Investing in High Dollar Areas with Lower w2 income

Miho Y.

Investor · Huntington Beach, CA · Member since 2015 · 105 posts · 25 votes

5y

Has any of the lenders give you preapproval?

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Dan Schweit

Lender · Santa Clarita, CA · Member since 2018 · 110 posts · 48 votes

5y

@Josh Kaplan

Doable. You can use the rent from the other units to help qualify. Message me if you have any specific questions, happy to help.

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Jon Schwartz

Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes

5y

Originally posted by @Josh Kaplan:

Hello All,

New member here and apologize if i'm touching topics that have been touched hundreds of times before.

I am gearing up for my second investment in Los Angeles and am trying to get a better idea of what i can really afford on my second go around. I have been able to save up a significant (for me) amount of cash that should suffice as 20% down in a good portion of the city and many of the areas that i am looking at. However my w2 income in the mid 100 range i am unsure if i am shopping outside of my reach.

I currently own a duplex in WLA with modest cash flow and about 450k in equity. I have since been looking at properties in multi family (or atleast ADU) properties in Highland Park, Mount Washington, Pasadena, and less so Belmont shores long beach. These would all be house hacks and i see them as a way of getting myself into an area i could not afford on my own income, as well as the opportunity to move out years down the road and cash flow.

However the areas of Carthay/Cresecent heights/miracle mile triplex/duplex properties have caught my eye and most of them are in the 1.5mm+ range. If i am able to manage a down payment is it possible to qualify for a property like this?

I have the tendency to want to go bigger/better on my next deal but am unsure if that is the right attitude as a newbie.

Thank you!

Josh,

I'm really into the Crescent Heights/Miracle Mile duplexes/triplexes as well! You'll find that if you look a little further south, like between Olympic and Venice, you'll find duplexes and triplexes in the $1-1.2M range. This area is a little more affordable, and I believe it's going to see more appreciation and rent growth in the coming years. As the heart of LA gets increasingly expensive, more professionals are moving further south toward the 10.

As to your question: yeah, for any traditional loan, your income is going to limit your borrowing power. On the plus side, the income from the building you purchase will add to your personal income, raising your borrowing power.

I think the obvious answer for you is to call a lender and ask. I have some recommendations if you'd like them.

All the best,

Jon

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Ian WalshBusiness Member

Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes

5y

It depends on each persons goals and resources, but in general, most people want a lot of cashflow on a rental regardless of the equity.

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Cole Simpson

Rental Property Investor · Columbia, SC · Member since 2020 · 302 posts · 186 votes

5y

I have a few investors in California and the problem they were running into is they could just get better returns if they invested in different markets. However by using income from your other properties and potentially equity from your other properties often you can qualify for fairly high amounts.

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Sebastian MarroquinPro Member

Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes

5y

I will echo what several people have said on here.

I am currently working with several people that are going from primary home to primary home... etc

You will have to check with your lender and see if possible.

My client had a SFH in Pasadena he lived in: then he added an ADU: rented both out for a positive cash flow situation: then

the lender took about 80% of the rents and applied them to his income and he went to buy another 'primary home' where he only put a 5% down payment (instead of the 20% .

He used the remaining 15% + other cash he had saved: and renovated the home, Added an ADU in the city of el sereno (90032).

He bought that one for $550k

After the reno- and ADU conversion: the home is now valued at $760k

(this is just an example)

We have referrals to contractors, architects etc if this is of interest.

There are many possibilities with your capital and situation and just to plant the seed:

I would look into areas with a high price per sq ft. and either buy a Single Fam. Home and add an ADU and Jr. ADU to increase value and cash flow and then refinance it. or

Find a home that is zoned for 2 or 3 units that is 1 home currently: and add the rest and then refi out and get a large portion of your money back.

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Rick Albert

Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

5y

I would consider the Valley. There are a lot of them sitting on the market for a variety of reasons. As people get priced out of the Westside, tenants will have to go somewhere.

If you can also swing it, the other option is house with ADU. The ADU would not be subject to LA rent control, which is a major plus. The main house would be if built prior to 1978.

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Investing in High Dollar Areas with Lower w2 income

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