My Financial Snapshot - What Would You Do?

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My Financial Snapshot - What Would You Do?

Daniel Whitmore
Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

How does one decide how much capital to invest in their first deal? What percentage of your total assets should go towards a down payment for deal #1? I feel I should plan for the worst and be as conservative as possible.

While I’m hesitant to share a summary of my financial position, this question has been burning inside me and I’m eager for some feedback from seasoned RE investors. Perhaps I’m the only person who can truly answer this one and perhaps I need to do my due diligence crunching the numbers but as I newbie I really don’t trust myself. Any feedback would be greatly appreciated. Here is a quick snapshot:

-37 years old

-Reside in Los Angeles

-Self-employed freelancer (I.e. inconsistent income)

-Currently focused on investing locally in a duplex or SFR w/ ADU.

-I need positive cash flow in the short term

Financial Position as follows:

$25K Cash/Savings

$15K Index funds

$70K Stocks

$40K IRA

$45K Gift from Grandparents for first down payment

$195K Total Assets

If you were in my shoes, and your total income last year was a meager $40K, living in one of the most expensive markets in the country, what percentage of your total assets would you set aside for your first deal?

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Tanner Marsey
Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
7y

Your income isn’t going to go far in LA or anywhere in so cal. You stated that you need current cash flow.... not the market for that. At least not when talking about single family for even small multi. Look out of state for cash flow.

Or another investment vehicle entirely.

Option 2... house hack. Be happy paying far less than market rate to live. Cutting your expenses by 1k/month is better than 1k of cashflow a month. Allows for saving. Allows you to learn how being a landlord works. Get tax benefits and build equity. I know people on here talk about it a lot but I think a a lot of people miss just how beneficial this could be. And you’re in the perfect situation to do this.

Good luck, man.

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  • Daniel Whitmore
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
    7y

    @Darius Ogloza thank you, sir. I think this is very wise advice to ensure I don’t put myself in a difficult financial situation.

    0Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y
    Originally posted by @Daniel Whitmore:

    @Tanner Marsey thanks for your insights. I agree with your points. House hacking is exactly my goal. Not sure if you are referring to house hacking a SFR specifically. My focus has been a duplex as a straight forward first deal with the goal of positive cash flow. But to your point, finding one in LA with my financial position is going to be very difficult. Positive cash flow will be even harder to achieve. Based on all the comments here that is abundantly clear.

    I now need to identify a market where I can successfully find a duplex or SFR under $200K and house hack. I'm looking at SLC, AZ, KY, ATL, TN. I have family in some and potential job opportunities in others. If you have any market recommendations, I'd love to hear them.

     I’m currently looking at KY and TN as well as quite a few other markets.

    200k will get you properties in a large part of the country. But think about what getting a 200k duplex is going to do for you... thats a lot of sacrifice for a very little pay off. Just my two cents. 

    0Reply
  • Daniel Whitmore
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
    7y

    @Tanner Marsey thank you for the quick reply. Are you recommending I find something for much cheaper so that I’m not tying up a large percentage of my total assets?

    0Reply
  • Rhonda Willock
    Real Estate Broker · Vacaville, CA · Member since 2017 · 12 posts · 4 votes
    7y

    @Daniel Whitmore

    Hi, and thanks for sharing, that probably wasn’t easy to do putting that all out there.

    It seems to me you are doing great and are going to do even better very soon.

    I live in California too and I understand the price of our properties can be daunting and I worry too about how much of our assets to put in the game.

    I'm not sure of your entire situation but I wonder if you couldn't do some form of a house hack with a 2-4 unit property or, and this is even more extreme but very do-able, an SFR where you live in the master but rent out rooms.

    If you live in the property for just two years, even if you rent parts of it out (other unit is it other rooms) the tax advantages can be astounding when you sell.

    Real estate is so exciting and the sky is the limit! I wish you all the best.

    Kind regards,

    Rhonda

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  • Josh C.Pro Member
    Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
    7y

    @Daniel Whitmore

    Don’t let the tax man rule your life. 40k income in LA sounds like lots of roommates and lots of pasta. With 70k in stocks (let’s say your gain was a very aggressive 50k) that’s only $7,500 in tax liability. You could and should make more than that delivering avocado toast or whatever you guys eat out there on the side. Hard work and higher income cures most issues. House hacking could also save expenses and build wealth if you can qualify for a loan.

    Good luck and you are thinking in the right direction which is half the battle!

    1Reply
  • Shivam Patel
    Member since 2018 · 16 posts · 4 votes
    7y
    Pay off student loans before real estate investing?
    0Reply
  • Account Closed
    Rental Property Investor · Belgium, WI · Member since 2015 · 53 posts · 54 votes
    7y

    Learn as much as you can, and have a plan! Whether that's making due with your current resources or to save for a future goal. Get out and meet people!

    I'm a bit slow myself, but taking action will get you farther than than agonizing over details and not taking steps forward. Lots of the BP podcast guests started with little, they also took action.

    0Reply
  • Jeff C.
    Pasadena, CA · Member since 2019 · 10 posts · 4 votes
    7y

    Fellow SoCal resident (Pasadena) here!

    Just wanted to drop a line of encouragement.

    My situation sounds a fair bit more stable, but even in my case I am looking to invest out-of-state. There is a lot to be said for the Los Angeles standard of living (particularly the weather!), but it's exceedingly difficult to make a return in real estate here. And to the extent that happens, it is as an appreciation play - which could be dangerous, given the timing of the market.

    Would you be willing to invest out-of-state? The south and mid-west - think Ohio, Indiana, Pennsylvania, Tennessee, etc. - be an option? Those seem like the sorts of places to go for consistent cash-flow (and where I am focusing my attention).

    0Reply
  • Eric Elijah Tell
    Los Angeles, CA · Member since 2016 · 6 posts · 4 votes
    7y

    Daniel, if someone doesn't work in Television, they might not understand your position.  I'm an Editor in L.A. so I totally get it.  My advice is to either purchase out of state as other have suggested, or keep stacking your cash and growing your career. If you're not already a member of your union guild, I would join ASAP and focus on that as much as possible because your income can quickly double and then you'd be in a much better position to purchase in Los Angeles (or anywhere else for that matter).  

    As for getting loans here, local banks and credit unions understand multiple W2s (especially when the come from Cast & Crew or EP) and inconsistent work in your field because Television is the largest industry here. Talk to someone at your bank and begin to form a relationship there so that you can find out what they'll be looking for from you.  Also talk to your union about what banks might be best to work with and DEFINITELY go to First Entertainment Credit Union if you haven't already.  Maybe the best way to do it if you have your heart set on starting in L.A. is to house hack.  Check out Naca.com to find a good deal on a loan for your own home and see if you can get a duplex/triplex/quadraplex.  Good Luck!  Take what I say with a grain of salt as I'm a slow learner and just finally decided to purchase out of state after nearly 6 years of trying in Los Angeles.  Looking to close on my first property in Oklahoma in July.  

    2Reply
  • Sarah Fulton
    Real Estate Broker · Ardmore, OK · Member since 2019 · 17 posts · 27 votes
    7y

    @Eric Elijah Tell Congrats on investing on your first Oklahoma property! It’s a really stable market with good returns on rentals. We have quite a few out of state investors, mostly Californians for some reason.

    0Reply
  • Eric Elijah Tell
    Los Angeles, CA · Member since 2016 · 6 posts · 4 votes
    7y

    @Sarah Fulton Probably because you can make good money here in California, but it doesn't go very far.  You can make 70k/year  and still live paycheck to paycheck.  But that means that if you make just little bit more, your yearly bonus or 2 year savings can buy a home in Oklahoma without a mortgage.  It's a great way to get started.  Like I said, I'm a slow learner.  I'll eventually get something here in Los Angeles, but for now, I'm fine with going out of state.  

    1Reply
  • Alyssa Dyer
    Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
    7y

    @Eric Elijah Tell I've had people say these price points can't be real. Are they inhabitable? HAHA they don't even need rehab!! Welcome to Oklahoma, the land of EXTREMELY low-cost living!  

    1Reply
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