Advice on next step in high cost of living area CA

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Advice on next step in high cost of living area CA

Kim Chong
Member since 2018 · 2 posts · 2 votes

I am looking to invest in the Los Angeles and possibly Orange County California area. I have 1 paid off single family rental home managed by a property manager. After taxes and funding investment accounts, I have $200k per year leftover to invest. I have a busy job and like to keep my investments as passive as possible but like the tax benefits of owning real estate. I am currently not interested in out of state investing. I am not sure what my next step would be. Should I stick with another SFH or go up to multi-family? I'm concerned about rent control and policy changes overall favoring tenants now in regards to multi-family rentals but I'm not sure if that is something I should be concerned about.

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  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    In general, we have a strong preference for well-placed single family homes that can generate premium rents ($5,000+) and quality tenants.  In the current environment, however, fix and flip strategies make a great deal of sense (and money if done right).  Have you considered teaming up with an experienced flipper down there?  Not so great on tax benefits but the returns can be outsized.  

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @Kim Chong I would research some areas you are very interested in for investments SFRs and then pull up small MFHs 1-4 units, and after that research see what you could get into that would be interesting to you. 

    After the research on the asset class, then move into the area that will get you the biggest return. Long term rentals and short term rentals are great, if you want a higher return on long term rentals you'll have to go into area very close to the beach (Newport Beach, Huntington Beach, South Bay, etc.). Short term rentals can get you a higher yield if you get the property in a good area and put it with a good PM that will do all the work for you, but they do charge higher costs on management fees the more they do. Also, STRs in OC and LA in desirable travel areas have hard guidelines verse outside of OC and LA. These are a couple thoughts. 

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  • Nabil SuleimanBusiness Member
    Real Estate Agent · Los Angeles, CA · Member since 2016 · 596 posts · 299 votes
    5y

    @Kim Chong

    There is no right answer to this. I know plenty of people that do multi and tell me to get into it all the time, but I also do what @Darius Ogloza does and invest in sfh, renovate and cash flow well above what some of my friends multi units cash flow for. Obviously the risk factor in multi family can be narrowed, aka if one tenant moves out of 4 unit your cash flow is minority interrupted vs my single family home is $0 during any kind of turnover. I have done some flips for clients where they invest and then hold and rent out once its done. Depending on your areas, you can utilize ADU's if you feel like it adds value, but again.. the area and home will dictate that choice. I would dig deeper into both options, the tenants you get, the turnover of multi family vs single family, and your long term hold and cash flow goals. That can help determine which direction you choose to go.

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  • Scott Winter
    Costa Mesa, CA · Member since 2019 · 70 posts · 39 votes
    5y

    @Kim Chong

    First, $200k! Well done on the income stream!

    Regarding rent control, the best way to allay your concerns are to get educated and take action to hedge risk, so kudos to you for asking the question!

    I really have no idea the answer to your question, but am fascinated with your question and what insight you might get from others. This seems like a completely personal preference to me.

    Do you have a goal for buying rental property?

    You seem set on acquiring and owning properties you control and also want passive investments. Are you familiar with real estate syndications? It can be more passive than buy and hold real estate, and I think it includes all the benefits of real estate investing (cash flow, appreciation, tax benefits(?), and equity pay down). There are so many options with all sorts of investing strategies. I’m sure some folks on BP can point you in the right direction to finding a good group. And, others know way more than I do about syndications.

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  • Amy Shutes
    Specialist · Charlotte, NC · Member since 2021 · 185 posts · 106 votes
    5y

    Having a good property management company is key and it sounds like you had a good one in the past.  If you wanted to make some more cash finding something that needs some work fixing it up and then renting it out would be great.  Good short term and long term investment.  I work for a property management company here in Charlotte, NC and we do all the fix up as well.  We do anything from a new roof to all new paint.  I'm sure their is something like that in CA as well.  It would be an easy great investment.  As long as the numbers make sense I think any area is a good investment.  I hope that helps.

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  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    5y
    Originally posted by @Kim Chong:

    I am looking to invest in the Los Angeles and possibly Orange County California area. I have 1 paid off single family rental home managed by a property manager. After taxes and funding investment accounts, I have $200k per year leftover to invest. I have a busy job and like to keep my investments as passive as possible but like the tax benefits of owning real estate. I am currently not interested in out of state investing. I am not sure what my next step would be. Should I stick with another SFH or go up to multi-family? I'm concerned about rent control and policy changes overall favoring tenants now in regards to multi-family rentals but I'm not sure if that is something I should be concerned about.

    You are in a good company Kim!

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  • Kim Chong
    OP
    Member since 2018 · 2 posts · 2 votes
    5y

    Wow! I am overwhelmed by everyone who took the time to reply and post an opinion. This is very helpful for me. I really like SFH investing because it seems to be less active (important feature for me) and not subject to rent control...so it is helpful to know that other people are doing it successfully as well. My house is in a nice neighborhood on a large plot. It was bought for personal use and seemed to be a poor investment until it was paid off (cash flow) and someone told me it appreciated $200k in the 3 years I owned it. When I looked at the multifamily offerings locally, it seemed they all had negative cash flow as well but not as badly for the area...which made me wonder if it is smart to stick with SFH. Going further out of LA and OC, the numbers looked way better but it occurred to me that I would just have too many properties (one day) and that just multiplies the time and stress so I'm aiming to stay closer to home even though it will take longer and cost more. In the last few days, I have been entertaining the possibility of an ADU based on some family advice. It seems to make a lot of financial sense and I liked that the flow of the property allows for one without disrupting the SFH feel and overall charm of the home/garden. I know that is not a purely investment preference but it is really important for me to preserve what is good about the place and the neighborhood. So this project should take me awhile (1-2 years?). If it works out well, it might be a model to repeat. I like the tangibility of rental home investing. I invest in index funds as well but it does not have the same feel even when it blows my rental side gig out of the water. I'm not sure what my goals are to be honest! I like to learn and grow so this is a nice venue. I think I would like to be 100% supported by the rental income one day. Thank you everyone for weighing in on this matter. Everyone had great points. I really appreciate it very much!!!

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  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    5y

    Welcome aboard, Kim! You found the right place for information! 

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