most importantly you have to be a 100% comfortable with where you invest. Whether its out of state or not. Whether its turnkey or not.
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
11y
@Matt R. Wow, I bet he's glad he invested in California! That's crazy!
As for out of state investing, my biggest concern is for newbie investors that don't have the ability to fly back to other areas should the need arise, etc. and get all hyped up on the real estate investing bandwagon. For experienced investors, they know beforehand what to look for in an investment and aren't dependent upon someone else, etc.
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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
yep that makes sense karen. It all comes down to knowing who you are working with in that other market. Like I always say, want to find a real 'guru' or expert to trust? Find the guys in the given market that have done over 500 deals, 10 years in, and have thrived through crashes in the market. Those are the big boys you can trust.
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
11y
Originally posted by @Account Closed:

It all sounds crazy as I type it here. But I know what I know. I'm doing it here every single day with my partner.
Can you explain why you can only get $66,667 for a NOI of $10,000? Obviously a big risk or high expenses. Which is it and what kind of people take these risks?
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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
I don't know what you're talking about Bob. We take neither big risks or have high expenses on our owner finance houses. 12-15% cap rate is typical. Prices are up here, so cap rates are down a bit, but still great returns. Love my buy and holds here.
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