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
I have a $51k house I bought cash, $806 per month I get owner finance, minus $100 per month in tax/ins, I clear 706 per month, cap is 16%+, no repairs by me. End buyer has rehabbed it. It's worth 120k now. Owner finance not rented. Pretty typical.
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
11y
Originally posted by @Account Closed:

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.
So can you show how you are calculating NOI? What operating expenses are you including? Can you provide a couple of 15% cap rate comps in your area that you were NOT involved with?
As far as risk and expense, a higher cap rate means the market perceives the NOI to be worth LESS than lower cap rate properties. Why do you think your properties (NOI) are perceived to be worth less if not because of high expenses or risk?
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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
Expenses are as follows:
1. Taxes
2. Insurance
on some houses now that do need rehab (market has changed), 5-10k on rehab. My first buy and hold I mentioned, tax and ins are my expenses.
Why do I need to provide caps on houses we didn't do? Do your own research, sir. I know the houses we have done, with my partner.
[Solicitatation Removed]
Higher cap houses are in areas the market perceives to be 'worse areas', I think that's pretty obvious. Lower cap rates in 'better areas.' We do very well in our blue collar areas on the south and west sides. As do our investors.

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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
In any case, it's a busy night, I have people to call and deals to work on. I wish you well sir, as well as the original poster. :)
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
11y
Originally posted by @Account Closed:
Expenses are as follows:
1. Taxes
2. Insurance
on some houses now that do need rehab (market has changed), 5-10k on rehab. My first buy and hold I mentioned, tax and ins are my expenses.
Why do I need to provide caps on houses we didn't do? Do your own research, sir. I know the houses we have done, with my partner.
[Solicitation Removed]
Higher cap houses are in areas the market perceives to be 'worse areas', I think that's pretty obvious. Lower cap rates in 'better areas.' We do very well in our blue collar areas on the south and west sides. As do our investors.

Joe, you should educate yourself on "operating expenses" before you try to sell based on a NOI that you don't know how to calculate.
Cap rate comps are just as important as sales comps. How can you shill a cap rate when you don't even know what market cap rates are in your area?
If you and your partner can show some credible knowledge of your market and real estate knowledge in general I'd think you'd do better than coming on BP touting 15% caps and scurrying off at the first query at how you arrived at those numbers.
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Allison R.
Lincoln, NE · Member since 2014 · 24 posts · 11 votes
11y
Hi Tony! There is a BP meet up on Saturday, Feb 28 at a coffee shop at 457 N. Fairfax Ave., Los Angeles, CA 90036! You should join!
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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
@Bob Bowling and @Account Closed You two have totally taken over this thread, which was started by a newer investor asking about investing.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y
@Tony Chen
Karen thanks for the mention... AS much has been talked about with turn key out of state on this thread.. I don't have much to add other than there are literally 20 to 40 markets and 100's of turn key guys.. Some great some not so great.. Need to filter through also compare markets.. research areas of interest once one does that then they can hone in on a market and a company.
Tony I also wrote an e book for out of area investors.. Its not a promotional piece its a do's and don'ts and will give you some heads up on what to look out for when your going far afield happy to forward that on upon your request.
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Marco Santarelli
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
11y
@Tony Chen @Karen Margrave
Here is a quick comparison between the Los Angeles (MSA) and just one of the markets we recommend to our investor clients:
LOS ANGELES
With a population of 3,884,307, 1,318,168 total housing units (homes and apartments), and a median house value of $535,240, real estate costs in Los Angeles are among some of the highest in the nation, although house prices there don't compare to real estate prices in the most expensive California areas.
In the last 10 years, Los Angeles has experienced some of the highest home appreciation rates of any market in the nation. Los Angeles real estate appreciated 37.97% over the last ten years, which is an average annual home appreciation rate of 3.27%, putting Los Angeles in the top 20% nationally for real estate appreciation.But what about the next 5-10 years?
Example of a median Los Angeles (MSA) area “investment” property:
DALLAS
With a population of 1,257,666, 458,057 total housing units (homes and apartments), and a median house value of $142,212, Dallas real estate and house prices are near the national average for all cities and towns.
Appreciation rates for homes in Dallas have been tracking above average for the last ten years.The cumulative appreciation rate over the ten years has been 28.30%, which ranks in the top 30% nationwide. This equates to an annual average Dallas house appreciation rate of 2.52%.
Actual example from one of our recent Dallas area properties in Lancaster:
You can see the obvious differences from these two quick examples. The Cap Rates, and cash-on-cash returns, are much lower in California (Los Angeles). The rent-to-value ratios are lower. The down-payment is considerably higher -- cash that can be better utilized and leveraged into a larger number of properties in other markets. Arguably less downside risk due to the high land values.
Last, but not least, in terms of “appreciation potential”, I feel you’ll probably see more appreciation in the Los Angeles market (and parts of California) in the short term (1-3 years) than in a market like Dallas. However, California has a history of being a cyclical (“bubble”) market so property values roller-coaster up and down. Most would agree that property values are currently inflated and over-valued – which is a perfect condition for a market correction with the right catalyst.
Continued success!
@Jay Hinrichs @Gaurav M.
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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
@Marco Santarelli The original poster is a new investor, he lives in California, and already has property here. He wondered if it's the best place to invest FOR HIM. We can go tit for tat on on stats for California and anywhere else. Some may fare better than California, some not. My advice is still for new investors to invest in areas they know. Many of these investors don't have big bank accounts with money to burn, and cannot afford to travel to other states should something go awry. Many would be wiped out if their deals go south.
Your stats don't take into account the many other things that impact housing, such as the low wages in Texas for one.
As for housing bubbles, California, like Texas is a huge state, with many regions. California has many different economic bases in various regions. High Tech, Medical, Education, Manufacturing, Farming, Tourism, etc. All of those things play into the local economies and housing markets. Some areas of California, and Texas are still rebounding, some thriving, and if someone isn't familiar with all of those things, it's easy to invest in an area that seems healthy, but is in fact a bubble created by speculators buying properties in areas they don't know, then new investors buy in those areas because it's so "hot", and WHAM, it falls apart, and all their money is gone!
For EXPERIENCED investors that know the ropes, know what to invest in other areas, and don't have to depend on someone elses opinions, that's one thing, but luring inexperienced investors to invest money out of state is risky in my opinion, and I'd advise that they stay in areas they know.
Of course, my opinion is just that, my opinion, and everyone has to make their own decisions, however; that's my reasoning for my advice.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y
@Karen Margrave
Karen many instance's out of state investing for Califorina investors was coming up here to Oregon. Or to Idaho or Washington.. You won't hit Mid west numbers on the face but you WILL hit in between... There are no turn key providers per se in these markets.. As one would just find a nice realtor and go shopping on MLS>.. there are wholesale deals that folks can buy and fix up.. giving you a little better than market price.. But its much more LA in that regard.
For the new inexperienced Investor who may be buying their first property I am pretty keep on the idea of buying a 2 to 4 plex in the area they live renting out the other units.. Thereby either living for free or very close to free.. They can get in with FHA for 3/.5% down so even on a 700k property can get in for 30k or so.. And if you don't have 30k saved up you should not be buying property in ANY market .
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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
@Jay Hinrichs I love Oregon, it too has many different types of areas, from the coastal areas (like your lots) to the mountains. My niece @Christine Larsen is a broker up there, and she loves it. She and her husband love skiing, and the outdoors. There's some GREAT opportunities in her area for vacation rentals, etc.
Now even in high end areas like here in southern California, if you can get into VR there's some potential for cash flow on them, and the original poster might want to work into something like that in the future.
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Account Closed
Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
11y
Karen, I am ignoring that individual. I checked him out; he argues with everyone. Ignored and blocked. Sorry. I have no time for those guys.
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Brandon TurnerPro Member
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
11y
Hey all - I'm stepping in to clean up this conversation. I'm more than happy to have a "Turn key debate" in another thread, but not in a new member introduction post.
Any further borderline posts will be removed without notice :)
But hey @Tony Chen welcome to the site! I'm jealous you get to live in Southern Cali. I'd love to live there. But you definitely have some challenges in terms of real estate. That said, the average income there is MUCH higher, so you might be alright in the future! Stick close to BP, build some good solid relationships, and you'll do fine!
And p.s. - don't forget a photo!
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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
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Welcome to BP community @Tony Chen It is a great place to meet new friends and learn about various aspects of real estate and more.
Wishing you the best!
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
11y
Hey Tony, welcome! Well actually if your rental property is out here in LA and it is covering the mortgage and those expenses, you're doing pretty well! It's hard to find cash flow out here at all.
I'm a rental property owner as well, but all my properties are out-of-state.
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Branden Chhuor
Residential Real Estate Agent · LA County & Orange County, CA · Member since 2014 · 44 posts · 6 votes
11y
Here's my take if you're a new investor from SoCal with less than $50k cash. Don't invest out of state. But I would recommend the following option: 1. Get into the FHA program and if you need a loan, you can apply for the FHA 203k 2. Partner up with a local flipper/wholesaler 3. Become a private money lender and earned double digit returns on your money 4. Invest in the stock market and continue to save up money. I'm
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Brandon TurnerPro Member
Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
11y
Hey @Tony Chen welcome to the site!
Podcast Guest on Show #92
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Josh L.
Huntington Beach, CA · Member since 2014 · 105 posts · 23 votes
10y
Originally posted by @Karen Margrave:
@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!
I'm a Southern California boy.
I find the phrase 'hella' very grating and annoying.
And, I always say the word, "the", before the freeway number as in "you take the 405".
But, I tell people moving to California without any ties to move North to the Bay Area and not LA because there are more opportunities up north. And, that I would argue means that it would be better to invest in Northern California Bay Area than Southern California.
The average household income in the Bay Area is about a third higher than the average household income in LA. For the exact same job, you'll be making more in the Bay Area than in LA and still be ahead even after factoring in the higher living costs in the Bay Area. And, the higher the income, the more you can pay for housing.
How much higher can these home prices and rents continue to rise in Southern California as incomes in Southern California have plateaued or fallen?
There's a really interesting book by a UCLA professor, The Rise and Fall of Urban Economies, that compares the economies of the Bay Area vs LA region. If you look back to the 70s, LA and SF economies weren't that far apart.
But, there was a divergence where SF is #1 on today's income scale and LA, which was #4 in the 70s, is now ranked #25 despite all the positives you listed for LA and the Southern California region.
While the Bay Area focused on the 'new economy' and technology and high wage jobs, LA was focused on the old economy, ie light manufacturing. The book writes:
“Los Angeles leadership persisted in believing they could turn back the clock and become cheaper, and by traveling this low road they could hence compete with Texas, Alabama, and Mexico.They did some of this in the name of social justice, calling for jobs for low-skill workers. But these noble intentions emerged from belief structures about economic development that were antiquated and inappropriate to the high-cost club of regions to which Greater Los Angeles belongs by virtue of its size and density and the irreversibly high land, labor, and consumer prices that this status brings with it.”
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