Buying first home - advice on West LA/Silicon beach

12 Replies | Los Angeles County, California

Hi Everyone, Real estate newbie here! The wife and I moved to LA from OC last year for work and have been renting an apartment in Playa Vista. As our lease comes to an end in a few months, I’ve started to get serious about looking for our first house to purchase (the thought of paying another year of $3k/month rent for a 1 bedroom keeps me up at night). We love the weather and the community on the west side and being convenient for both our jobs it’s the ideal location for us to buy. My brother referred me to BP a few weeks ago and I’ve been an addict ever since (averaging 3 podcasts/day) trying to learn everything I can as we step into the intimidating world of real estate. I would love some advice for first time buyers, especially from those familiar with Los Angeles. My plan is to buy and hold, keeping the property as a rental after we leave LA likely in a few years (thinking primarily cash flow, appreciation is a bonus). I am looking at SFR, but also interested in multi-family (love the idea of a tenant subsidizing our mortgage payment through house hacking). Most interested in the coastal cities: Playa Vista, PDR, MDR, Venice, El Segundo, Manhattan beach. Looking to buy at the 500k-650k range with a 10% down payment. I realize that’s a tall order and we are willing to broaden our range a bit if we have to, as long as it’s a relatively upscale area where we feel comfortable and safe. Alternatively, if we can’t find the right match for our budget I’m thinking of potentially continuing to rent where we are and buying an investment property to rent out somewhere we know we can afford nearby that is up and coming (Inglewood?). Again, would love any advice I can get, especially from locals. Thanks for reading!

Your budget is too low for those areas, my friend. You might be able to find a condo in east Santa Monica, El Segundo or Playa Vista... maybe...

I'd suggest looking South LA (west of Crenshaw), Inglewood, Hawthorne or Lawndale. Personally, I think anything around the Crenshaw line will be a great investment for you in the next few years. Google: Ladera Heights, View Park, View Heights, Park Mesa Heights, Morningside Park. All of those neighborhoods are getting Silicon Beach techies moving in. 

For what it's worth, my property in Santa Monica appreciated 9% and my property in South LA appreciated 14% in the past 12 months. 

Hi @Tucker Singletary , @Julian L. is spot on. That price range will barely buy you a condo in those areas. If you want multifamily you will really need to increase your budget. If you really want to stay in West LA or along the coast you need to consider AirBNB. However they are changing the laws so make sure to do your research. I'm currently working with an AirBNB client who is looking to buy in West LA and will AirBNB the other rooms in the property and convert the garage to an ADU. That's a great strategy for the coastal areas.

I'm an active agent, investor and my office in the Marina. Feel free to come by my office and we can have some coffee and bounce around ideas.

If you are really not looking at appreciationthen, buying does not make sense as without appreciation your purchase, if at retail, will not have positive cash flow. SFR purchased at retail have negative cash flow in the areas you listed. How they work as purchases is due to rent appreciation and property appreciation.

The rent appreciation can, in a few years, convert a negative cash flow property into a positive cash flow property.  

The property appreciation historically has made the purchase produce outstanding ROI.

Without appreciation retail SFR purchases in the cities you listed do not make sense.

Good luck. 

Suggest a housing for a small family. You need to work with a patient realtor and a lender.  Most of the areas mentioned are affluent. They are price and down payment competitive. You need to cough up the difference between appraisal value and accepted stellar price. Most sellers today consider offers with low down buyers as risky transactions. Suggest you go to first time buyer seminar.

Good luck.

Originally posted by @Dan Heuschele :

If you are really not looking at appreciationthen, buying does not make sense as without appreciation your purchase, if at retail, will not have positive cash flow. SFR purchased at retail have negative cash flow in the areas you listed. How they work as purchases is due to rent appreciation and property appreciation.

The rent appreciation can, in a few years, convert a negative cash flow property into a positive cash flow property.  

The property appreciation historically has made the purchase produce outstanding ROI.

Without appreciation retail SFR purchases in the cities you listed do not make sense.

Good luck. 

OP said they were planning on living in the property for a "few years" and then renting it out once they leave LA. They have time to buy at retail and sit on it (assuming there is no market correction in the next 3 years). 

I would argue it's very hard in LA to find a rental anywhere with positive cashflow right off the bat (especially with only 10% down)... nearly all rentals with traditional financing and positive cashflow were purchased years ago. 

I did the same with a condo in Santa Monica. I bought in 2015 with 20% down, 30 year fixed at retail ($445k), lived in it until 2017 and then rented it out once I could have positive cashflow. 

@Julian L. is right. Look in those neighborhoods he mentioned. Consider house hacking. I know someone who bought south of USC, lives in one unit, took on a roommate while raising the rents on the back unit (they were significantly low) and now he lives for practically nothing in a Los Angeles house that he owns . Granted, the roommate thing won't work for you, but you get the idea. 

Also I recommend that coffee with @Nick Hedberg

Do those two things and you'll be off to a great start. 

Thanks for the advice guys, will definitely hit you up for that coffee @Nick Hedberg. Started poking around in those areas and finding some nicely remodeled condos. I have found a few non-remodeled condos in the coastal cities as well in our price range. I would prefer a stand alone house but condos are an option for us as well. Any thoughts on House vs condo? At our budget it seems like the options are remodeled condo vs. small outdated house. If we can get a house at a “good” price and do some fixing up ourselves I’m not opposed to that either, as long as it’s cosmetics that a rookie with little experience but a strong work ethic could handle.

Originally posted by @Tucker Singletary :

Thanks for the advice guys, will definitely hit you up for that coffee @Nick Hedberg. Started poking around in those areas and finding some nicely remodeled condos. I have found a few non-remodeled condos in the coastal cities as well in our price range. I would prefer a stand alone house but condos are an option for us as well. Any thoughts on House vs condo? At our budget it seems like the options are remodeled condo vs. small outdated house. If we can get a house at a “good” price and do some fixing up ourselves I’m not opposed to that either, as long as it’s cosmetics that a rookie with little experience but a strong work ethic could handle.

Ah, the ol' condo vs house conversation. Nationwide, SFH's will appreciate faster than condos, but LA is a bit of an odd-market because everything is so expensive here. Your typical family of 4 is priced out of owning a SFH, so many will buy what they can (aka condos).

i house hacked a condo in Santa Monica in my 20s when I wanted to be near the nightlife, friends, the beach, etc.. The biggest regret I have with my condo is the HOA fee. Not only is it a monthly expense that eats away at my cashflow.. it's also a non-deductible item on my taxes. I pay nearly $4k in HOA fees a year. While my renter covers that cost, it's not going to interest, principal or escrow and it's turning a $700/month cashflow opportunity into only $400/month. The upside, is that Santa Monica zip codes are one of the most desirable zip codes in the country and I don't have to worry much about a market correction.

The woman who rents the condo from me is a single mom who wants a good school district for her kids. She, her 2 kids and a large dog are in that little tiny 794 sq ft. condo.. I couldn't imagine.

Now that I'm in my mid-30s, married, and planning for kids in the next few years, we bought a house in one of the areas I mentioned above. For the exact same price, we were able to get a SFH that was significantly larger, nice and updated, had a private yard for the dog, 3 bedrooms to be used for a potential kids room someday... etc.. We have seen a lot of appreciation on the house and we are glad we bought when we did.

All this to say, it's really all about preference. 

Agreed!
Originally posted by @Julian L. :

Your budget is too low for those areas, my friend. You might be able to find a condo in east Santa Monica, El Segundo or Playa Vista... maybe...

I'd suggest looking South LA (west of Crenshaw), Inglewood, Hawthorne or Lawndale. Personally, I think anything around the Crenshaw line will be a great investment for you in the next few years. Google: Ladera Heights, View Park, View Heights, Park Mesa Heights, Morningside Park. All of those neighborhoods are getting Silicon Beach techies moving in. 

For what it's worth, my property in Santa Monica appreciated 9% and my property in South LA appreciated 14% in the past 12 months. 

@Tucker Singletary - I just did a quick MLS search and their are 0 SFRs under $650k in the areas you mentioned and the last one sold under $650k was in 2014.

At this point you have two options:

1. Either start looking East of the 405. There are some great areas with nice houses that will fit your budget. I think this could be a better investment since you won't have the HOA dues eating away at your cashflow.

2. If you want to stay on the Westside, Condos will be your best bet. There are currently 2 on the market under $650 in the areas you mentioned: http://www.themls.com/Share/YWFhYWZpZWlh

Originally posted by @Julian L. :
Originally posted by @Dan Heuschele:

If you are really not looking at appreciationthen, buying does not make sense as without appreciation your purchase, if at retail, will not have positive cash flow. SFR purchased at retail have negative cash flow in the areas you listed. How they work as purchases is due to rent appreciation and property appreciation.

The rent appreciation can, in a few years, convert a negative cash flow property into a positive cash flow property.  

The property appreciation historically has made the purchase produce outstanding ROI.

Without appreciation retail SFR purchases in the cities you listed do not make sense.

Good luck. 

OP said they were planning on living in the property for a "few years" and then renting it out once they leave LA. They have time to buy at retail and sit on it (assuming there is no market correction in the next 3 years). 

I would argue it's very hard in LA to find a rental anywhere with positive cashflow right off the bat (especially with only 10% down)... nearly all rentals with traditional financing and positive cashflow were purchased years ago. 

I did the same with a condo in Santa Monica. I bought in 2015 with 20% down, 30 year fixed at retail ($445k), lived in it until 2017 and then rented it out once I could have positive cashflow. 

House hacking or not, without appreciation it will be many years before a SFR purchased at retail with 10% down will have positive cash flow. Seeing SFR at retail do not have positive cash flow at a 20% equity position the amount of time to achieve oisitive cash flow, without appreciation which was a premise of the OP, would require equity pay down of greater than 10%. Early in the loan, very little of the payment goes to equity.