New Member From Los Angeles
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!
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.
SoCal has plenty of deals, it's just harder to find them because of the amount of competition. I'm finding a good amount of deals to be had in the NE side of the San Fernando Valley. Cities like North Hollywood, Van Nuys, Sylmar and Arleta still have a fair amount of distress properties. I'm not a huge fan of the Antelope Valley but there are certainly better price points out there. I prefer South LA or better yet the Bakersfield market if you're looking for small multi to buy and hold. My business is mainly fix n flip so I like close local flips that I can drive to in under an hour. But that's my feedback. Welcome and good luck!
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
Hi Brad, thanks for the advise! Looking forwards to connect with you.
Polly
@Matt Friedman Hi and welcome to BP! I mostly grew up in LA and visit frequently as I still have family there. I am keenly aware of the RE market there and have seen in my own family & friends how buying at the right time at the right price in that market can create a lot of wealth quite quickly. So the question becomes is this the right time? Frothy prices would have me wondering, what's coming around the corner.
In my own market prices are not nearly as high, but are at peak prices, and difficult to find anything that cash flows. So, I have long ago turned my focus to out of state investing that produces cash flow as so many of us West Coast investors have.
@Matt Friedman welcome to the site. When my wife and I started years ago we bought, flipped and held out-of-state properties. There's definitely a challenge there but the returns are there as well. You can do it here as was already stated but you have to dig in and really search. One way our clients are getting properties is by selecting the beat up multi-family homes on the MLS and using our rental rehab loan to acquire it. Best of luck to you.
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 ...
You mean "no rent control" at this time. Things can change quickly especially with AB1506
AB1506 http://www.latimes.com/business/la-fi-costa-hawkin...
We all need to vote against any politicians supporting rent control in California!
Trust me @matt , make sure to check if any new investments are rent controlled and to read up on the change in California laws. You should still invest as the above have encouraged... just be careful and stay active!
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 ...
You mean "no rent control" at this time. Things can change quickly especially with AB1506
AB1506 http://www.latimes.com/business/la-fi-costa-hawkin...
We all need to vote against any politicians supporting rent control in California!
Trust me @matt , make sure to check if any new investments are rent controlled and to read up on the change in California laws. You should still invest as the above have encouraged... just be careful and stay active!
Agreed, rent control is something to consider, and I have no idea what will or will not be rent controlled in the future. However, to put things into perspective, the thing that drives communities to feel the need for rent control (whether you agree with it or not, and I don't just like Susan BTW) is the the same thing that drives appreciation: high demand and persistently limited supply of housing. That is what drives rents and prices, either with or without rent control ... the free market supply and demand is what drives things in the long haul one way or another, though regulations may distort the market in the short run.
I agree the free market is what drove rents down so low in 2008 and is now bringing them high again.
If you try to explain supply and demand to a California politician they'll look at you like a deer in headlights. This is what messed up our housing supply and also is what is making businesses (jobs) leave California messing up our economy. That's why we're a boom bust state. They put too much regulation and it messes up those that put a lot into the community.
IDK, Susan, none of my rents were driven down at all, none the less low, in 2008 ... prices yes, rents no. I agree that CA is boom and bust state and that is partly due to politicians and the short term distortions mentioned ... it is a wonderful thing for investors who know how to play the volatility to their advantage, and can really hurt those who don't. The long term average is always up for those who are willing and able to hold ... they just aren't making any more coastal land with perfect weather year round ... high demand, persistently limited supply.
Where I was I had a few non payments had to go through UD court and they destroyed the property-long story short.
Then when I put it back on market I had to give concessions to get them rented like no security deposit and the rents were about 20% lower than they were in 2007.
I'm fine with boom and bust as that's natural. But it's when the politicians step in, without any clue of how to run a business or how hard it is in the real world, try to make the laws as band aid attempts to get votes. That's why they pass rent control laws. It's a vote getter. Sounds great to all renters then the housing supply diminishes due to the rent controls. And they put the blame on hard working investors and property owners