All Forum Posts by: Jon Schwartz

@Joseph P Finkelstein, I'm up in LA, but I'm curious what you mean when you say you started working with a multifamily firm? A brokerage? A property management company?

Thanks!

Jon

Paging @Jonathan Taylor... 

Adolfo,

Welcome to the party!

First off, thanks for making an intelligent post. I feel like a lot of posts in these forums are basically, "Hi, how do I make money in real estate?" Your post, on the hand, is more like, "Hi, here are my circumstances, here are some options I'm considering, what do you think?" You're going to get much better feedback from the community this way.

I'm going to give you some forcefully opinionated advice: you should absolutely buy a fourplex in Greater LA and live in one of the units. Let me explain why.

You're in a powerful buying position: good savings, no debt, and excellent credit. Given this, I'm assuming you have a decent job. Perhaps you want to escape the 9-5, but having salaried income is a huge asset when you're first acquiring properties. So, difficult though it may be, don't quit your day job just yet!

 Instead, continue to live on that income and buy a local fourplex for the appreciation play -- not just organic appreciation, but forced appreciation, too.

As an owner-occupant, your lending options will be better. You're eligible for a smaller down payment on your investment, and your rate will be slightly better.

So buy a fourplex, move into the worst unit, and start renovating it. As soon as another unit opens, renovate it. Every month, your cost of living will be lower, your debt on the property will be lower, the value of the property will be higher, and your balance sheet will be that much improved.

In several years, you should have an asset on your hands worth considerably more than you paid for it. That's when you refinance or 1031 exchange to grow your portfolio -- and I'd say that's when you can start thinking about cashflow. If you don't need the cashflow right now (and it sounds like you don't), you'll do better by building equity in a market like Los Angeles than chasing cashflow (at the cost of equity/appreciation) out-of-state.

Timing-wise, I'd say wait. The market is really confusing right now. Most big analytics firms are now projecting an increase in home prices next year, so I'm probably wrong in my prognostications. That said, I look at the unemployment numbers and underlying reality of our situation, and I see more economic fallout coming after the Presidential election. I don't think this is a moment to be in a rush, I really don't.

FYI, I'm househacking a duplex in LA  now. I *wish* I could be househacking a fourplex, but I have a wife and a kid, so we needed a 3/2 and I couldn't find a fourplex with anything larger than 2/1's. I also *wish* I had bought a duplex or larger when I bought my first home at age 28. Bravo to you for pursuing this path!

Where in LA would you look to househack a fourplex?

Best,

Jon

Schuyler, as my CA colleagues above have eloquently pointed out, a negative-cashflow househack is not a bad thing in CA. It's about the only way to househack here!

I'm househacking a duplex in a great neighborhood in Los Angeles. It's cashflow negative while I live here, but I'm paying much less to live in my 3-bed/3-bath unit than it would it cost to own or rent a comparable home, I'm getting principal paydown every month, and I'm benefit from the appreciation on a large asset.

As I see it, your goal should be to buy a duplex that will cashflow when you move out. Find a duplex with a unit that needs work. Move into that unit and fix it up on your own schedule. In a year or two, move out and rent the newly renovated unit at top dollar. If you're ambitious enough, refinance and repeat!

All the best,

Jon
 

 Mitchell, you're right about the split. If you represent yourself in the transaction, as the buyer's agent, you'll get half the commission. So you'll get 2.5% or 3% of the sale price back at closing.

I'm about to take my CA real estate exam, so here's a rundown of the quickest/cheapest way to get your license:

You're required to take three, 45-hour classes. I bought an online program that cost around $400. I got mailed textbooks and took online exams. I'd say each class actually took up 20 hours of time. So, $400 plus 60 hours of time to qualify for the exam.

Once you complete the classes, you can apply to take the exam. The exam in extremely backlogged. The wait is something like 4-6 months now in Socal. The exam and license together cost $305.

Once you're an agent, the cheapest brokerage options are these zero-guidance online brokerages that only charge a fee, $500 at the lowest, when you close the transaction. If you join a brokerage that provides any amount of help with the paperwork, etc., you'll end up having to give them 33% or 50% of your first commission, as well as costs up front for training, etc.

So, at the very cheapest, you're looking at $1200 or so plus 60-80 hours of work. What purchase price are you targeting? Will it be worth the cost for that 2.5% or 3% rebate?

Best,

Jon

Oscar,

CA state law allows for eviction for a substantial renovation, qualified as a renovation requiring a month or more of vacancy. (I'm not a lawyer, please check with one!)

Termite tenting and re-roofing definitely don't take a month.

For the roof, you can probably do the work while the tenants inhabit the building.

For the termite tenting, you can put your tenants in a hotel for 2-3 nights. It'll add to the cost, but you'll be able to get the work done!

Good luck!

Best,

Jon

 Brandon, I don't disagree with anything you're saying. I totally agree with you that rapid population growth changes places like Boise and Spokane in real, material ways. And it's worth talking about, but framing theconversion as "why is everybody leaving California?" starts the wrong conversation.

Look at it this way: Louisiana has more per-capital net out migration than California (source here), but you don't see any stories about the great Louisiana exodus. You probably don't see as many migrants from Louisiana in the Pacific Northwest and Idaho; I'm guessing people leave Louisiana for closer high-growth markets in Texas and Georgia. Pointing to wildfires in CA and predicting massive population growth elsewhere is, I think, confusing correlation with causation.

That's my 3 cent on top of the other two!

All the best,

Jon

Dude, you got this sh*t figured out. You didn't need the forums!

My analysis would look at the opportunity cost of waiting to buy that duplex or triplex. For example, if you can get into a duplex in January 2021 that reduces your living expenses by $1000/month, then your opportunity cost of *not* buying it is the $8000 or what-have-you until you pay of your debt. Does that compute with you? Have you looked at the situation in this light?

Best,

Jon

 Jesse, I have to point out one fact that gets overlooked: CA is HUGE. 1 in 8 Americans lives in CA. So any area in America experiencing population growth is going to see a lot of Californians.

I think of Boise, ID, where I hear anecdotally from friends that the city is flooded with Californians. Boise has a population of 228K. Californians birth twice as many people a year!

So a lot of people moving into anywhere will be from CA. The actual net out migration rate from CA to other states is under 0.5%, so as of yet, the much-hyped "California exodus" isn't a thing. And I wouldn't hold my breath for it, either!

Best,

Jon

Tim, take Katie's recommendations! She hooked me up big time!