All Forum Posts by: Jon Schwartz

Veronica,

I'd investigate Torrance listings first; Torrance has a nice old downtown that's adorable.

Harbor City isn't much to look at, though there is a Whole Foods there now!

Multifamilies in San Pedro might be a touch dicey, but it's an excellent long-term investment. Everybody is waiting for San Pedro to get expensive. It's the last piece of California coast left.

Overall, though, all of the neighborhoods you mention are just fine for rentals, are "middle of the road" at worst! If you head north and get near the 105, or head inland and get near the 110 -- that's where you'll find neighborhoods in such ill shape that you're exposing yourself to a potentially difficult tenant base.

Good luck!

Jon

Chris,

I'd love to see that data! Please share links!

I do invest in California, and I feel like the data that most out-of-staters reference isn't viewed in the context of California's incredibly large population.

For example, Californians make up 11.9% of the US population. In contrast, Arizonians make up 2.2% of the US population. So even if there was no population change whatsoever amongst the states, you'd expect about 5.5x more one-way trips out of CA than AZ, and you'd expect U-Haul to price them about 5.5x more expensively.

Additionally, a 70% uptick in move-outs from Los Angeles might not mean much. Los Angeles is surrounded by other (relatively large) cities, and the population of LA County is just over 10,000,000. LA County has 38% more people than the entire state of Arizona. Everybody I know who's moving out of LA isn't going far; they're moving to Pasadena mostly, as well as Malibu, Glendale, the beach cities -- a myriad of places that aren't LA proper and aren't as crowded, but are literally just over the municipal border. As you can imagine, all of this resettling in other parts of the county is creating a ton of property tax revenue.

Fun bonus fact: most people moving from there home in CA are moving to a new home in CA! The minority of CA movers move to another state.

All the best,

Jon

Veronica,

LA investor and house-hacker here.

Are you talking about buying and living in the multifamily? That's what I'm doing: house-hacking a duplex for a couple of years before moving into the forever home. I'm in a similar situation, similar joint income, similar aspiration for a forever home that would basically bankrupt us!

If your timeline is at least 2-3 years before buying the forever home, I think it's a great idea. In that time, market rents will grow faster than expenses, so your property is likely to cashflow when yo move out. You can then keep the property and open a HELOC for additional down-payment funds on the forever home, or sell the property when you move. Because of rent control, multifamily properties with vacant units sell for more here. You'll get top dollar for a duplex with one unit as near-market rent and the other unit vacant.

Plus, the cost of living in LA is so high, that if you rent or buy a starter home, your housing cost will be in the thousands. You'll save money in the meantime by house-hacking a duplex, triplex, or fourplex.

Good luck!

Best,

Jon 

@Brian Davila, I'd love to join!

Jerome,

I'm a realtor who works almost exclusively with house hackers, and this is the million-dollar question.

Long story short: you're $#!T out of luck.

The eviction moratorium is just that. Not a single eviction is being processed. I have a friend waiting for the courts to open again so he can move forward on a no-fault Ellis Act eviction. Nothing to do with COVID, but it doesn't matter. There is simply no eviction happening.

One option is to make an offer contingent on full vacancy. This is incredibly unlikely to work.

Another option is to make an offer that explicitly allows you to approach the current tenants to begin negotiating buy-outs (ie, cash-for-keys). If you can't get both tenants onboard by the end of your inspection period, you can walk away from the deal. This is risky and expensive, and there's a specific process that must be followed when negotiating buy-outs.

The last option is to hunt for fully vacant properties. Are you working with an agent? I've found that private agent remarks on MLS listings, which you won't see on Redfin or Zillow, sometimes have additional information about units being delivered vacant. Why some agents don't release this information publicly is beyond me!

Good luck!

Jon

Austin,

Renting the rumpus room -- and I'm going to start calling it a "recreation room" because I believe that's the more formal lingo -- is most likely not legal because it's most likely not permitted for occupancy.

My last home had a permitted, free-standing recreation room with a half bath in the back yard. It was fully permitted, but not permitted for occupancy. I would assume that's the case with the rec room at this property.

You have to make sure that the rec room is permitted for occupancy -- which I believe means having a separate certificate of occupancy. If it's not currently permitted for occupancy, you'd need to get it permitted as an ADU to make renting it legal. If the construction was permitted to begin with and performed in the last few years, than the structure should already be to current code, which is required for ADU permitting.

Any lawyers here able to weigh in on the tenant in the rec room? Even if the space isn't legal, the tenant has CA tenants' rights. In general, though, if you do successfully evict a tenant, the only way to get back rent is to sue and collect. Suing isn't hard, but collecting back rent sure is!

Regarding the room in the front house rented as a studio -- it does seem equivalent to renting a room in a house, though I wonder if there are any code or safety violations broken by blocking the door. Probably not, as the rented room as its own exit.

Good luck!

Jon

Arya,

I would look into the feasibility of house hacking an SFR or duplex in your area and with your budget.

While a house hack won't cashflow, it can significantly reduce your cost of living, which is one of the biggest hurdles for us Californians in having enough capital to invest (as well as the financial freedom to take risks).

I have a spreadsheet for analyzing house hack deals; happy to share it with you!

Best,

Jon 

Marcus,

LA duplex house-hacker here. Isn't this the eternal question for Angelinos getting started?

The first consideration is whether or not you need current income. If you're looking to quit your day job and live on cashflow, then you should definitely go out-of-state. However, if you have a job/career that you'll be sticking with for sometime, and you have the capital to get in the game, you should stay in LA. You'll build more wealth from coastal appreciation than Midwest cashflow. My plan is to build equity in LA for the next several years while I'm still happily in my career, then start selling off LA assets to pickup cashflowing properties elsewhere in the country.

Let's also look at rough numbers:

If you bought $230K worth of real estate in OK or some similar market, what kind of cash-on-cash return would be achievable? I'd guess around 10%, give or take. That comes out to $1917/month cashflow. If you use that money just to pay your rent, it effectively drops your LA housing cost to $1483/month.

If you bought an LA duplex, $230K is just enough to buy, for example, this listing:

https://www.redfin.com/CA/Los-...

I love this area below Mid Wilshire; it's rapidly gaining value as high prices are driving people further south toward the 10. Since the Lowes opened at Pico and San Vicente, this area has been on a constant and upward trajectory.

This property is great because one unit is currently vacant, so you don't have to deal with tenant relocation. And the rented unit is getting market rent!

Numbers-wise, your net monthly cost with this property would be about $3100. However, of that, $1582 is going toward principal paydown, which boosts your net worth. So in effect, house hacking this duplex is like paying $1518/month in rent. I got these numbers using a spreadsheet I built when I house hacked my duplex; happy to share it with you.

That's a way of doing a comparison between an apple and an orange: investing in OK would reduce your effective rent to $1483/month while investing in LA would reduce your effective rent to $1518/month.

(Admittedly, this is very much an apples/oranges comparison, but I find it helpful to distill the numbers down in this way to get something of a comparison point.)

So investing in OK will benefit you $35/month more in your cost of living. I'd argue that riding LA appreciation is worth a lot more than $35/month -- especially if you plan to hold, especially in this neighborhood south of Mid Wilshire.

All the best,

Jon

@Justin Mlekus, I’ve really enjoyed using cozy.co!

Good luck!

Jon

@Michael Fisher, awesome!!!