All Forum Posts by: Jon Schwartz

Oscar, welcome!

Dig the new company! What camera do you use for your 3D tours? I might need services like yours in the near future!

I'm an investor and agent in Los Angeles. Happy to discuss some options for you at this point in your journey. PM me if you want to chat further.

Best,

Jon  

Marcos,

Thanks for supplying all the numbers. You have a fun problem to solve, and as I see it, you have some wildcards up your sleeve!

As a previous poster mentioned, you should definitely look into refinancing with a lower rate. This might reduce your $2300/month payment, providing you less stress and, hopefully, a little more left over with which to pay down your car and student debt.

I also agree with the previous poster who pointed out that rent in your area won't be much cheaper than the cost of ownership. Median rent for a 2/1 near you is currently $2200/month:

It looks like selling won't lower your cost of living, but it will pay off your debts and give you $90K to invest.

So here's what I'm thinking: I'm a believer that longterm appreciation is Socal builds more wealth than cashflow from cheaper markets. Do you have income from a job/career? You must to afford your mortgage payments. If that's the case, I wouldn't invest for cashflow; I'd invest for equity growth.

I think you should first explore househacking in Gardena. I'm househacking a duplex just below Hollywood. My family lives in the upstairs 3/3, and I rent out the downstairs 3/2. My cost of living is significantly lower than if I owned a house down the block; I'm even paying a lot less out-of-pocket than my tenants! And meanwhile, I'm gaining equity in principal paydown and longterm appreciation.

Your wildcard is your VA loan. I would like you to explore buying a multifamily property with no down payment and using your $90K to either A) renovate the building, B) negotiate a cash-for-keys with one or more tenants, or C) do both.

Simply investing in an owner-occupied duplex or triplex will lower your monthly cost of living while allowing you to build more equity. But if you force equity right off the bat with your proceeds from your home sale, then you'll really be cooking with gas!

Investing in LA isn't the same as investing in Midwestern or Southeastern markets. Our pricing and rent control makes this market unique. But you're in a position to take advantage of it!

What do you think? Am I making any sense to you?

Best,

Jon

Hey guys, how about we work on rebranding the "California Exodus" as the "California Takeover!"

The way I see it, with housing supply being so tight, the current net out-migration is a welcomed relief valve!

Plus, everywhere Californians are moving are turning more and more blue. If you Texans don't like our politics, you shouldn't make it so welcoming for us to move to your state! We're turning you purple....

I agree with John. I would forgive a portion of the rent due rather than change the rate moving forward. As a CA landlord, you have to be very protective of the rate. 

Jason,

You're asking all the right questions. As an Angelino who decided to invest in LA, lemme share some thoughts.

Firstly, I don't mean to sound like a Socal supremacist, but you really have to take advice from out-of-staters with a huge grain of salt. Midwesterners have no idea what the LA market is actually like. They look at our prices and rent control and think, "No way!" In reality, LA's pricing and rent control create incredible long-term investments. I would much rather hold a property in LA for ten years than in almost any other city in America (and other investors agree, which is why the pricing is what it is).

Also, before getting to the meat of it, I gotta tell you that my main goal is very much like yours: I've set a goal of "retiring" in 10 years and living off my rental portfolio (until I start pulling distributions from my retirement accounts, too). I've been maxing out my IRA accounts (I have a SEP IRA as an owner/sole employee of a C Corp) for the last four years, and now I'm focusing my savings on real estate.

So the first thing to state about the LA market is that it's expensive. If you can't afford a down payment in Los Angeles, there's no choice but to go out of state. That said, the median home price in LA right now is $794K, and the minimum down payment on such a home, owner-occupied, would be $28K. So if you have the funds to invest out-of-state, you have the funds to househack in LA -- and I think househacking in LA is a fantastic first move.

Why? Because LA's longterm annual appreciation rate is 6.3%. Even if you bank on half that, utilizing leverage, just househacking in LA is quite profitable.

The best approach for a neophyte (I hate the word "newb") investor in LA is to househack a fixer-upper, either a SFR or a duplex. For contrast, if you buy a fixer-upper in a Midwest market to turn into a rental, you might spend $30K on rehab and increase the value of the home by $40K. That's a $10K gain in equity -- woohoo! But if you buy a fixer in LA and spend $30K on the rehab, you'll likely increase the home's value by $60K or $80K. Because LA property is expensive, improving it creates more gain.

Personally, I chose to househack a duplex outside of Hollywood. I renovated the building before moving in to force some appreciation. Now my tenant pays most of the mortgage, I live for much less than I did before, and I'm building lots of equity for down the road. My plan is to build equity in LA for several more years before redeploying it in out-of-state, cashflowing assets.

Oh! And that reminds me of an important point about househacking in LA: you can't use the same metrics as Midwesterners! Househacks don't cashflow in LA, but that doesn't mean they're bad investments. Rent is SO HIGH in Los Angeles that if you can cut down your living expense significantly, you're way ahead. What's better for your bottom line: an investment in the Midwest that provides $300/month in cashflow or a duplex househack in LA that saves you $700/month in living expenses?

So let's answer some of your questions specifically now:

I "left" LA during my research phase in pursuit of a "more promising" market, but the math behind the numbers led me back to LA. I considered several promising markets in the Midwest and Southeast, even took a four-day trip to check out my favorite market at the time, Fayetteville, AR. But as Brandon Turner has said, "Cashflow gives you freedom, but appreciation gives you wealth." Since you're already earning a good income, I suggest you invest for wealth.

Luck securing an entry property... It's not luck, Jason! I do a couple of things to find properties that work: I use Census data to confirm my research into LA submarkets; when you're househacking, you want to live where you want to live, but it's good to have data backing your hunch as to what neighborhoods are appreciating faster. I keep several maps handy for that. I also run the numbers extensively, including modeling out projections for years down the road. I haven't found a good online calculator specifically for househacking, so I built my own and update it often.

Words of wisdom for finding a deal: believe it or not, if you're househacking in LA, there's no place better than the MLS. I'm on several wholesaler's email lists, the their offerings are really only appropriate for pro flippers. (I can't explain more if you'd like.) I also did a mailing of my own before finding my duplex on the MLS. I got a very good response rate, but because I was househacking, I was picky. Too picky. So for me, it's a numbers game. The task is to underwrite every listing in the area that you're considering. Run the numbers on everything to find a better "paper deals" -- that is, the few deals that actually make a lot of sense as an investment. Then dig deeper into those listings to find additional sources of equity creation, like: a garage that can be converted to an ADU down the road, a decrepit but easily improvable facade, a large 2-bedroom that could be converted to a 3-bedroom down the road, etc.

Where in LA do you live and work? What neighborhoods interest you here?

Best,

Jon

 Kenneth, I'm sorry, I misread your post. I thought you were somewhere outside of CA and saying that people are moving there all the time.

I mean, you have a point in that the data is a year old, and maybe the trend is skyrocketing upward. I just doubt it.

I live and work in LA, and I meet people from out-of-state. Shortly after the COVID shutdown started, I met a woman has had just moved from New York two days prior. I remember thinking, "Stay away from me!"

And I'm on my college's website for finding a mentor, so I talk to several kids a year who plan to move to Los Angeles after graduating to work in entertainment.

"I want to leave California because it's too expensive, but I want to stay because I make so much money." Classic! 

@Kenneth Burdick, where are you? What’s your area?

Best,

Jon

@Kenneth Burdick, that’s just my point! The actual Census numbers don’t support the idea of an exodus.

And the problem with your anecdotal evidence (and your realtor’s) is that it doesn’t consider the scale of the issue. It’s akin to saying, “Well, I’ve never seen evolution, so it can’t be true.”

Yes, in raw numbers, more people move out of (and into!) California than any other state. And yes, per capita, more people move out of California than out of 40 or so other states. But California isn’t even experiencing the most net out-migration of the 50 states! How in the world can that be an exodus?

Best,

Jon

Jackson,

Home prices in California are high and growing higher. I don't understand how that's possible in this environment, but there is absolutely no lack of demand for housing in CA. What we have a severe lack of supply.

Not as many people are leaving California as the internet or even your personal experience makes it seem. The biggest thing that you need to appreciate is the scale of California. 39.5M Americans live in California right now. The population of Austin is under 1M. So even if Austin feels inundates by Californians, it actually only takes a tiny fraction of Californians to create this impression.

When you look at Calfornia's net out-migration per capita, it's nothing crazy. In fact, per capital, more people are moving out of Alaska, Hawaii, New York, Illinois, Connecticut, Louisiana, and New Jersey than are moving out of California. Here's the full list:

https://en.wikipedia.org/wiki/...

So this isn't to to say that people *aren't* moving out of California. They are. It's just not the epidemic that the internet makes it out to be.

Plus, the places that are "plagued" by Californians are also close to California. East of Texas, what cities are griping about too many Californians? None?

So in conclusion: California is a huuuuuuge state, some people are moving out, and those that are moving out aren't moving too far. But the "exodus" is a lie.

Best,

Jon