I agree. Interesting article. L.A. Will always be unique from other large metros. It bucks the trend, app many subcultures and ethnicities, the suburbs will not be going away.
Counter on yours - http://la.curbed.com/archives/2015/08/la_county_is...
so...it seems it least affordable place to buy as well.
Your question is one heck of a hairy subject but at the same time it’s one I’ve grown to love.
Least affordable? That's what I'm told however, "affordable" has to be examined through the lens of variables too numerous to list in their entirety.
LA for the most part is a mature market and so to really “do LA” we have to be 360 degrees creative (numbers included) and see what others essentially may not be looking for. Easy to say, hard to do.
Affordable = can you see yourself living in that particular neighborhood for at least a year (till you move out and rent the whole dang place at “worthwhile rates”)?
Affordable = Will your mortgage be covered by incoming rents?
Affordable = If you wait to buy (ala your quote) will you really be able to buy a place after you’re really and truly “priced out”?
You get my drift. So the question is can you afford NOT to own, if owning is within grasp?
I was lucky in the sense that before I purchased a duplex in LA, I hadn't joined Bigger pockets otherwise I might have been discouraged by all the screams of “LA is WAY TOO EXPENSIVE”. Let’s not even get started on the 2% rule which drove me Totally Bonkers AFTER I had purchased. Fortuately, the duplex was a total rehab and so zero work save for a few tweaks here and there were needed. A heads up for you too btw. ;-)
Pre duplex, I went through intense despair as I hunted for an SFR. I was brought to my knees by the prices of SFRs in gentrifying neighborhoods like Highland Park and Leimert Park. And then through sheer necessity and a loving patient wife who was waiting in the wings probably thinking to herself "Duuuudeâ¦. We need to do something!!!, I stumbled on the idea of going the duplex route with the plan of back tracking to an SFR later (IF) we had to.
Without becoming a blowhard, fast forward a period of hard knocks (a very necessary process in any worthwhile endeavor), I’ll say this. During my stressing over where to buy I gradually discovered through sheer desperation, that Real Estate can be the ultimate creative space in terms of problem solving. Or at least it can be one of them. Now I've seen the proverbial light. Nothing will stop you when you see the light btw.
Once again variables kick into gear. Do you mind doing your own property management? Do we (you and I) have similar "what could be" visions when we look at the same property? And we have the stomach to go through with said plans. What do we want and how much sweat equity are we willing to input into the equation to make it happen? For instance in LA, an SFR in the right location can yield MFR numbers. I have heard and met people who are doing so, but I have yet to test this myself and so let's talk when I do.
All this is to say that essentially, you have to tune out all the “LA is too expensive” baying and gnashing of teeth. And this is especially so when folks who don’t live here are doing the shouting. Your tactical advantage is that you live here. You have to get to know your target neighborhoods - intimately. YES IT'S HARD WORK. I just went to see a property that I forgot I'd seen before. Yikes. And in some cases, gasp, YES you can cash flow in LA without causing your better half to leave you.
Creative techniques asideâ¦. at the very least, armed with an FHA or a first time home owner 5% down and some seriously wise choices (location, choice of type of purchsse IE Duplex, SFR in the "right" place) you can do some serious damage! The glass is half full for the City of Los Angeles.
Don’t get side tracked by all the fancy number crunching. The equation is simple. Is your new purchase going to be relatively repair free for at least the 1st 5 years (hello inspection)? If you rent out all the spaces within this domicle, will you be able to cover your mortgage? If the answer is yes, you’re seriously on your way.
Find a potential neighborhood that matches your wallet and the "preferred ambience" you can tolerate while your investment percolates. [ Ambience is on a sliding scale btw :-) ]
And so in closing, like the rock song from the 80s that goes “What do you wanna do with the rest of your life”?
Your answer presumably is….
I WANNA ROOOCK! ;-)
Great opinion! Just want to clarify - i share the article as interesting reading based on the article you share.
I personally see the current situation from different angle - it will continue to get worse unless there are changes in public policy that incentives more development...that being sad i strongly belief that LA marker will continue to grow int he next 3-5 years. (Silicon Beach, Olympic games, still resonance interest rate and etc).
Also i agree that the "things" are way more complex to analysis that just put a fact or two together.
I think is clear enough for everyone that LA market has a lot advantages but also some disadvantages. You pay always (most of the time) premium price because you are competing with not only local people, but people all over the US and even more, people all over the world. To find a property and buy it on 70% ARV - rehab cost - close to mission impossible....2% rule? I would be happy to see 1% rule, which most probably would not going to happened. GRM bellow 8...or 10? not going to happened...
FHA and 5% down...well...it easy to save the down-payment, however in order to get approved for 750k FHA property you probably need to make 120k/year salary and "things" goes on...
Button line - Yes, LA market is one of the best and i strongly belie in that. It's just to an easy market to step in and it's defiantly not "no/low money" market.
There can be only one way to find this out for sure and it is to actually do it which I'm in the middle of doing and so...
I'm going to bookmark this conversation. In 3 years, we'll revisit it. ;-)
Sounds good :)
Looking a the chart in the article, the issue may be more that incomes have stagnated rather than rents have climbed.
RE: Stagnating incomes.
This is what makes this all so fascinating, interesting and challenging if of course, one accepts "the mission"... next to impossible (as some may say) ;-)
For what it's worth, this is what I think about all this.
The thing is, I believe there are pockets in and around this city and (other cities, I'm sure) where maybe because of a business or social service enterprise etc rents in these pockets can "defy" or thrive in spite of "stagnated incomes" that you pointed out. And in each situation, these pockets have to be approached on a case by case basis and so the investor has to formulate a unique plan of attack that is part common sense and part what the target area is "saying" to the investor. Yes, the investor has to be able to "read" these pockets and call on whatever vision or wits or experience.... to decide whether to move on a property in that pocket or not.
This process of deduction is a hugely creative endeavor - as in to see what other's may not or can't see. I also submit that it's every bit as creative or even more creative than the number crunching that follows after one identifies a possible target. Numbers are crunchable whether in high rent or low rent neighborhoods. What can't be crunched is reading the tea leaves to see if the environment (unique businesses to support rentals etc) moving forward offers the sustainability that a investor needs to see returns off said investments.
I hope that made sense.
The only "issue" is the "reading" factor. It's all based on assumption, not facts. The facts are within the numbers. You make money when you buy, not when you sell. And when you buy, the only true facts are the numbers at the given moment...
Yes, if you want to play with the risk, and you can afford the risk - California and LA it's probably the best market to play with. It's just not the market for people who do not have money or/and stable income, simply because they can not afford the risk. Many of the "strategies" and "games" discuss here in Bigger-pockets are not applicable for LA.
This is actually something for all us to think, regarding the next bubble...who creates the bubble ? Not the experience investors and company who knows how to play with the risk and afford to lose, but us, ordinary people who invest based on assumption and false believes...
This is one of my favorite quotes:“Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.”
I love your point about assumption.
This issue of “assumption” was the same question posed to me by my better half (bless her heart)! My argument: calculated risk is part of any endeavor, and so long as the investor has done their due diligence and so long as we have done everything to make sure we don’t take a bath that would drown us -- we (us) needed to take the next steps. Needless to say, that wasn’t good enough.
You make money when you buy. YES. It’s true. Finding and targeting a suitable property within “budget” should be of paramount importance. Of course! But BEFORE the purchase, whatever assumptions that exist must be somehow proofed (by existing or non existing methods) to see if these may indeed be facts masquerading as “assumptions” or vice versa. And oftentimes, as I’ve found out there is no ONE formula for deducing these assumptions. Now mind you, depending on what area of real estate you may be working in, “assumptions” can be a few variables to hundreds of them. I should also say that because of the swirling conditions (economic and social) that surround real estate 24/7, today’s fact could well become tomorrow’s assumption.
I may be crazy but here goes.
Re: THE assumption that either “sinks or swims” the ship. Can you keep this property filled without taking a bath? As I mentioned in my earlier post different geographic areas within my city are subject to different subtle forces that essentially attract or repel QUALIFIED potential target renters. Move a mile out of said target area and the forces (rent-ability that should sustain your particular target purchase) dissipates.
I spent weeks trying to get a handle on the question of “how does one make sure that THIS PARTICULAR potential purchase doesn’t become an albatross that sinks the proverbial ship”? In my case the answer was quite simple. The highly motivated seller allowed me to post a “Coming soon/Subject to…” ad to gauge interest in my target area. Without giving away too much of what is an ongoing process of discovery, this gave me greater clarity - could I keep the property filled at the right price that enabled the investment to pay for itself?
I realize this is “unorthodox” but it worked for me this one time. No two situations are alike as you know. The pressure of trying NOT to get the “assumptions” wrong is what spurred this solution.
Either way for my sanity and most importantly, motivation, I have to believe that there are certain conditions that are almost unique to a cosmopolitan city like the City of Angels. Will these conditions stay the same? It’s my job to know even when I don’t know. Ha.
Perilous? Possibly. Exciting? Yes.
And as for the bubble….? That’s another discussion in and of itself. ;-)
And as for throwing away money? That's not an option.
I hope this sheds a little light on this band aid filled journey through RE…
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