Acquiring property in LA area

13 Replies

Hello fellow investors in California,

I need your advise about purchasing real estate property in LA area ( like Westwood, Culver city, Brentwood, Santa Monica).

I am interested in 2 beds 2 baths condo/townhouse/house buy and hold. I have a budget of $350K, ready to do some cosmetic

work. My question is more about specific conditions to do business in California for out of state investors. I am from Virginia.

Also how expensive for you to run rental business considering all California fees, taxes, etc.

Is it realistic to find something with my budget as well? Thank you!

Can you find something in your budget in those cities that is worth buying, the short answer is no. If you were willing to buy a very cheap condo with high HOA fees maybe if you looked for a while. California doesn't really have many fees except some cities make you get a business license which is like $70. As far as taxes are concerned depreciation exists here too so you probably won't have much to worry about. With your budget you might be able to find something in the Inland Empire or Central Valley but probably not the cities you mentioned.

Thanks, Aaron for your advice! I see market in those areas is beyond craziness. My son moved to Woodland Hills for work for 2 years. So we thought to invest in 2b/2bth somewhere close to his work. Maybe its better to look at different cities in areas you mentioned.

You might even be able to find a condo in the San Gabriel valley in places like Alhambra or Rosemead, but be prepared for repairs if you find something

Natalia,

I have some family/friends who invest in the LA area, and like many major metros it is more of an appreciation vs cash flow area, because real estate is very expensive and it's a desirable place to live. If you paid full price for a property on the MLS, your annual rent before expenses would likely be 5% or less of your purchase price in desirable areas like Santa Monica. So, it would fail the 1% rule often discussed in these forums by a longshot.

You'd get little cash flow but strong potential for appreciation.  Not uncommon with major metro areas like San Fran, DC, Boston, etc., but worth knowing what you're getting into.  Usually you hear of investors from California investing their money out of state across the country because it's hard to find cashflow in their backyard, rather than people seeking out SoCal properties.  But, where there's a will there's a way and there's always a city somewhere within an hour or so drive of anywhere with favorable economics.

There are some fees and minimum taxes to be aware of with California if you plan to use an LLC or other corporate entity. In addition to a couple hundred dollars worth of fees to get started and some annual filing fees which are standard in most states, California has a minimum annual tax of $800 for LLCs doing business in the state (even if registered in another state). So with a state tax rate of 8.8% I'd normally need $9,100 of taxable net income to owe $800 in taxes, but in California even if the LLC makes less than that I pay $800. This comes into play if you are trying to setup an LLC-held property with lots of depreciation and cost offsets that will produce a low net income. Also if you establish an LLC before you purchase a property and then don't end up doing anything with the LLC and it just sits there, or you have a year where you only had a few months of cash flow, you'd still owe the $800. The link below has more detail. Lastly, look into out of state holding fees for your state. That is, if you file your personal returns in VA but own properties in another state, or get cash flow from an LLC in another state, some states will have special fees for those cases as well.

https://www.incorporate.com/california_llc_taxes_f...

I live in CA.....the only reason I would invest in CA is because I live there :)

Very few OOS investors I know of invest INTO CA...... it's usually the other way around. Really hard to cash flow here, especially if your are not managing yourself etc.

I appreciate very much your input, Bob. I have LLCs formed in VA and WA. I know all benefits buying through the company but consider buying on personal name as well to avoid all those fees. Will definitely need to know which areas gonna grow in a future and have a potantial for appreciation.

Ned, not so much incouraging to invest in CA :)). I am looking to have a cash flow at the beginning.  But I guess have to see all cons and pros. Want to come in couple of weeks to the area and explore possibilities.

@Natalia Keenan

You might want to also look into the taxes you may have to pay to CA. If you earn income in CA (which would likely include rents from real property located in CA), you will likely have to file a nonresident CA tax return each year. With some of the highest tax rates in the country, you may want to run some numbers and see what it would cost you. 

I grew up in Woodland Hills and although real estate will be cheaper out there than in the heart of LA, it still is very expensive. LA And CA in general are not the easiest markets to break into, especially if you’re not already paying CA taxes 

You can try paying for some time for some analysis from @Logan Allec who is a great CPA and resource in CA. 

Got it Katie, thank you. It is a lot to think about.

I live in Culver City and have been looking at places for about 6 months.  I have not found anything that would meet your criteria.  I saw a two brd condo that needed maybe $70,000 of work for $400,000 not too long ago.  But the condo fees were above $400 per month and they had a owner occupied rule for one year.  

Santa Monica, Westwood and Brentwood will be more expensive. Inglewood and South LA are less expensive. Inglewood and West Adams are more affordable and seem to be up and coming areas as people get priced out of Culver City. 

Originally posted by @Natalia Keenan :

Thank you, Jerry!

 If you can widen your search area the possibilities will open up more. Some possibles perhaps Encino, Tarzana, Reseda condos or SFV condos, Long Beach maybe but as is, you can pretty much scratch those first choices off your location list for now is likely. Good luck with your search. 

Originally posted by @Ned J. :

I live in CA.....the only reason I would invest in CA is because I live there :)

Very few OOS investors I know of invest INTO CA...... it's usually the other way around. Really hard to cash flow here, especially if your are not managing yourself etc.

 By value your statement is not true.  It has been a few years since I saw the numbers so I do not remember them exactly but Ca was near the top (or the top) in OOS ownership by value for all properties.  However I suspect most of that value is in commercial properties and are large investors. 

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