All Forum Posts by: Billy D.

@Sara Furlong,

First off...sorry for misspelling your name on the first post!   Looking at this other property's basic numbers, it does seem to have some potential. Definitely worth a further look.  I think you had said you originally that you wanted to house hack (owner-occupy one of the units).  Is there currently an owner-occupied unit, or all they all rented?  If they are rented, you'll want to check the existing lease agreements to see how long the current occupants get to stay in the unit you'd be interested in living in.  Good Luck!  Let us know how it goes.

Sarah, If Im not sure if you mentioned if you planned to make a full price offer or not, and how competitive the situation might be? If they won't consider dropping the purchase price by the repair, you could consider putting the $ amount for the repair into your purchase price (increase by the repair amount) and then request that the seller do a repair credit. Sometimes, the seller will accept this and it can be effective. Yes, your down pmt will be a bit higher and yes your monthly pmt will be a bit higher, but it prevents that $15k for the repair from coming out of your pocket. Note, this might not work if you plan to use FHA, so you'd have to check. It also might not work if it messed with the comps analysis for the lender. But Its worth checking on.

Originally posted by @Jacob Pereira:

@Billy D., @Mario F.

I wouldn't recommend even loosely basing any kind of rental calculation on Zillow. I haven't seen anything that's 3-4x off yet, but I do own a property where their rental estimate is 2.8x lower than what I'm currently getting, and I'm planning on increasing rents when the leases become due. Your average realtor can generate a realistic report that will show you exactly what you need to know in five minutes; ask one.

 @jacob pereira, I agree that Zillow isn't a consistently reliable source of prevailing rental rates (nor property value, in many cases).  Your advice of sitting down with a realtor is sound.  

If those numbers do work out, I'd say yes it's worth thorough analysis. But, of course you have to do the homework to verify. I noticed on the Zillow page that it said the potential rent was about $400/ mo. I know Zillow can be off, but not sure it's going to be 3 -4x off. If you are serious about PHX, spend some time getting to know the folks on the local PHX forums to see if you can build a team.

Yep, live close to CalArts. Valencia is almost as tough as many other parts of LA. Great place to raise a family, newer construction, safe, etc, means full price in most cases. But, like other folks said, there are deals to be had everywhere. It's just how, when and where you look. Let me say I know nothing about PHX or condo investments, but the rental condo in PHX you spied doesn't quite make the 1% rule based on the rough numbers you gave. Depending on the real numbers you get from it after you've done your due diligence, it might be better, worse or same. The keys are: does it meet your investment return goals, is there sufficient margin of safety in the deal to protect against a downturn or other unknown, and does it compare well to other possible investments you can make.

Originally posted by @Mario F.:

@Billy D. Thanks for your input!  What you're saying is making a lot of sense the more I begin to wrap my mind around the concept of real estate investing. Seems like we don't have a choice but to look outside of Los Angeles until the next big downturn happens. I have family in Phoenix and Chicago, which are two cities that seem to have lots of potential for cash flow. I like Phoenix because of the newer developments which would be low maintenance.  I'm also curious about Lancaster though. It's not too far from LA. The prices are within range and so I'm wondering if there might be an upward trend in coming years.  What do you think?

I wouldn't say that you have to look outside So Cal, but you may find investment properties in other markets that offer a return on your capital in line with your expectations (whatever your expectations are), while having a bit less potential volatility than our local market.   

If  you are going to look in markets outside of LA, I love the idea of looking in places you have a natural connection to like CHI/PHX, where you have family.  It could make things easier.  Family might know a great broker, or contractor, and they should be able to help understand neighborhoods.

I'd guess that a new(er) construction purchase will be be harder to create a deal around that makes sense financially, even if it's a multi-unit.  New construction usually equals lots of buyer competition, which can drive up the cost and lower the potential return.  A place that requires some elbow grease reduces the potential pool of suitors, and probably offers greater returns with improvement.

Lancaster / Palmdale is a place that a number of the LA "pros" are doing some business in (BTW, you might want to listen to BP podcast #181 w/ Lauren Hardy as the guest...there are a few nuggets in there for those of us in LA).  I don't know if that means anything about where the market in Lancaster is going.  I suspect it has more to do with return on capital today.  But, Lancaster and Palmdale home values were hit harder than many other So Cal areas in the last downturn, so be cognizant of that as you look there.  It doesn't mean that it will happen the next time around for sure, but it could.

@Mario F., I'll give my two cents as someone (also a beginner) who is looking here in So Cal as well as in other markets.  Like others stated, it seems to me that it depends some on what your goals are.  Right now, buy n hold (w/ certain safety) betting solely on appreciation is a bit tough in So Cal unless you have sufficient equity and cash reserves from the start to protect yourself in the event of a downturn.  I certainly have no idea if a downturn is coming anytime soon, but with how well our local market has done over the last several years, our margin of safety isn't great.  Of course, if you can find a great property at a 20-30% discount to its actual market value (easier said than done), you might have a real winner on your hands.  Long term, I wouldn't bet against So Cal.

Cashflowing properties in So Cal aren't easy to come by, but they are out there.  Of course, to find them, it also probably requires a great deal of bird-dogging and a willingness to refurb on the front end.

If you decided to flip, and maybe have an advantage or two (say, you've got solid refurb skills) there is probably less risk of a downturn impacting your investment.  Of course, flips can make you a boat-load of money, but can also burn thru your cash.

All that said, I continue to look in my general area (I figure if I'm gonna find something local, it will be someplace where I know), but I've also begun to expand my efforts in outside markets.  That's because I'm interested in cash flow.   I've begun looking in many of the usual metros you've probably seen others talk about (Indianapolis, Milwaukee, Columbus, etc) for cash flow.  Looking outside your market invariably comes with its own challenges, but assuming you can build the relationships required for a great team, there are some solid cash flow properties out there.  They almost certainly don't have the upside that a So Cal property would have, but they likely don't have the downside risk a So Cal property would have either.