Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
Hello all
I know this msg board has infinity wisdom but if i dig up the old posts on my question the answers might be different given the market has moved.
Ive been mulling over the idea of buying some rentals in the palmdale lancaster area
the thing i am having reservation about is the following: 1) i am not sure if cap rates north of 8 or 9 exist there, i was really trying to find some 10 caps so that the risk of vacancy or damage to property by tenants get covered.... DO 10 CAPS exist in this market anymore? Am i being too too optimistic in thinking that they should?
2) I know that the key to good tenants is screening screening screening and I actually have rentals in South LA etc so i am aware of the C markets but for those that are investors in the area...do you see a lot of damage in your rentals after the tenants move out? I have heard a lot of horror stories
My objective is to find some lower price point cash flowing rentals as I feel the LA market has matured and peaked quite significantly... my idea is that if i lose 10% on a 300k property mark to market (unrealized and potentially cover the note if i have to in a worse case scenario ) its not as bad as losing 10% on a 1,000,000 property mark to market (and potentially realized due to an inability to stay solvent if it remains unrented longer than i have reserve)
any feedback would be appreciated sorry if this post is in the wrong category
any palmdale lancaster los angeles county investors have any insight to this?
Yes, I have direct experience buy and hold real estate investing in Palmdale, Lancaster, and other part of Los Angeles county for the last 15 years. I agree with @Account Closed.
With regard to the OPs original question and plan, I would say there are some majorly flawed logic that I will illustrate with actual examples of properties I've owned. First, the thought that he will save himself from a downturn because it cash flows and because 10% of $300k is less than 10% of $1M does NOT jive with my experience. I owned property in class A Glendale CA and class C Lancaster CA. In 2006 at the top of the market, my Glendale CA property was worth $750k ... I know because I had it appraised as part of a refinance (no cash out, luckily). In 2012 at the bottom of the market it was worth $550k ... I know because I had it appraised as part of a refinance (cash out this time to reinvest, luckily). So, peak to trough $200k drop, but I did not sell then and that drop went away and then some. Now for Lancaster ... I purchased a property there for $96,500 in 2010, its market value I would estimate was around $140 at the time. That same house at the peak in 2006 was around $340k. So, they both dropped $200k ... but Lancaster drop was a wee bit higher on a percentage basis. If you go back to other recessions you will see similar volatility in the class A vs class C markets. Of course, this can be a good thing if you use this volatility as your friend as I did, but I'd bet that buy and hold in Lancaster today the volatility will not be your friend in the short to mid term, and doubt very much that cash flow would save you from such volatility, since it can be equally volatile as most tenants up there are 1 missed paycheck away from missing rent.
Now, as to profitability, I have made good money in both Lancaster and Glendale ... the rent to purchase price is much lower in Glendale than Lancaster, and yet the Glendale home has been much more profitable and infinitely fewer management headaches for me than the Lancaster property. Having said that, as you can tell from the above, there were difficult times along the way, and the thing that let me avoid the loss and capitalize on the volatility was the fact that I could afford to hold ... so, whatever an investor does, they should make sure they are on a solid financial foundation with their investment, and this goes well beyond just having cash flow ... if Lancaster CA is what you can reasonably afford, then look there, but do it because that is all you can afford rather than trying to convince yourself that it is less risky or more profitable, because that has not been my personal experience. IMO, you want to buy and hold in the AV after a crash ... feel free to flip there in the meantime if you are disciplined about your margins and timeline.
So, there you go Alex J, an investor with 15 years of direct experience in the exact markets you are referring to ...
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
10y
@Account Closed
cap rates help me on the surface see what type of relative value there is one pocket to another before jumping in a specific region and....the cap rate is a standard forumla noi/price...if i remember correctly youve asked me about this in a previous post as well and asked me to take it a step further and PROVE to you haha here is the link im ref
its just like me saying "where can i find the good pocket or value in general" every deal is unique and has its own set of numbers, I am just looking for things to compare one to another.
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
I'm consistent! Cap rate is a poor measure of profitability. All it is telling you is what the market, a particular market is paying for NOI. It's like asking how much per sf people are paying for properties.
The higher the cap rate the less demand for the NOI. Low demand generally means less profit.
You would be better measuring good deals by appreciation rate and rent growth.
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
10y
@Account Closed haha yes - that you are!
the reason i am looking at cap rates is because if eel a lot of the major metro markets in desirable areas such as los angeles nyc sf etc have matured and plateaued in the short term and I am now looking for cash flow positive properties in areas such as the outskirts of LA, and Houston tx...I obviously want appreciation as well but in terms of rental properties I am looking for cash flow, pay down, and grow.
IF i can find great deals in the desirable areas then i would obviously be going after that first but i think the short term appreciation game has run its course and i am "playing small" right now instead of going all in.
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
If you really think the LA market is frothy fine but cap rates are not going to tell you where profitable cash flow markets are. In fact it is more likely that you will be sold a 12% Cap NOI in a 14% Cap market just because that metric can be so easily manipulated and extremely hard to verify because it is not useful for the asset type you are looking for.
Rental Property Investor · Lancaster, CA · Member since 2015 · 25 posts · 6 votes
10y
prior to 2013 you could find 10 caps on the MLS here. Not anymore. Things are pretty competitive right now, and while you're still going to find much better caps in northern LA county than in the greater Los Angeles area, I think you're better off looking out of state. I've bought a couple deals here since 2013 that are cash flow positive, but they were rehabs and took a lot of work to find and negotiate.
any palmdale lancaster los angeles county investors have any insight to this?
Yes, I have direct experience buy and hold real estate investing in Palmdale, Lancaster, and other part of Los Angeles county for the last 15 years. I agree with @Account Closed.
With regard to the OPs original question and plan, I would say there are some majorly flawed logic that I will illustrate with actual examples of properties I've owned. First, the thought that he will save himself from a downturn because it cash flows and because 10% of $300k is less than 10% of $1M does NOT jive with my experience. I owned property in class A Glendale CA and class C Lancaster CA. In 2006 at the top of the market, my Glendale CA property was worth $750k ... I know because I had it appraised as part of a refinance (no cash out, luckily). In 2012 at the bottom of the market it was worth $550k ... I know because I had it appraised as part of a refinance (cash out this time to reinvest, luckily). So, peak to trough $200k drop, but I did not sell then and that drop went away and then some. Now for Lancaster ... I purchased a property there for $96,500 in 2010, its market value I would estimate was around $140 at the time. That same house at the peak in 2006 was around $340k. So, they both dropped $200k ... but Lancaster drop was a wee bit higher on a percentage basis. If you go back to other recessions you will see similar volatility in the class A vs class C markets. Of course, this can be a good thing if you use this volatility as your friend as I did, but I'd bet that buy and hold in Lancaster today the volatility will not be your friend in the short to mid term, and doubt very much that cash flow would save you from such volatility, since it can be equally volatile as most tenants up there are 1 missed paycheck away from missing rent.
Now, as to profitability, I have made good money in both Lancaster and Glendale ... the rent to purchase price is much lower in Glendale than Lancaster, and yet the Glendale home has been much more profitable and infinitely fewer management headaches for me than the Lancaster property. Having said that, as you can tell from the above, there were difficult times along the way, and the thing that let me avoid the loss and capitalize on the volatility was the fact that I could afford to hold ... so, whatever an investor does, they should make sure they are on a solid financial foundation with their investment, and this goes well beyond just having cash flow ... if Lancaster CA is what you can reasonably afford, then look there, but do it because that is all you can afford rather than trying to convince yourself that it is less risky or more profitable, because that has not been my personal experience. IMO, you want to buy and hold in the AV after a crash ... feel free to flip there in the meantime if you are disciplined about your margins and timeline.
So, there you go Alex J, an investor with 15 years of direct experience in the exact markets you are referring to ...
prior to 2013 you could find 10 caps on the MLS here. Not anymore. Things are pretty competitive right now, and while you're still going to find much better caps in northern LA county than in the greater Los Angeles area, I think you're better off looking out of state. I've bought a couple deals here since 2013 that are cash flow positive, but they were rehabs and took a lot of work to find and negotiate.
Negative ... been there, done that, too ... absolutely do NOT go out of state in search of cash flow ... of all the risks I've warned about in my previous post about chasing cash flow in state, you can pretty much double that for investing out of state. It is the riskiest and least profitable of the 3 options by far. Ask me how I know this.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
Because I did it. I bought rental property in Phoenix from SoCal. EPIC FAIL! I had 10 years of investing experience when I did it too, so I really should've known better, but got cocky because I thought I had this RE investment thing down since I had been successful at it in SoCal. Boy was I wrong. I went through 7 property managers in 5 years because I could not find an honest, competent one who wouldn't try to reach straight into my pockets and rip me off every chance they got, or be completely lazy in screening and managing tenants. 7 of them, so this wasn't just some one time I got unlucky isolated incident where there was one bad apple, they were ALL bad apples. Each time it costed me thousands before I figured that out. And all of that amazing cash flow that everybody touts with out of state investments ... let me just tell you how amazing the cash flow was. One year, I negative cash flowed on a property (not just over 1 month, but the whole year) that I owned outright (all cash, no mortgage). All of these amazing cash flowing properties exceeded the newbies beloved 2% rule at time of purchase, and you could afford B class properties back then in Phoenix that hit that rule, and I totaled it up the other day and think I made something like $5k in cash flow per property (~$50k each purchase price) over 5 years of ownership... that's not $5k each year, that is $5k total over the entire 5 years on properties with no mortgage. My saving graces were that I did not leverage up (they were in my SD IRA LLC) and I bought them in 2010-11 so I ended up doing well on appreciation (but definitely not cash flow). Do I want to hold these ticking time bombs through the next downturn though? F#$% no! I sold them this year while the market is hot. I would've gladly held them if they performed for me with the cash flow, but clearly that was not the case.
So, to summarize, buying in a market that you do not know well, where you will likely pay retail, where you will have to pay people to do everything for you, where you will be 100% dependant upon them to make your investment work and have your best interests at heart, and where you will essentially be powerless to quickly fix situations that go escew is NOT a sound investment strategy ... if I could not make it work after 10 years of investment experience to start followed by 5 more years of trying to make it work, then a newbie sure as heck should not even think about attempting it IMO. This is the real story from somebody who went through it and has nothing to sell you either way; it is the ugly truth that those that want to sell these products and tell you fairytales of how great it is and how everything is steady cash flow, puppy dogs & ice cream do not want you to hear. There are tons of great real estate investment opportunities all around you; stay local, learn to find them, and the world is your oyster.
Los Angeles, CA · Member since 2016 · 160 posts · 21 votes
10y
@David Faulkner I'm glad I ran into this thread because I'm thinking about buying some rental properties in Arizona right now. My brother and my CPA both live out there so I visit a couple times a year. I have some familiarity with the area which makes me more comfortable investing. I'm also based out of LA and am struggling with finding a property out here, which is why I'm turning to long distance. Anyways, you obviously you have a very bad experience with out of state investing. Is there anything you would have done differently in retrospect? I was wondering what you thought about this podcast which covers long distance investing:
@David Faulkner I'm glad I ran into this thread because I'm thinking about buying some rental properties in Arizona right now. My brother and my CPA both live out there so I visit a couple times a year. I have some familiarity with the area which makes me more comfortable investing. I'm also based out of LA and am struggling with finding a property out here, which is why I'm turning to long distance. Anyways, you obviously you have a very bad experience with out of state investing. Is there anything you would have done differently in retrospect? I was wondering what you thought about this podcast which covers long distance investing:
I didn't watch the whole podcast, but I saw enough ... I don't know why BP keeps putting newbies on their podcasts as if they are expert, experienced investors. BP forums are chocked full of real experts, and yet they instead choose to put forth their inexperienced buddies, and people that tell the audience what they want to hear, to stroke their own egos and maximize ad revenue on podcasts instead of giving their viewers the best educational resources available ... a real shame. In my view, any investor who has not successfully made it through at least 1 entire RE cycle is a newbie. This is NOT all about the number of transactions, but more about having the perspective of holding real estate over long durations, living as an investor through both a hot market and a cold market, witnessing first hand how their different investments behave, and thus learning how they can generate returns and hedge their risks in each part of the cycle. Only then do you get a real sense of how an investment will perform over the long term. Otherwise, those who have only invested the last few years having seen nothing but green pastures may have a skewed perspective. Those trying to sell you something may also have a skewed perspective :)
Real Estate Investor · Torrance, CA · Member since 2015 · 186 posts · 45 votes
10y
Alex J.
I have been treated very well by the AV area in terms of rentals. Would love to connect with you!
If you can find the right deal, and there are plenty out there, you will not have any trouble finding a renter. The nice part is that the rental market out there is so strong that you can be selective. With my first property out there, I had eleven applications within a week. This gave me the ability to be very picky.
Cheers!
David
Alex J.
I have been treated very well by the AV area in terms of rentals. Would love to connect with you!
If you can find the right deal, and there are plenty out there, you will not have any trouble finding a renter. The nice part is that the rental market out there is so strong that you can be selective. With my first property out there, I had eleven applications within a week. This gave me the ability to be very picky.
Cheers!
David
No arguments from me on that ... once I got my screening and management systems in place, most of the drama went away. West side, Central, or East side makes a lot of difference there in the AV. Even more detailed, down to which block you choose can matter a lot. It is therefore not a place where you can go in and randomly pick a property without serious familiarity with the area ... that tends to be true everywhere, though, to some extent. Also, as mentioned and having lived through it, you must make sure you are equipped to handle the downturns, because they do hammer the AV harder than other places in LA, and don't think for a second that cash flow alone will save you because most tenants there (except maybe high end west side) are one missed paycheck away from missing rent.
I may not be adding to my portfolio there at the moment, but I'm holding onto my AV stuff though ... my financial position on those is Ft Knox, it balances out my high end appreciation plays, and Aerospace should do well as we gear up for WWIII.
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
10y
Wow what an amazing set of replies great insight. Ok so, let's take a step back... regarding glendale vs Av ...look I am born in Glendale and know it very well it's not good for cash flow and arguably never has been unless it's very big money. It's an equity play or a flip play on the high end but your argument does make sense in terms of impact long run. The thing I like about glendale is there is no rent control but it's very much priced in the market
For cashflow with close proximity to la it's either going to be south la unicorporated or somewhere like AV where it's a C to B area that doesn't cost 700k for a duplex.
Regarding out of state investment. ....I have out of town rentals actually I live in Houston for the time being but about 8 out of my 10 properties are in Los angeles (a hand full of 4plex and a hand full of sfr) and two are in Houston (a duplex and my house). We (my father inlaw and i) have been involved since 2009 while both having full time careers outside of rei, so we have had a fair amount of unique issues and working out of state doesn't scare me but without the right team it's a very costly venture. If I built out the houston rei then end up back in la I fear I won't be as hands on and it will get neglected which is why I feel AV could be a better idea in the long run.
I'm very much a buy and hold or a buy add value and 1031 into more buy and holds. At this point I have the equity la plays as well as some good cashflow plays due to buying lucky but I am seeking some lifestyle engineering plays so cash flow deals are more appealing. plus I feel the appreaction game has run its course in major metro areas so investing for future appreciation is not a good idea at this point.
@David Faulkner great insight I might pm you for more info on locations if you don't mind
@David dye Sounds like my south la rentals...high demand and selective strick picking helps but we never know until the tenant moves in!
regarding glendale vs Av ...look I am born in Glendale and know it very well it's not good for cash flow and arguably never has been
What are you talking about, man? My Glendale property cash flowed like a freakin' freight train ... much, much better than my cash flow in the AV. Rent increases anyone?
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
10y
@David Faulkner really? im not talking about when you bot in 2009 2010 or whenever across a 15 year career... when comparing things you have to look at current opportunities to compare apples to apples right?
its not comparable when saying "glendales a cash cow i bot in 2010 ( or whenever ) and im getting like a 15 cap" when you appreciated into that opportunity via rent increase...
I was fortunate and got into echo park in 2010 in a 4plex that was vacant and the rents have exploded in the area its prob like a 20 cap cash flow for me based on buying lucky......at this point but it is not relevant. the entire LA market was an incredible opportunity in retrospect from 2009-2014 at this point now that things have made such a huge move... theres no point in talking about those great values you have now
My entire point of this discussion was to find value in areas that might have less downside risk due to price or type of tenant and protect me via better cashflow/caprate...AV is a big section 8 area and thats govt subsidized, during 2010 i never got shorted by the US Govt in payments even in the darkest times.
if you look at glendale now its about 700k for a house lets say and you will rent it for 3500 +- 700... IF the market pulls back significantly , glendale will lose money just like everywhere else even if on a % basis its not as much the out right dollar amount at this point could be much more because this time the AV hasnt appreciated as much from the bottom whereas glendale has exceeded those levels from past highs.. but it can be argued that in AV i buy 3 250k places and now i have diversification of tenants and will still get like 1500 a door for a comparable size house in glendale....Its MUCH harder to find a tenant to pay 3500+ in rent vs a tenant to pay 1500 in rent (esp if govt subsidized) ....not to say that there arent bad tenants everywhere im just saying if i look at things somewhat equal.
not to mention glendale is very likely reaching a point of overbuild with these mega projects all up and down brand / central blvd which could weaken rent prices or at least create a longer time to fill...anyway my point is that i am trying to make a prudent decision and mitigate all the risks as much as possible in order to make a good decision and hope this feedback has helped other readers as well... i am not really sold on AV which is why i wanted to have this discussion
@David Faulkner really? im not talking about when you bot in 2009 2010 or whenever across a 15 year career... when comparing things you have to look at current opportunities to compare apples to apples right?
its not comparable when saying "glendales a cash cow i bot in 2010 ( or whenever ) and im getting like a 15 cap" when you appreciated into that opportunity via rent increase...
I was fortunate and got into echo park in 2010 in a 4plex that was vacant and the rents have exploded in the area its prob like a 20 cap cash flow for me based on buying lucky......at this point but it is not relevant. the entire LA market was an incredible opportunity in retrospect from 2009-2014 at this point now that things have made such a huge move... theres no point in talking about those great values you have now
My entire point of this discussion was to find value in areas that might have less downside risk due to price or type of tenant and protect me via better cashflow/caprate...AV is a big section 8 area and thats govt subsidized, during 2010 i never got shorted by the US Govt in payments even in the darkest times.
if you look at glendale now its about 700k for a house lets say and you will rent it for 3500 +- 700... IF the market pulls back significantly , glendale will lose money just like everywhere else even if on a % basis its not as much the out right dollar amount at this point could be much more because this time the AV hasnt appreciated as much from the bottom whereas glendale has exceeded those levels from past highs.. but it can be argued that in AV i buy 3 250k places and now i have diversification of tenants and will still get like 1500 a door for a comparable size house in glendale....Its MUCH harder to find a tenant to pay 3500+ in rent vs a tenant to pay 1500 in rent (esp if govt subsidized) ....not to say that there arent bad tenants everywhere im just saying if i look at things somewhat equal.
not to mention glendale is very likely reaching a point of overbuild with these mega projects all up and down brand / central blvd which could weaken rent prices or at least create a longer time to fill...anyway my point is that i am trying to make a prudent decision and mitigate all the risks as much as possible in order to make a good decision and hope this feedback has helped other readers as well... i am not really sold on AV which is why i wanted to have this discussion
thanks for the feedback
Sounds like you got it all figured out. Not sure why I am wasting my time trying to give you advise nor why you would waste your time posting to ask for advice that you will not consider if it does not match what you have already made up in your mind ... you asked for advice from experienced investors who have direct experience in the markets you are considering and you got it ... do with it what you will ...
Investor · Tarzana CA and Houston, TX · Member since 2015 · 326 posts · 130 votes
10y
@david faulkner I appreciate your input, i was just pointing out glendale is a diff market then the area i was seeking info on and stating how its not a comparable market i am not saying that i have anything figured out - if i did, you are right, it would be a waste of my time to talk to anybody i should just be busy doing deals.
I am just explaining that when you mentioned i have flawed logic then proceeded with telling me an example about something incomparable. Riverside to Lancaster a lot of the subprime markets were overpriced in the boom because there was artificial demand and now those buyers are pretty much gone so the valuations now vs 10 years ago is a complete diff environment. investors buying and renting is a lot diff than somebody moving in with 0 income and causing demand to shoot up
Anyway again i am very thankful for your feedback and did find some value in it so dont take this the wrong way!
what parts of AV is reasonable to start researching? any particular pockets you like?
Professional · Palmdale, CA · Member since 2015 · 31 posts · 5 votes
10y
@Alex J. If you would like I can set you up on the local MLS to start sending you properties. I can also vet any property if you ever want to know if its in a good area or how much its worth. I Have lived in the AV my whole life so I know the area pretty well:-)
Investor · Palmdale, CA · Member since 2016 · 6 posts · 2 votes
10y
My family and I invest almost entirely in the AV. We know the area well, having lived here for 20+ years. Most of our properties are filled with great tenants- they rarely call, pay on time and keep a clean house. I have 2-3 that are chronically late in paying rent, but one is a Section 8 and the other two are people I should never have let rent based on income. I mostly look at properties in west Palmdale, although we do own some in east Palmdale. I would recommend staying away from east Lancaster. You can get high quality tenants here- engineers working in aerospace, military families, nurses, school teachers. Just screen and drive around the neighborhood and ask people who live in the neighborhood you're looking to invest in. Good luck!