Property Analysis BRRR Los Angeles

[Jamie Garcia]

Here's the breakdown... Purchased my 2nd property for $645K in an area of Northridge here in Los Angeles. Comps in the area are anywhere between $850k-2M. Beat out 15 other offers. Place needs a LOT of work but I can handle it. Put down 20% on the property. Really love the neighborhood as a house I can fix up amazingly and live in it myself with my future family, I'm 28. Considering putting in around $150K-200K in upgrades. Considering all I'm going to do to it, I'm a Contractor myself, I feel I could get it reappraised for anywhere around $1.2-1.5M. I'd love to then take that money out and re-invest in some more property, possibly a bigger multi-family.. Anyone in Los Angeles able to give me some advice and maybe answer some questions I might have as I continue to go forward with this? I'd appreciate any feedback! Best, Jamie

[P.J. Bremner]

@Jamie Garcia

The main issue that I see here is the price of loan you will be looking for. I used to originate mortgages and just remember how difficult and expensive it can be getting a loan over the Fannie/Freddy limit can be. Typically the limit is $417k but in certain areas that are very expensive, they will allow a higher limit. I just looked up a random address in Northridge and looks like the limit there is $625,500 for a 1 unit dwelling. What this means is if the property is worth $1 billion dollars, you can only take a loan of $625,500 and stay within Fannie Mae guidelines. If you go for a jumbo loan, you can get more out (possibly, jumbo cash-out has their own guidelines but the LTV are generally not very generous and the rates are much higher). Another alternative would be a HELOC to tap the equity above and beyond the $625,500, but the guidelines will be dependent upon the HELOC company.

I am in a similar boat as you, no family yet but planning that route.  My personal strategy is to keep my costs as low as I can until I need to move my kids into a good neighborhood with great schools.  They don't go to school until 5 - 6 years old, and I have none on the way as of yet so I have another 6 - 7 years before I need to drop that kind of cash on a personal home.  I own 4 homes, but rent my current residence.  Had I bought my "family home", I would have tied up hundreds of thousands of dollars in equity that I could have used elsewhere.  I would not have been able to buy these rentals or start my eCommerce empire.  A personal home is a poor investment (strictly speaking from a business perspective) as you can achieve the same results (a roof over your head) for MUCH less cash and monthly cash flow.

Just my personal opinion, but fix the place up and sell it (maybe wait the 2 full years so you don't have to pay taxes on the gains) and reinvest it elsewhere.  The money you make from those investments can fund your future home purchase.  If you aren't confident in your ability to invest the money and earn a good return, then keep the house.  My gut says you know what you're doing though.  Not many 28-year-olds can plop down $150k to buy a house haha i'm you got this :)