House Hack Multi-Family in LA or NJ?

18 Replies

I'm looking to make my first real estate investment using an FHA loan, and wondering whether Los Angeles or New Jersey (Central) would be a better investment. I will be eventually locating to Los Angeles but have concerns about investing there first given high taxes, high insurance (wildfires), and housing legislation. Does it make sense to start in NJ first (where i currently am) or in LA where the rental market is strong?

Also - Looking to connect with agents in both locations. 

Thanks!

Hey @Shawn Blake sounds like a great strategy in whichever market you choose to go with. I have some friends in LA who are currently house hacking and they are having great success. You may or may not know this but with an FHA loan, the property must be owner occupied for a year so deciding to house hack in LA is going to extend the beginning of your investing journey if you're okay with that.

I am not too sure of the market in New Jersey, but I still feel that a property in LA is a better long term investment in terms of appreciation and desirability. Even with mass exodus in CA's major cities lately, people will always prefer LA winters over New Jersey ones. It's just the way it goes.

I doubt anyone will give you a straight up "Go this way" answer because it all depends on your ultimate goals, ability to finance a deal, ability to even find a good deal, and many other factors. The market is red hot in CA so patience has proven to be my greatest asset in acquiring my deals. 

Good luck!

Originally posted by @Shawn Blake :

I'm looking to make my first real estate investment using an FHA loan, and wondering whether Los Angeles or New Jersey (Central) would be a better investment. I will be eventually locating to Los Angeles but have concerns about investing there first given high taxes, high insurance (wildfires), and housing legislation. Does it make sense to start in NJ first (where i currently am) or in LA where the rental market is strong?

Also - Looking to connect with agents in both locations. 

Thanks!

Shawn,

My vote's for LA, though I wouldn't fault you for choosing Central NJ. Lemme clear up some misconceptions and share some opinions that might help you decide:

Income taxes in California are high, but property taxes in California are low. CA investors are shocked when they buy buildings in TX and see how high the property taxes are! In Los Angeles, the property tax rate is 1.27%, and thanks to state law, the amount of tax you pay can't increase more than 2%/year. You should check with your local county in NJ as to A) the rate of property taxes and B) how often and in what manner property taxes are reassessed. I'm 90% sure you'll end up ahead in LA.

Also, when you move to LA, your income from your NJ property will be taxes as CA income. Unfortunately, you won't be able to escape CA income taxes once you move here regardless of where your property is.

Insurance in LA isn't more expensive; in fact, it's less expensive. Wildfires happen outside of LA, so I don't think we're paying more insurance inside LA as a result of CA's wildfires. Also, because so much of the price of buildings in LA is the land, the insurance, which only covers buildings, is relatively smaller. For example, I lived in a $1M home with an $800/yr insurance bill. Why? Because the home had an estimated rebuilt cost of only $300K. The land it sat on was the lionshare of the value!

Housing legislation is a b*tch, and that might be the reason to invest in NJ. We have pretty strict rent control, but it actually doesn't apply to single-family homes, and there are loopholes to take advantage of if you're househacking a multifamily. What's the rent-control climate in NJ? If you want to talk specifics of LA, I'm happy to chat more about that!

The big plus for LA, I think, is the appreciation here. I don't know exactly where in Central NJ you'd be looking to invest, but there's almost always a handful of submarkets in LA that are really exploding. A well-position purchase here could grow in value significantly over time.

Good luck!

Best,

Jon

 

Both markets seem a little high to me. If you are house hacking by the room it could work. Duplex or more might not make sense with the higher mortgage. Just a heads up. Appreciation in those markets could be great.

Originally posted by @Shawn Blake :

I'm looking to make my first real estate investment using an FHA loan, and wondering whether Los Angeles or New Jersey (Central) would be a better investment. I will be eventually locating to Los Angeles but have concerns about investing there first given high taxes, high insurance (wildfires), and housing legislation. Does it make sense to start in NJ first (where i currently am) or in LA where the rental market is strong?

Also - Looking to connect with agents in both locations. 

Thanks!

 Shawn, have a made a decision? Are you think west coast or east cost?

Best,

Jon

Originally posted by @Shawn Blake :

I'm looking to make my first real estate investment using an FHA loan, and wondering whether Los Angeles or New Jersey (Central) would be a better investment. I will be eventually locating to Los Angeles but have concerns about investing there first given high taxes, high insurance (wildfires), and housing legislation. Does it make sense to start in NJ first (where i currently am) or in LA where the rental market is strong?

Also - Looking to connect with agents in both locations. 

Thanks!

I am not familiar with NJ market but I have house hack since 2015 in Los Angeles County, from 300k to over 1m house price range.  The property price here can be very high that house hacking may not even make sense on some property over certain price point.

You are right Shawn:

1. High taxes, many have HoA + Mello Ross on top of usual property tax.

2. High insurance, and it keeps increasing every year.

3. Regulations that favor tenants over landlord.

I do not know when you are moving to LA but I started my house hack on my first property where I was very close to my full time job. No speculation, basically just got the house that I can afford with my job, then house hack my way out of it. And yeah you going to need a great agent who have your best interest in mind. He/she can help you get the property that you can afford and make sense to house hack.

Originally posted by @Shawn Blake :

@Hengky Lim appreciate your candor Hengky! Finding the right is key. Any areas maybe outside the LA area you recommend? San Diego?

 Shawn,

To me, outskirt of LA areas probably like Antelope Valley, Palmdale, Santa Clarita Valley, and San Bernardino.  Some sources mentioned Chico, Irvine, Santa Clarita, Ontario, Oroville, Roseville, and Chula Vista. Most data is not very accurate given changes due to pandemic.

I personally looking for deals outside LA, outside California now. I am anticipating changes in taxation, housing regulations, and high entry price.  Personally looking at out of state property like in Nevada, Arizona, Texas.

You may want to target a few cities, do some research on it, and talk to local agents to see if it fit your criteria.

Hey @Shawn Blake if you go with CA, my advice would be to use the FHA 203k loan and get a "tweener". You won't be able to compete with flippers here as we have one of the most competitive markets in the country. A tweener would be something between turn-key and a fixer. Maybe someone's rental property that they want to sell. If you get a single family, check into getting creative and maybe add an accessory dwelling unit by converting the garage to an apartment. We have seen that this generally gives us an added 100k plus in value and costs about 50k to do. Not sure the 203k loan allows for that but there are other financing options available to do that if you have decent credit. The ADU would also offset your mortgage payment as we see rents in the Los Angeles area of about $1500 per month for the small unit. I would be very careful buying in CA though as I think we are due for a correction. Might not happen for a year if interest rates stay low but its inevitable at some point in the near future. Keep in mind that rural areas tend to get hit harder in a correction. Hope this helps.

Sam

@Hengky Lim

You mentioned Roseville (Sacramento suburb). I can’t comment much on the other areas, but I have lived in Rosevile for 25 years. The market has been pretty crazy this quarter. The whole Sacramento region has sold more homes this quarter in 2020 then the same quarter last year in 2019. However, there had been less than half the inventory. Inventory is as low as 20 days in some areas.

Anyway, I’m local in Roseville and have a fair amount of insight. I was a police officer here before I got into real estate and my wife also worked for the city and did work on the different Mello-Roos districts.

Happy to help if anybody has questions!

Hey @Shawn Blake I just moved from the New Brunswick to LA in June. What's your general price range? I feel property taxes here are in line, maybe slightly lower than Jersey as a whole. If your range is high enough, I would definitely go with the FHA 203K suggestion and aim for a 3-4 family somewhere in the West LA area. between Sawtelle and Culver City seemed to be nice areas and pretty centralized to everywhere important in LA. I forget the website, but I would definitely check to make sure the property is outside the rent controlled areas like previous poster mentioned.

Originally posted by @Samuel Weaver :

Hey @Shawn Blake if you go with CA, my advice would be to use the FHA 203k loan and get a "tweener". You won't be able to compete with flippers here as we have one of the most competitive markets in the country. A tweener would be something between turn-key and a fixer. Maybe someone's rental property that they want to sell. If you get a single family, check into getting creative and maybe add an accessory dwelling unit by converting the garage to an apartment. We have seen that this generally gives us an added 100k plus in value and costs about 50k to do. Not sure the 203k loan allows for that but there are other financing options available to do that if you have decent credit. The ADU would also offset your mortgage payment as we see rents in the Los Angeles area of about $1500 per month for the small unit. I would be very careful buying in CA though as I think we are due for a correction. Might not happen for a year if interest rates stay low but its inevitable at some point in the near future. Keep in mind that rural areas tend to get hit harder in a correction. Hope this helps.

Sam

Your ADU numbers are the opposite what I have been seeing and hearing about in the appraisals. A hands off ADU garage conversion that costs maybe $80k is getting maybe half that value reflected in the appraisal. My initial protege had this issue early this year.

I have not heard of an ADU getting an appraised value above the hands off construction costs. Note the hands off part of the statement. Investors willing to do some of the work themselves can reduce the price significantly. Realize it is work and takes time.

ADUs help cash flow, but they are not typically a great candidate for a value add.  

@Dan Heuschele Then buy a place with the ADU already converted or am I missing something?

Why the heck would anyone want to live in New Jersey?  Its New Jersey for crying out loud!  Just kidding the only thing I know about NJ is the Jersey Shore.  That being said sunshine sounds pretty good about February and a wise man once wrote a song saying he “wished they all could be California girls.”

Good luck man,

Originally posted by @Eric Bilderback :

@Dan Heuschele Then buy a place with the ADU already converted or am I missing something?

Why the heck would anyone want to live in New Jersey?  Its New Jersey for crying out loud!  Just kidding the only thing I know about NJ is the Jersey Shore.  That being said sunshine sounds pretty good about February and a wise man once wrote a song saying he “wished they all could be California girls.”

Good luck man,

You are not missing something. It is less expensive to buy a property with an ADU than to buy a property then add the ADU. If the property is in someway unique, then you may not be able to find one with the ADU. For most properties, the better financial move is to buy a property with an existing ADU.

@Shawn Blake Greatly appreciate all the information being shared. Sounds like CA is attractive for appreciation, but a good house hack opportunity likely harder to find. Also sounds like I might find better deals outside the immediate LA area. Rent control seems to be another huge issue as I imagine a lot of du/tr-plexes on the market might be grandfathered in with this rent benefit.

This might be a shot in the dark, but is anyone familiar with NACA? I'm considering obtaining a mortgage through them due to their "no money down" benefit. I'd have less equity in the beginning but can benefit from paying little to nothing in rent (in CA!) / keeping my reserves high. Currently weighing benefits of this option vs FHA/203b loans. Still need a trustworthy agent who's investment savvy.

Thank you all

Shawn

Hi @Shawn Blake ,I hope you are making good progress looking for your first investment opportunity!? Me and my wife are new on BiggerPockets.I just wanted to offer you my help here in the LA Metro Area if you need an Agent that has your best interest. I am a Realtor/Investor/Rehabber and I have clients from all over LA.I know the Area very well and specialize in helping clients with their relocation process, either moving to or leaving LA! Me and my family live in the Valencia, Santa Clarita area which is a suburb Area north of LA near Magic Mountain park. Schools are rated 10 here and we remodeled a town home that we want to rent out at a later point.We got it for a great deal and rehabbed it. Love to connect with people on this platform and help wherever I can,finding good deals together in CA or other states.We are looking to invest in Foreclosures, Auctions and Bank REO's as they pop up more now as well and maybe even partner up with other investors if it all makes sense!

Feel free to reach out!

Thanks Michael

@Shawn Blake I am a commercial broker in Downtown LA. This is a phenomenal market and is going to have the best long-term appreciation. There are some pitfalls to residential leasing because of recent legislation - but the right screening and PM team can help you avoid this. DM me if you'd like to share more about your requirement.