Greeting from a RE beginner in Southern California

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Greeting from a RE beginner in Southern California

Wesley Kuo
Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes

Hi BP! I have been reading articles and discussions plus listening to BP popcast for many months, but I have yet to participate the forum discussion. It is time to pay for what I owe :)

Frankly I am a newbie in RE investing. I started looking for a investment property in SoCal since late last summer but I have not yet succeeded. Currently I focus on multifamily property with 4 units or less in Whittier, California. Despite the historical natural of the properties, I think the properties there provide the ideal combination of cash flow and equity build up when comparing those in Fontana, Riverside, or Rialto...etc. So I have been house hunting with my agents using MLS.

Any advice or comment is greatly appreciated. I am new but I am ready to absorb and take action.

Cheers :)

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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
10y

Welcome, @Wesley Kuo, from another LA-area investor!  Don't give up on a multi-family in the area.  It is possible. I am currently house hacking a 4-unit with FHA financing. Feel free to reach out!

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    10y

    Welcome aboard @Wesley Kuo

    0Reply
  • Tyler Von Harz
    Real Estate Agent · Brodheadsville, PA · Member since 2016 · 29 posts · 6 votes
    10y
    Welcome to bigger pockets! I started investing not too long ago myself. You'll find a lot of useful info on here. I wish you luck!
    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    Welcome, @Wesley Kuo, from another LA-area investor!  Don't give up on a multi-family in the area.  It is possible. I am currently house hacking a 4-unit with FHA financing. Feel free to reach out!

    Clarita CPA Group516 Reviews
    WebsiteView Page
    2Reply
  • Jeff P.
    Investor · Redondo Beach, CA · Member since 2016 · 8 posts · 1 vote
    10y

    Welcome Wesley!

    My wife and I are in the position looking for a multi-family in the Los Angeles area also  I'm real curious about your findings in Whittier...  It's great to have more Los Angeles RE investors!

    1Reply
  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    10y

    Welcome to BP. Happy to Network.

    [email protected]
    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    10y

    Welcome. I like that you are focusing in on a particular area ... I'd focus on becoming a local expert there ... look at everything that comes on the market, go to open houses, network with agents, contractors, other investors, etc. who are in the area. That way, when a great deal comes along, you will spot it early, instantly know it is a great deal, and be able to pounce on it with confidence. Consider value add opportunities for forced appreciation (renovation) as well as just the cash flow ... cash flow is an important thing, but it is not the only thing. Personally, when I started, I bought REOs off of MLS, always going through the listing agent. Look at 100, offer on 10, close on 1 type of thing. Much easier to get 100 different listing agents to show you their listings than to try to convince 1 buyer's agent to show you 100 places before you close on 1; plus you'd be amazed at how those listing agents bring you deals and get your offer through if they're going to double end commissions on the deal. Good luck!

    1Reply
  • Wesley Kuo
    OP
    Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes
    10y

    Thanks a bunch for the warm welcoming from everyone! esp fellow SoCal investors.

    0Reply
  • Cath Hendon
    Investor · Riverside, CA · Member since 2015 · 12 posts · 2 votes
    10y

    Welcome....I'm in Riverside!

    0Reply
  • Wesley Kuo
    OP
    Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes
    10y
    Originally posted by @Logan Allec:

    Welcome, @Wesley Kuo, from another LA-area investor!  Don't give up on a multi-family in the area.  It is possible. I am currently house hacking a 4-unit with FHA financing. Feel free to reach out!

     Logan, I am curious where do you house hack? I too was considering house hacking but at the expense of my projected cash flow. How's your cash flow situation if you don't mind sharing? Thank you :)

    0Reply
  • Wesley Kuo
    OP
    Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes
    10y
    Originally posted by @Jeff P.:

    Welcome Wesley!

    My wife and I are in the position looking for a multi-family in the Los Angeles area also  I'm real curious about your findings in Whittier...  It's great to have more Los Angeles RE investors!

     Hi Jeff! I have analyzed and visited couple properties around DT Whittier area. Overall rent seems to be higher than east sides such as Riverside, but houses are relatively older as well, esp in the historic district where the city does not fancy investors come in and tear down the OG look of the area. However I do like the layout of DT Whittier compared to its neighbors, it looks clean and organized.

    Are you focusing on other areas?

    0Reply
  • Chris Viglietta
    Rental Property Investor · Los Angeles, CA · Member since 2015 · 74 posts · 10 votes
    10y

    Hello Everyone, 

    This is my first public message here on the forums, but I'm chiming in to add whatever I can to the RE environment in and around LA. If I can add value whatsoever, just ask.

    Make Equity Happen!

    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    Hey @Wesley Kuo,

    The house is up in the Santa Clarita area. I’m definitely willing to share my cash flow situation. Numbers are below.

    Monthly Rent Unit 1: $675 (hasn’t been raised in 15 years)
    Monthly Rent Unit 2: $995
    Monthly Rent Unit 3: $1,035
    Monthly Rent Unit 4 (my unit in which I rent out the bedroom): $650
    Total Monthly Rent = $3,355

    Monthly PITI = $2,862

    Monthly Utilities = $208

    So that leaves about $285 per month for repairs and other operating expenses. Granted, this does not sound like a lot, but when you take into account that I used to pay somebody else $600/month for rent, and now I pretty much get “free rent” in Unit 4, that bumps my monthly economic increase per month to $885 ($10,620 per year) less repairs, maintenance, vacancies, advertising, etc. (let's call these "other costs").

    Let’s say I actually spend $10,620 per year on other costs (this number is conservative by the way). All else being equal, a year from now I will be in the same position, cashflow-wise, as if I had been renting from somebody else for $600/month that is, I would have paid out-of-pocket an average of $600 per month or $7,200 per year. But consider the four points below (wish these could've been indented as a numbered list but it looks like today's BP site updates aren't having it).

    (1) $625 of that monthly PITI goes to principal. That means that even though cashflow-wise, I am in the same position as I would have been by renting, I have increased equity in the property (net worth) of $7,500.

    (2) Unlike rent, everything else I pay for is a tax deduction with the exception of the portion of some expenses attributable to my personal use of the property (the 12.5% of the property I use myself) rather than my business use of the property (the 87.5% of the property that I rent out to others). Regardless, when you add the deductible expenses to my depreciation deductions, I’m ending up with over $10,000 of tax deductions in excess of rental income on this property that I can apply toward other forms of passive income. I’m in the 28% tax bracket for fed and 6.7% for California (my actual California tax rate is 9.3% but the 6.7% is net of federal tax benefit for state taxes paid), leaving me with a total tax savings of 34.7% x $10,000 = $3,470 (and this number is low because the $10,000 of tax deductions in excess of rental income is a low number).

    (3) Combine these $3,470 tax savings with the $7,500 increased equity and you got $10,970 in annual economic increase by house hacking vs. renting for $600/month.

    (4) There’s appreciation potential over the next 30 years that I hold the property, especially where we live in California.

    For the reasons above, if you’re currently renting, this is a no-brainer. Wesley, if you do nothing else in real estate, you will have succeeded by getting into a fourplex in the LA area as a young man with only 3.5% down. Assuming the rents cover your expenses, in 30 years when the mortgage is paid off, and you’ve done the smart thing by raising the rents over the years, you will be sitting on a multi-million-dollar asset that you own free and clear that cash flows thousands of dollars per month at the cost of a measly $15k or so out-of-pocket 30 years prior. I can’t think of any better way for people to prepare for their future so early on in life with so little cash out-of-pocket. Run the numbers and see for yourself.

    Good luck, man, and if you have any questions feel free to reach out.

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  • Wesley Kuo
    OP
    Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes
    10y

    @Logan AllecThank you so much for giving me the insight of multifamily investing. Although the area that I am hunting for properties demands higher buy-in, but I am sure as long as the math is done properly I could achieve the similar result. Your number crunching pushes my confidence to next level

    As a matter of fact I am about to go into escrow for a 2 unit property in Whittier, wish me luck! I will report back for my progress :)

    0Reply
  • Paul Gilo
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Logan Allec

    thats some good number crunching... CPA i see :) 

    I guess our markets may be a bit different, but maybe not so much. We are in similar tax brackets... so we probably roughly make about same money at our day job. Where I'm going with this is, is it worth it? Is all the headache worth the few grand you get out of the deal? I am asking this because I would love to do the same thing. If not house hack, because my wife wont want to do that in a 600 dollar unit, but to get a 4 plex and get it to cashflow.  I was going to buy a house for 250k+ but then did the numbers and it looks like renting is cheaper.... so I would like to stick my deposit money into something that will bring me a good return. 

    Your thoughts welcome. :) 

    Thanks.

    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    @Paul GiloThe reward is not so much the few grand a year in economic benefit early on that I described with my "number crunching" but the fact that you are getting into multi-family with so little cash out-of-pocket as described in the last paragraph of my post.

    Clarita CPA Group516 Reviews
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    0Reply
  • Paul Gilo
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Logan Allec- Very good point. 

    0Reply
  • Brendon Woirhaye
    Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes
    10y

    Welcome to Whittier, @Wesley Kuo

    We focus on Whittier as well, and have most of our units there.  Rental demand in Whittier is high and supply is low, so they will rent rapidly.  The housing stock is old, but it is well built and part of the city's character.  The city is becoming a destination for the foodie crowd and hiking in the Whittier hills.  There are four (I think) historical districts, which can be expensive and painful to work in.

    The supply of multi-families on the market is tight, and generally overpriced for what the rents will bear.  

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