New Member From Los Angeles

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New Member From Los Angeles

Matt Friedman
Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes

Hello BP forum! I have been learning a lot from this site in just the last few hours that I have joined. It is definitely overwhelming with the amount of information loaded on this site. I am eager to start REI, specifically Buy and Hold with a partner just to get my feet wet (most likely duplex, triplex, etc...). However, being in Los Angeles I have read numerous times that due to the RE climate here that it can be very difficult. I know that it's not impossible, but does it make more sense to invest out of state for a first timer?

I look forward to learning from all members who have posted in the past as well as everybody who post's in the future!

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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y

Don't give up on your local market just yet. Yes, it is hard to find a deal, and the reason why it is hard to find a deal is because there is high demand and limited supply of housing, which is also why we have some of the best long term appreciation rates (of both prices and rents) in the country. Out of state you give up your home court advantage, significantly increase your risk by going to a market you are less familiar with, give up almost complete control over your investment and instead will be nearly 100% reliant on the kindness of strangers to keep your best financial interests at heart and make or break your investments for you. And the reason that it is less expensive out of state is usually the exact opposite reason as it is hard to find a deal in LA, there is much less demand and higher supply of housing ... even if the cash flow on day one appears high, if the rent increases don't keep up with inflation then CapEx will eat your lunch in the long haul and you will be losing purchasing power each and every year. There are different methods for making returns in these markets, but it is way harder and riskier IMO for a new out of state investor. Selling property and RE services to out of state investors is however highly profitable for the locals in those markets and other marketers, and there are many providing such services on BP that will gladly talk up the benefits of investing out of state. Be careful about asking a barber if you need a haircut, though.

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  • Polly Wu
    Los Angeles, CA · Member since 2017 · 28 posts · 5 votes
    9y

    Hi Matt,

    My husband and I are from San Gabriel Valley, CA. We are on the same boat. We're new to REI and are are interested in getting into Multifamily investment. Just found out from one banker that we will not qualify for a residential loan for 1-4 units since we have a rental SFH already, so guess we will be looking for 5+units from now on.

    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    9y

    Welcome, @Matt Friedman, from a fellow Angeleno.

    Clarita CPA Group516 Reviews
    WebsiteView Page
    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    @Polly Wu that is valuable information thank you.  

    @Logan Allec thanks!

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    Don't give up on your local market just yet. Yes, it is hard to find a deal, and the reason why it is hard to find a deal is because there is high demand and limited supply of housing, which is also why we have some of the best long term appreciation rates (of both prices and rents) in the country. Out of state you give up your home court advantage, significantly increase your risk by going to a market you are less familiar with, give up almost complete control over your investment and instead will be nearly 100% reliant on the kindness of strangers to keep your best financial interests at heart and make or break your investments for you. And the reason that it is less expensive out of state is usually the exact opposite reason as it is hard to find a deal in LA, there is much less demand and higher supply of housing ... even if the cash flow on day one appears high, if the rent increases don't keep up with inflation then CapEx will eat your lunch in the long haul and you will be losing purchasing power each and every year. There are different methods for making returns in these markets, but it is way harder and riskier IMO for a new out of state investor. Selling property and RE services to out of state investors is however highly profitable for the locals in those markets and other marketers, and there are many providing such services on BP that will gladly talk up the benefits of investing out of state. Be careful about asking a barber if you need a haircut, though.

    4Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y
    David Faulkner that makes a lot of sense. Thank you for your insight and taking the time to respond.
    1Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Polly Wu:

    Hi Matt,

    My husband and I are from San Gabriel Valley, CA. We are on the same boat. We're new to REI and are are interested in getting into Multifamily investment. Just found out from one banker that we will not qualify for a residential loan for 1-4 units since we have a rental SFH already, so guess we will be looking for 5+units from now on.

    I'm curious as to what specifically the one banker sited for denying your residential loan on an investment property? Was it lack of down payment? Your Debt to Income (DTI)? Some other underwriting policy specific to that bank? There is no other reason I could think of why you would be denied for a loan on a second investment property ... guidelines that I'm familiar with are that up to 10 conventional residential mortgages are allowed. 20 if you go with 10 under your name and another 10 under your husbands name ... so a bit surprised to here you are having trouble with 2 (or 3 if you include a primary residence) ... I would ask for the specific reason you were denied and shop around with other mortgage brokers (not necessarily direct with the bank).

    0Reply
  • Jeff Wallenius
    Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
    9y

    @Matt Friedman first, welcome to BP. I will whole heartedly agree with @David Faulkner about the pitfalls of investing out of state as they are numerous. With that said, there are also options for investors out of state with solid teams and operators. Many investors become frustrated with the lack of opportunity on the west coast, I know because I live and invest here, and have found success out of state. It can be done, and there are multiple avenues to be successful. If you decide to pursue out of state, please hit me up as I do want you to be aware of the pitfalls out there. Best of luck!

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    Hey Matt! Yep, the rumors are true. If you do decide to invest here, just be aware of exactly what is going on. The numbers, where we are in the market, etc. Basically the reality of what you are getting into.

    I invested out-of-state for my first investments. All of my properties are out-of-state, and I love them. Easier entry prices, good cash flow, and the state tenant laws are much friendlier. No major problems in doing it...the biggest hassle is just having good property management. But even outside of that, it's all about the team you work with.

    Happy to chat anytime if you have questions or want more info on how the pros and cons of out-of-state. Message anytime.

    1Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    Thank you @Ali Boone and @Jeff Wallenius.  I appreciate your responses.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Matt Friedman:

    Hello BP forum! I have been learning a lot from this site in just the last few hours that I have joined. It is definitely overwhelming with the amount of information loaded on this site. I am eager to start REI, specifically Buy and Hold with a partner just to get my feet wet (most likely duplex, triplex, etc...). However, being in Los Angeles I have read numerous times that due to the RE climate here that it can be very difficult. I know that it's not impossible, but does it make more sense to invest out of state for a first timer?

    I look forward to learning from all members who have posted in the past as well as everybody who post's in the future!

     Welcome to Bp! Is it more profitable to invest elsewhere? Not normally. The top 3 in the nation for total profits, cash flow plus equity since 2000 are LA, SF and SD. Does it make sense to invest elsewhere? Maybe if you are getting something with a location that is as profitable.  Understand locals in those areas will scoop those up first and are not going to sell to some dude on his couch in LA without a very nice price mark up. Still Bp is loaded with commissioned sales folks who will sell you all the less profitable locations all day long. 

    Good luck with your search!

    0Reply
  • Polly Wu
    Los Angeles, CA · Member since 2017 · 28 posts · 5 votes
    9y
    Originally posted by @David Faulkner:
    Originally posted by @Polly Wu:

    Hi Matt,

    My husband and I are from San Gabriel Valley, CA. We are on the same boat. We're new to REI and are are interested in getting into Multifamily investment. Just found out from one banker that we will not qualify for a residential loan for 1-4 units since we have a rental SFH already, so guess we will be looking for 5+units from now on.

    I'm curious as to what specifically the one banker sited for denying your residential loan on an investment property? Was it lack of down payment? Your Debt to Income (DTI)? Some other underwriting policy specific to that bank? There is no other reason I could think of why you would be denied for a loan on a second investment property ... guidelines that I'm familiar with are that up to 10 conventional residential mortgages are allowed. 20 if you go with 10 under your name and another 10 under your husbands name ... so a bit surprised to here you are having trouble with 2 (or 3 if you include a primary residence) ... I would ask for the specific reason you were denied and shop around with other mortgage brokers (not necessarily direct with the bank).

     @ David Faulkner

    Hi David, great advice on the 10 conventional mortgage! You were correct the reason we were declined for a jumbo loan was because of the DTI. Even though we have a good combined income and 20% down payment, both our names are on the existing two mortgages and they are in 15yrs terms. The lender suggested two actions: 1.have them re-financed for 30yrs 2. take one of our name off during the re-finance process. I will definitely try some other smaller lenders.

    I did some research about the DTI and came across with a good online Maximum Mortgage calculator. Just want to share.

    http://www.money-zine.com/calculators/loan-calcula...

    Polly

    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y
    Thanks Matt R.. I see you are in Sherman Oaks as well and that you own surf schools. I surf third point all the time have grown up doing so. Thanks for the advice.
    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Matt Friedman:

    Thanks Matt R.. I see you are in Sherman Oaks as well and that you own surf schools. I surf third point all the time have grown up doing so. Thanks for the advice.

     Right on G. Some of the most OG surfers and shapers raised right here in SO. Mostly because the best point breaks are nearby. Good luck!

    0Reply
  • Bradley De comarmond
    West Hollywood, CA · Member since 2016 · 235 posts · 72 votes
    9y

    Welcome to Bigger Pockets @Matt Friedman!

    Yeah BP is loaded with all the information you will need to succeed in whatever niche of real estate investing you wish to pursue and the community is filled with knowledgeable investors and professionals to learn from and connect with (as you can see so quickly).

    Listen to the podcast for extra inspiration and investing advice and post in the forum for any questions you have.

    Like you, I am living in Los Angeles (Weho), but I focus on investing out of state for the 3x cash flow and reasonable cost of real estate. 500k gets you a studio here but can get you an 6-8 unit in Fl. (you may also want to consider out of state @Polly Wu :) )

    Personally, I'd rather pay a management company 10% to do the work and be far away and still cash flow than be nearby my property to deal with the issues myself while I lose money every month. Can't beat that Cali lifestyle though!

    If you have any questions about out of state investing, please connect with me and good luck on your journey!

    - Brad

    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    Thanks @Bradley De comarmond !

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    9y

    Hi @Matt Friedman,

    I also invest out of state in Kansas City. I split my time between LA and San Diego. The price of entry in KC is much lower and the cash-flow is good in theory. I just got my first 7 units and I'm doing rehabs on all of them. I think if you're going to look in LA commercial (5 units and over) is the way to go. Less competition and much less price per unit. You've got to watch out for tenants rights though. For that reason outside the City of LA is better. East LA doesn't have rent control. 

    Podcast Guest on Show #373
    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y
    Thanks for the advice Lee Ripma !
    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Lee Ripma:

    Hi @Matt Friedman,

    I also invest out of state in Kansas City. I split my time between LA and San Diego. The price of entry in KC is much lower and the cash-flow is good in theory. I just got my first 7 units and I'm doing rehabs on all of them. I think if you're going to look in LA commercial (5 units and over) is the way to go. Less competition and much less price per unit. You've got to watch out for tenants rights though. For that reason outside the City of LA is better. East LA doesn't have rent control. 

    Good advice on LA ... I would also advise taking a look at Antelope Valley (Lancaster & Palmdale) ... a bit farther out, but still driving distance, much lower prices, no rent control, and better day 1 cash flow. A few warnings though just to paint a complete picture, you will not likely see full LA appreciation in rent or prices there (but perhaps still better than out of state), you need to "cherry pick" the better neighborhoods to avoid the really rough stuff (especially on the East Side) and make sure you get in where you are willing and able to stay in because this area tends to get hit harder than others in a downturn. There are pluses and minuses to everything.

    Bakersfield is another such local but less expensive rental market, but I have no personal experience there so cannot comment much on that ...

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    9y

    Welcome to BiggerPockets Matt and best of luck investing!

    Podcast Guest on Show #121
    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    9y

    @Matt Friedman

    Welcome to the BP family! Here are some recommendations for you:

    Find and connect with other BP members that are in your area: http://www.biggerpockets.com/meet
    Set up keyword alerts to be notified of the topics that interest you: http://www.biggerpockets.com/alerts
    Read Beginner’s Guide: http://www.biggerpockets.com/real-estate-investing
    Check out BP Podcasts: http://www.biggerpockets.com/renewsblog/category/podcast/

    Wishing you the best!

    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    Thank you @David Faulkner and @Andrew Syrios.

    0Reply
  • Jason Hawk
    Real Estate Services · Olathe, KS · Member since 2015 · 329 posts · 57 votes
    9y

    Welcome to BP @Matt Friedman! 

    I invest in Kansas City and the ROI is incredible. If you have questions feel free to message me. Best of luck!

    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    Thank you @Jason Hawk.  I will definitely reach out.

    0Reply
  • Jared K.
    Liberty, MO · Member since 2017 · 55 posts · 51 votes
    9y

    @Matt Friedman

    Welcome to BP! I am also a newbie getting my start. I have a family who lives in Sherman Oaks and works for a group who syndicates l multifamily in California that you may be interested in connecting with and could answer some questions about the market. I will be working for a similar company in Kansas City. I would love to connect with you and learn about what you are doing and your market.

    0Reply
  • Matt Friedman
    OP
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    @Jared K. Would be glad to connect.  

    0Reply
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