Seeking advice to invest in California

BRRRR - Buy, Rehab, Rent, Refinance, Repeat

Seeking advice to invest in California

Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote

Hello, I live in California and am new to investing.

I have been doing research on buying, rehabbing and renting out properties for some time now, but it seems all of the golden rules (50% rule, 2% rule etc...) are equipped for states with much lower home values. Is anyone on here a successful California Real Estate BRRR investor that could shine light on a strategy, or a good place to start in our current market.

Thanks!

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David Song

Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes

@Stefanny Gonzalez

Plenty of opportunities is LA. I live in Bay Area, so I just invest here. If I live in LA, I think that will be better than Bay Area in cash flow.

REI is a tough job, not for average person. Need to hustle. Need to take risks. Need to have guts. Need to have money.

The most difficult part is to get started and actually make some profit in the first deal.

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Raul Medina
Investor · San Francisco/Bay Area/Oklahoma · Member since 2019 · 4 posts · 2 votes
6y
Have you considered TIC properties?
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
For sure, homes that need repair are the only options. How long have you been investing?
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Account Closed
San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
6y
You have to take everything into consideration. Many investors discount California, without realizing that our tax base per Prop 13, makes investing here pretty sweet. Of course, you have to take into account all of the other costs, etc.

Asking someone how long they have been investing is insulting, by the way. If you knew everything, you wouldn't be here asking questions. So, if you want to insult people willing to answer your questions, you won't get many answers. Good luck with that approach. Plenty people have been long-term unsuccessful investors, and some have been short-term very successful investors. It's the quality of the information you should consider. Don't look a gift horse in the mouth. You can google that, if you've never heard of it.
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Dairek Lewis
Member since 2020 · 14 posts · 3 votes
6y
@Stefanny Gonzalez I'm in the same boat. I live in Orange County and have talked with a couple investors. Their targets seem to be multiplexes and homes near the coast to Air bnb. I'm looking for my first home currently with an FHA loan looking to either flip or eventually rent. But the cash flow does not look very good...if any for homes or condos.
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Enrique Huerta
Investor · Los Angeles, CA · Member since 2015 · 213 posts · 162 votes
6y
It is very difficult to make BRRRR projects pencil in Core SoCal. I'm not a SFR investor but I find it difficult to make multifamily housing investments pencil in CA, period. But, the question is, what returns are you looking for? That will dictate your strategy, not some arbitrary "golden rules."
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@Account Closed thank you for your input. I am genuinely interested in the timeline of the previous gentlemen’s investment venture because I know folks that tried and bailed, while others who have done it for decades successfully. Asking how long someone has been in their venture is not insulting, as you said, I am here to learn. Again, thanks for the tax info.
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@Enrique Huerta Good call on multi-unit. That is exactly the route I am aiming for next. I bought a SFR 3 years back, refinanced it, did some minor rehabs and now looking to rent it out. I think location will help me with this one.
From here I’m looking into Duplex’s, or Triplex’s. To answer your question, I am not looking for a certain figure in monthly returns. I’m more doing this for a long term gain through equity and loan pay down. I just want to break even or come out slightly ahead once I factor wear and tear, emergency repairs, utilities and of course mortgage, taxes and insurance.
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David Song
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
6y
@Stefanny Gonzalez
Plenty of opportunities is LA. I live in Bay Area, so I just invest here. If I live in LA, I think that will be better than Bay Area in cash flow.
REI is a tough job, not for average person. Need to hustle. Need to take risks. Need to have guts. Need to have money.
The most difficult part is to get started and actually make some profit in the first deal.
2 Reply
Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@David Song Really appreciate your input! When looking for a deal, what factors have you found are important to consider? As of now I’m looking into foreclosures and aiming to buy properties that I could buy at 80% of market value.

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Account Closed
San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
6y
Originally posted by @Stefanny Gonzalez:
@Account Closed thank you for your input. I am genuinely interested in the timeline of the previous gentlemen’s investment venture because I know folks that tried and bailed, while others who have done it for decades successfully. Asking how long someone has been in their venture is not insulting, as you said, I am here to learn. Again, thanks for the tax info.

My point was that it seemed you were quick to discount someone's advice, if it didn't jive with your opinion, which is what it seemed you were doing.
For instance, someone doesn't need a PhD to advise someone that it might be a bad idea to over-leverage. Good advice is good advice, no matter the experience or education of the person giving it. And, if someone discounts good advice based on silly things like where they were born or the color of their skin or how long they've been investing - doesn't change the fact that it was good advice.
Just sayin. If you're just looking for people to agree with you, then you should put that in your heading - hey, just want people to agree with me here, and if you don't, then I plan on insulting you if you aren't ________ fill in the blank.
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David Song
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
6y
I started in 2009 at the peak of the recession. There were plenty of REOs on the market at that time. I remember my realtor drove me through a block in San Mateo, with 5 REO listings on the same street.

Right now might be another good opportunity coming. Need to follow the market and judge on the proper timing to get in. That is the most important thing. Do not believe those folks who tell everyone that any time is a good time. That is false.

The impact of this Covid-19 may not be realized in another year or so, but who knows. I will keep checking on local markets for distressed sales, REO, trust sales, etc. I personally prefer gutted houses, since I don't have to demo it, and all the defects will be obvious to see.

I also look for small house on larger lot, in better area. The small interior footprint depresses the house value, whereas the larger lot provides room for expansion.

I have a couple zip code that I invested during the 09-12 era. Now the zip code changed to further away areas, but still within driving distance.

I don't know LA that well, but I believe it also has some really nice areas and some pretty bad areas.

Try to find somewhere in between.

A lot of REI is dependent on investor experience and skill. I just bought a SFR in hayward last year, and turned into 2 units. Bought another in South SF from auction January this year, and turned it into 3 units.

My approach is to create positive cashflow in a high appreciation market, through remodeling and reconfiguration of existing floor plan.

The cashflow is a way of maintaining a large portfolio, whereas the ultimate goal is land appreciation.

With the ADU laws in effect in CA, buying SFR in highly sought after areas are getting more attractive.

Originally posted by @Stefanny Gonzalez:
@David Song Really appreciate your input! When looking for a deal, what factors have you found are important to consider? As of now I’m looking into foreclosures and aiming to buy properties that I could buy at 80% of market value.

2 Reply
Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@Account Closed I 100% did not have intention you perceived, and I wasn’t looking for someone to agree with me.

I was curious to know the timeline for the reason I listed in the previous comment. I know some short term investors and some long term investors, and I know there is strategy to both. The timeline question wasn’t me challenging his advice, it was me continuing the conversation with my next thought.
Not looking for arguments, simply collaborative discussions with great people! :) I appreciate you jumping in and giving advice, as well as your opinions.
I am looking for nothing but TLC homes as those seem to have the largest upside and the plus of putting my own spin on the property through rehab. Also aiming for multi-unit to take advantage of learning while living on the property.

Eventually I will look into property management as I move away from the property after a year or two. Hope you have a great night and thanks for the back and forth!
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@David Song
There is so much gold in your message! THANK YOU!
Some follow up questions for you:
1. How much do you usually invest into a home, when you buy a gutted house? I fully agree with the idea of buying in better to best areas, small fixers in large lots to expand. That is GREAT advise!
2. Curious how much liquid cash you set aside before you jump into your next venture? For example, I have a home currently that I plan on renting out when I find my next home, which will probably be a duplex. Saving up the down payment, rehab and closing costs now and should be ready in the next 90 days.
With the unfortunate COVID situation, I also anticipate REOs and foreclosures just as you experienced in 2009, and I am hoping to pick up a piece of the pie to start my journey.
3. How do you find gems like REOs and forclosures in the Bay Area? I'm a licensed realtor and have access to MLS but I am curious if there is other way that you go about it.
4. And is there a preferred loan strategy you go for?
Thank you so much for all of this btw!!
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Brian Garlington
Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
6y
@Stefanny Gonzalez 2% rule in California is going to be tough............May have to find a fourplex, off market from a wholesaler in a D or F Neighborhood. I tried looking in various neighborhoods throughout different areas of the East Bay, then Sacramento, then Bakersfield until finally it was suggested to me that the people that talk about how they are getting 2%rule here on BP are not investing in California, but in the Midwest or certain places in the SouthEast. Lower housing costs simply means that. IF you're worried about a community that may have slow job growth or not a lot of people moving to that area then do some due diligence and figure out how you can mitigate that risk. I chose a market in the midwest.....flew out there a couple of times, walked some neighborhoods, drove some neighborhoods and eventually found a good PM that works with Section 8 tenants. The money comes in like clockwork the first of every month and Section 8 tenants for me are more low maintenance for me than my cash tenants.
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@Brian Garlington
Great call on section 8 housing, I hadn’t thought about approaching that strategy. How many properties do you own out there? Was it hard for you to find tenants for all of those properties?
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David Song
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
6y
@Stefanny Gonzalez
500k to 2 m.
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@David Song
Thanks for the advice!
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Enrique Huerta
Investor · Los Angeles, CA · Member since 2015 · 213 posts · 162 votes
6y
@Stefanny Gonzalez, Congrats on your success with the SFR to date.

I will comment that your requirement seems realistic. It is often fairly easy to find deals that break even or deliver a low return (2%-3% Cash on Cash). And of course, California should remain a solid long-term market. One thing to be aware of is the potential for tighter rent control regulations over time. There is also the difficulty with evictions and other new legislation being passed (balcony maintenance, etc.). So be aware of that as you enter the multifamily space...

With that said, it is hard to advise on a "strategy, or good place to start" if you don't have an investment return requirement. How can you make an investment if you don't know how much of a return you are looking for and how much risk you are willing to take to get that return? I would encourage you to marinate on that question and then I'm happy to help further if I can.

I saw you suggest that you're looking to get properties for 80% of market value. Getting a lower basis is always a good thing, but what if home prices decline? Is the 20% margin still there? It's good to get a sense of your cash return and have a Plan B for your investment if something doesn't go as planned.

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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@Enrique Huerta
Hello! Thank you for the note. I would love to get a property lower than 80% of market value, but I don’t know how realistic that is. The lower the better, to your point, to protect against potential market drops.
A lower loan would also mean a lower payment and higher potential Cash Flow. Win win all around. Have you often seen situations where you could pick up a home for lower than 80% market value?
Also, I appreciate the challenge in what I'm looking to gain from rental investing. . . It's a long term play for me through equity building, but on a present basis - once I cover insurance and maintenance fees, I would like to net 3% to 5% in annual ROI, compared to my monthly payment.
For example, if my mortgage payment on said property is $2,500 PITI + escrow + any maintenance incurred - I want to exit the year $900 to $1,500 in net positive (3% to 5%). Idk how realistic that is, or if I should aim higher, but it's a place I'm happy to start with.
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DJ DawsonBusiness Member
Real Estate Agent · Sacramento, CA · Member since 2015 · 394 posts · 259 votes
6y
Originally posted by @Account Closed:
You have to take everything into consideration. Many investors discount California, without realizing that our tax base per Prop 13, makes investing here pretty sweet. Of course, you have to take into account all of the other costs, etc.

Asking someone how long they have been investing is insulting, by the way. If you knew everything, you wouldn't be here asking questions. So, if you want to insult people willing to answer your questions, you won't get many answers. Good luck with that approach. Plenty people have been long-term unsuccessful investors, and some have been short-term very successful investors. It's the quality of the information you should consider. Don't look a gift horse in the mouth. You can google that, if you've never heard of it.

Relax Sue I am sure it wasnt malicious LOL
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Stefanny Gonzalez
OP
Flipper/Rehabber · Los Angeles CA (los angeles, ca) · Member since 2020 · 23 posts · 1 vote
6y
@DJ Dawson
Appreciate you sir!
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