All Forum Posts by: Jon Schwartz

Malia,

Fellow Angelino and film-industry type here. Until COVID shut down feature production, my day job was editing movies. I had a ten-year plan to develop a portfolio that would replace my income, and COVID has simply accelerated my journey.

I'm a big fan of house hacking, but you've annunciated the prime reason not to: despite LA's exorbitant rents, you're paying a good rate. One thing to consider, though, is buying a duplex. No roommates, and you still get the longterm benefits of principal paydown and appreciation.

I'm also keeping my capital in LA because I believe coastal appreciation is going to build more wealth in the next 5-10 years than Midwest cashflow. It looks like you're still working in costuming; if you don't need cashflow now, I'd say you should focus on equity growth and appreciation gains. A few years down the road, sell your LA assets and 1031 into cashflowing assets in other markets; that's my plan in a nutshell.

LA is crazy expensive, but C neighborhoods in LA are a little more affordable. I was recently until contract on a $320K duplex just south of downtown (but we bailed because the building needs a new foundation). These neighborhoods are a little sketchy, but guess what? Those 1%-rule properties in Cleveland and Memphis are ALSO in sketchy neighborhoods! If you're doing to invest in C-class neighborhoods, I'd rather invest in local C-class neighborhoods where I have a much better understanding of gentrification patterns (ie, the path of progress).

And if South LA is still out of reach, I recommend considering an acquisition in Columbus, OH. I've done a lot of research into out-of-state markets, and I've found that Columbus is excellent in terms of population growth, job growth, and price point. I've also found a great realtor in Columbus; message me if you'd like a referral.

All the best!

Jon

@Jason Gettler, your plan is well thought-out and totally doable.

I'm sure there's a sweet spot of properties that don't have enough margin for a flipper but do have any margin for your business plan.

You definitely need to target fixers so that your ARV can incorporate improvements to the main house. ADUs don't appraise well, so you'll need that extra juice from the house's improvements.

I love your plan. I have your number. I'm call you tomorrow!

Best,

Jon

Amy,

I'm a house hacker and agent in Los Angeles. I live with my family in a duplex just below Hollywood, and I help my clients find great multifamily properties to house hack.

As far as your partnership with your mom is concerned, I'd avoid creating a new entity. As mentioned above, forming an LLC with incur an annual $800 fee and create a lot more paperwork come tax time.

Instead, you two should take ownership as tenants-in-common (TIC). With a TIC deed, you'll each own 50% of the property. You can collect rent and pay expenses through a personal bank account, and then all you have to worry about come tax time is tallying up income and expenses.

 For a CPA, I highly recommend mine: Akore Berliner at: www.whodoesyourtaxes.com

She's in San Diego, and she's excellent. She hooked up me with a great firm that does logarithmic cost segregation analyses. She can explain all the details, but in short, this is how you reap a ton of upfront depreciation and avoid paying taxes on your rental income for years, if ever.

Best,

Jon

@James Taylor, www.nolo.com is a fantastic resource. They have the best book on being a CA landlord, as well as forms.

Mark,

One more possibility to consider:

AirBnb is severely restricted in LA. A person can only rent part of their primary residence.

What's funny is that a lot of homeowners have built rental units into their homes over the years. I see a lot of single-family homes with non-permitted units -- often just a bedroom, bathroom, and kitchenette with a side entrance.

These properties provide a great opportunity for house hacking! Because the rental unit was never permitted as its own unit, it's still part of the primary residence. So you can rent it on AirBnb! With fewer AirBnBs in the city, hosts are able to charge great rates.

So another strategy would be to buy a single-family home with a non-permitted rental unit to rent short-term on AirBnB. You can put 5% down with a conventional loan, which will be more attractive to sellers.

Best,

Jon

Mark,

Rents are low for longterm tenants because of LA rent control, which has capped annual rent increases at 3% or 4% per year for the last decade. There's no vacancy control, though, so vacant apartments are renovated and offered at market rents. Hence, you'll find a $3K/month townhome renting down the block from a $1000/month townhome.

Rent control and rent levels play into the buying strategy here. You might find an excellent building at a great price -- the catch being that current rents are very low. It's a complicated landscape, but it makes for some great opportunities.

Google "Los Angeles RSO" to learn about our municipal rent control. I'm also happy to connect on the phone and give you a quick lay of the land.

If you're aiming for a monthly net out-of-pocket of $2500, there are definitely duplex options that will work between Culver City and downtown. As mentioned above, it's a mix of neighborhoods in that swath of LA. Moving from west to east: Culver City is fantastic and expensive; West Adams is gentrifying and hit-or-miss; I love Mid City and Arlington Heights for their growth prospects; Pico Union and Westlake are very hit-or-miss, but are also expected to see a lot of appreciation over the next five years.

The FHA loan might be a problem. LA is a very competitive market, and sellers prefer conventional loans with higher down payments. If you must go FHA, you're likely limiting your pool to properties that don't sell in the first two weeks. You'll definitely need to be handy to take on these projects! And with the eviction moratorium likely in place next summer, your pool is further reduce to properties with a vacancy.

So in the abstract, yes, you should absolutely house hack while you're here. According to the FHFA quarterly price index, the median annual appreciation rate over a five-year hold in LA County is 6.7% (happy to share my research on this). You'll build a lot of equity in principal paydown and appreciation over five years. In practice, though, your FHA loan is going to make finding a property harder.

Best,

Jon

I recommend my CPA Akore. Her website is: www.whodoesyourtaxes.com

Thank you, @Su Pak!

Thanks, @Erin Colantuono!

Adryna,

This isn't a matter for title insurance. Title insurance protects you in the event there's a lien or claim on the title. That's not the case here.

I would call a real estate attorney today. As the buyer, you should have looked into the permitting history of the building. I'm an agent, and it takes me 2 minutes to look up an LA property on ZIMAS and LA DBS Records System to ascertain if the units are properly permitted. If they're not, I flag the issue for my buyer clients and raise it right away with the listing agent.

If the listing agent indicated that the units are permitted, he may have committed fraud. Even your agent may have liability in this matter. You should 100% consult with a lawyer about a case against both agents for damages.

If the units are non-permitted, the City will likely require you to bring them up to code or demo them. Whichever route you take, you can sue the agents for damages to cover the cost. Like I said, call a real estate attorney today!

Good luck!

Jon