Los Angeles Member, Intro Post

12 Replies

Hi Bigger Pockets Posse

Prior Coronado San Diego based Veteran & Father of two boys (one who is currently driving letters all over our stainless fridge) from Pomona CA. Nov 2017 my wife & I bought our first SFR for what we thought was an "OK" deal in a competitive market. At the time our eyes were set on a tri-plex in Leimert park, which we were priced out due to a bidding war as well as others. That led us to settle for a roof over our heads in Los Angeles before prices got any more out of hand. Hind sight I feel like we paid too much for the area & for something we aren't in love with.

As someone new to real estate I feel like I can do all the listening/reading & use all the calculators however, without real experience I can't be be fully confident in knowing what I have. Our SFR is a 900sqft City Terrace flip. 3 bdr 2 bath on (just shy of) 10k sqft near Cal State LA. Used my VA loan for 495k on a 30 year at 4.125

I come to you all for some guidance as to what would be the smart play in the situation I am in. Do I hold? Do I sell & buy elsewhere? Is it rentable? Was I robbed? All tips, ribbing are/is encouraged haha :) thanks for reading

Extra facts: I work in the Petroleum sect. Travel often to Martinez/Oakland CA, St. Louis MO, Detroit MI, Indianna, Houston TX (where I am currently) All of which I have been looking at homes.

Goals: Collab/Build my network, Buy 1st MFR + grow portfolio, Elevate my finances enough to quit my job, focus on my degree & start our family business.

Hobbies: Play with my boys, Motorcycles, Hike Palos Verdes, Skate around Venice, Snowboard, Run PCH etc

-Brandon Brown

Hi!

@Brandon B. Thanks for letting all of us learn a little about you. I think the smart play is determined by your real estate strategy and goals. When you bought this home what was you plan with it? 

BTW, Love how you are looking in Detroit and some other midwest areas to invest.

The VA loan is a great benefit that you have earned.

There is no way anyone can accurately forecast whether you paid too much for your current RE.  Too many variables such as condition, exact location, etc.  But also I see nothing to gain by finding this out. 

However, I highly suspect that the purchase was not the best leverage of your VA loan benefit. My view is house hacking a multiplex (duplex to quad) would be achieve maximum benefit of your VA loan. Are you aware of the term house hacking?

I suggest starting with a detached duplex that is in great need of a rehab but still qualifies for the VA loan (the rehab provides the value add). Live in the unit most in need of a rehab and do a live in rehab. Hire out work that is beyond your skillset. Once that unit is rehabbed rent it for top of market price (it has just had a great rehab) and move into the other unit and repeat. Prior to moving out (while it is still owner occupied) refinance into a traditional loan (non-VA loan). Owner occupied loans allow higher LTV and have slightly better terms than investor loans. Ideally you can get virtually all of your investment out via the refinance of the rehabbed RE and have increased your equity.

You are now in a position to decide if you want to use the knowledge gained in your Buy Rent Rehab Refinance (BRRR) to do it again (repeat: BRRRR).

I realize this strategy likely requires selling your current RE.  It definitely requires moving.  You need to decide if it is the best strategy for you and your family.

Good luck

@Jamiel Strickland Morning Jamiel, 

Since my original plan to buy a Multi family to House Hack fell through.. I bought this SFR for shelter. It's central for most our needs & is an untapped neighborhood for what could be "hip" someday.

6.5 miles from DTLA. 

8 miles to USC.

2 miles to USC MED CENTER

1.5 miles from CAL STATE LA. etc 

I have family from & in Detroit, it's dear to me. Texas as well (not dear to me, ha ha) thank you!

Originally posted by @Dan Heuschele :

The VA loan is a great benefit that you have earned.

There is no way anyone can accurately forecast whether you paid too much for your current RE.  Too many variables such as condition, exact location, etc.  But also I see nothing to gain by finding this out. 

However, I highly suspect that the purchase was not the best leverage of your VA loan benefit. My view is house hacking a multiplex (duplex to quad) would be achieve maximum benefit of your VA loan. Are you aware of the term house hacking?

I suggest starting with a detached duplex that is in great need of a rehab but still qualifies for the VA loan (the rehab provides the value add). Live in the unit most in need of a rehab and do a live in rehab. Hire out work that is beyond your skillset. Once that unit is rehabbed rent it for top of market price (it has just had a great rehab) and move into the other unit and repeat. Prior to moving out (while it is still owner occupied) refinance into a traditional loan (non-VA loan). Owner occupied loans allow higher LTV and have slightly better terms than investor loans. Ideally you can get virtually all of your investment out via the refinance of the rehabbed RE and have increased your equity.

You are now in a position to decide if you want to use the knowledge gained in your Buy Rent Rehab Refinance (BRRR) to do it again (repeat: BRRRR).

I realize this strategy likely requires selling your current RE.  It definitely requires moving.  You need to decide if it is the best strategy for you and your family.

Good luck

Hey Dan, 

Yes I am aware of that strategy, although not experienced in actually using it. Originally that was my mission until I ran out of time to get into a place. Our biggest problem was that the VA loan couldn't compete against investors (all cash) or high bids due to VA loan limit & our budget. Realistically now I would be willing to sell & move for a MFR if it was the right deal. I even thought it was possible to refinance our home & use that towards a new buy while renting the original primary. I wasn't told I don't have enough equity in the house yet, is 20% the standard? Thank you for your reply!

@Brandon B.

The location seems really nice and I can see future appreciation. I do not know the market there like I do here in Michigan. I am house hacking here in a Detroit suburb and experiencing many house related activities (I am the worst handy man). Basically, through owning real estate I am able to learn what I can do and what my weaknesses are. Maybe this single family home may not be a cash cow, or a flip that you brag about to your local investors at a meet up but it may be a way you learn markets, learn property management first hand, and other experiences you get when you take action versus siting on the computer watching videos all day.

I say all this to say I think it was a good strategy to take action. And with time I think you will learn to figure out which way is best to make this home make you some money. 

@Jamiel Strickland that's what I'm talkin about! Congrats to you, I would like to hear about your journey when we both have time to do so. I have a map of the Detroit districts I refer to when I look for property I would want. Would be great to connect with someone actually in action. I will send you a PM 

Originally posted by @Brandon B. :
Originally posted by @Dan Heuschele:

The VA loan is a great benefit that you have earned.

There is no way anyone can accurately forecast whether you paid too much for your current RE.  Too many variables such as condition, exact location, etc.  But also I see nothing to gain by finding this out. 

However, I highly suspect that the purchase was not the best leverage of your VA loan benefit. My view is house hacking a multiplex (duplex to quad) would be achieve maximum benefit of your VA loan. Are you aware of the term house hacking?

I suggest starting with a detached duplex that is in great need of a rehab but still qualifies for the VA loan (the rehab provides the value add). Live in the unit most in need of a rehab and do a live in rehab. Hire out work that is beyond your skillset. Once that unit is rehabbed rent it for top of market price (it has just had a great rehab) and move into the other unit and repeat. Prior to moving out (while it is still owner occupied) refinance into a traditional loan (non-VA loan). Owner occupied loans allow higher LTV and have slightly better terms than investor loans. Ideally you can get virtually all of your investment out via the refinance of the rehabbed RE and have increased your equity.

You are now in a position to decide if you want to use the knowledge gained in your Buy Rent Rehab Refinance (BRRR) to do it again (repeat: BRRRR).

I realize this strategy likely requires selling your current RE.  It definitely requires moving.  You need to decide if it is the best strategy for you and your family.

Good luck

Hey Dan, 

Yes I am aware of that strategy, although not experienced in actually using it. Originally that was my mission until I ran out of time to get into a place. Our biggest problem was that the VA loan couldn't compete against investors (all cash) or high bids due to VA loan limit & our budget. Realistically now I would be willing to sell & move for a MFR if it was the right deal. I even thought it was possible to refinance our home & use that towards a new buy while renting the original primary. I wasn't told I don't have enough equity in the house yet, is 20% the standard? Thank you for your reply!

80% LTV is typically the highest Loan to Value you can achieve with a non-owner occupied (investor) conventional loan but my last purchase was at 75% LTV. The rate quotes I received last week from my mortgage broker were also at 75% LTV. So 80% LTV seems to be getting harder to obtain, or at least they are getting harder for me to obtain.

I am not optimistic on your refinance approach because typically VA loans have a very high LTV. This is great for getting into a property but it likely means you do not have significant equity to extract via a refinance. The sell option, however, has associated costs that likely will approach 8% of value. Fortunately, RE in LA has appreciated some so you may not lose any money if you choose to sell.

You could decide to simply live in your current RE and hope for some significant market appreciation.  I feel more confident of near term continued rent appreciation than I do for near-term market appreciation.  RE prices have had an outstanding 6 year run.  The rising interest rates may cool the market.  The rising rates will make purchasing more costly even without any RE market appreciation.  I am calculating very low near-term market appreciation in my forecasts but I am calculating moderate rent appreciation in my forecasts.  IF I am correct the RE with a rental option will provide better return.

Have you looked into the CA ADU regulations (SB 229 & AB 494)? http://www.hcd.ca.gov/policy-research/AccessoryDwellingUnits.shtml. In the San Diego market (in the cities that I have checked), the ADU regulations requires the owner to live in one of the units and cannot be used on duplex to quad (must be a SFR). So you could consider if adding an ADU to your existing SFR is a good investment (your best investment option). It would save the hassle of selling and would get you a rental at a reasonable cost. This option is especially tempting if your location is likely to out perform other locations.

Good luck

@Dan Heuschele I appreciate that bit of insight. I saw on a post a few months back about an ADU done in LA (I can't remember the poster). They showed pictures of the ADU as well as posted links to the regulation. It looked promising, but in my case (cash) expensive!

Originally posted by @Brandon B. :

@Dan Heuschele I appreciate that bit of insight. I saw on a post a few months back about an ADU done in LA (I can't remember the poster). They showed pictures of the ADU as well as posted links to the regulation. It looked promising, but in my case (cash) expensive!

The owner occupied criteria makes ADU not an option for me at this time so I have not looked into finance terms available. I suspect that the financing would not be as sweet as a VA loan (or even as sweet as a conventional home loan) but I am unsure that it would need to be. The land is already purchased. In San Diego, it is ~$100K in permits, fees, surveys, etc. to break ground. Those fees are not needed (minimized) for an ADU. You basically would have cost of plans and construction only. It should be easy to achieve cash flow positive under such a criteria even with rates above conventional financing. Do you care what the rate is if the tenant is paying the rate for you and you are getting some extra cash in the process?

You make your location sound promising. I would take a few hours to look into if an ADU is a good option for you. Compare it to selling your place to better leverage your VA loan on a duplex to quad. Compare it to other options. It may not be the best option for you but I believe it warrants some investigation.

Good luck

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