All Forum Posts by: Jon Schwartz

 Angeli,

Tenant non-payment is definitely an issue because the eviction moratorium is in place until Jan 31, 2021. So a few things are important when pursuing a property now:

Firslty, you want to get the last six month's payment history for the property, and then you want to verify it with bank documents. If the tenants have been paying this entire time, they're unlikely to suddenly stop because there's a new owner. Tenant who have continued to pay rent have maintained they jobs or care too much about their credit to take advantage of the situation or both.

Secondly, you want to go into the deal with additional reserves. If you househacked this property and moved into the lowest-rent unit, you'd be collecting about $6000/month from the other units. You might want to have 6 months, or $36K, in reserves to cover any unpaid rent that might occur. If all tenants have been paying rent, you might only need 3-4 months reserves. Having reserves insulates you against the risk of non-payment.

I've made a spreadsheet that I called "The Househacker Calculator." Enter the basic info, and the spreadsheet auto-populates the rest with a pro forma and a longterm projection. Here's what the results for this property look like:

Given the price and current rents, I think this is a really good candidate for a househack!

Best,

Jon

Diana, when you're considering how much property you can afford, but down payment percentage are you using?

It's traditional to put 20% down, but when you buy a duplex and have rental income coming in, you might be able to put just 10% down and still have a totally manageable monthly cost. That'll free up funds for renovations.

I've put together a spreadsheet to run this math, happy to share it with you!

Best,

Jon 

Jerry,

You'll have to check your local zoning ordinances regarding converting an SFR into a duplex, triplex, or fourplex. Here in LA, each parcel of land is zoned for a specific use: single-family, low-density multifamily, high-density multifamily, commercial, industrial, etc. You can't convert a building's use contrary to how the parcel is zoned.

If such is the case where you live, you might actually be able to create a deal by finding a single-family home on a parcel zoned for multifamily use!

FYI, most municipalities or counties have online zoning maps, usually called the GIS system. "GIS" stands of "geographical information system." Google you city or county name and "GIS" and you'll probably find it. LA's is called ZIMAS, and it's awesome.

The other reason not to convert a SFR into a duplex is cost, of course.

Best,

Jon

Jerry, I have heard that having a non-occupant co-applicant on the loan affects the minimum down payment on an FHA loan.

Here's a video about it:

https://www.youtube.com/watch?v=Bn8ZB8lAoPo&feature=youtu.be

This might cause a crinkle in your plan.

Good luck!

Jon 

Michael,

Welcome to the nerdy, obsessive world of BP!

Fellow LA investor and editor here. I edit movies and TV, mostly streaming stuff for Netflix now. I started in advertising at a commercial house in Santa Monica, but I fled when I was about your age and became an apprentice editor in the Union. I suffered the burnout, pushed through, worked my way up, and now invest to slowly transition out. I enjoy the work, but I have a 2yo daughter now, so if I can spend less time at my bay, I will!

Congrats on getting up and running like a boss! I have one more book recommendation for you:

https://www.amazon.com/Every-E...

This book is all about the numbers -- but I promise it's digestible. It's important to have your head wrapped about the numbers, especially in LA where a lot more wealth is built in equity/appreciation than in cashflow.

It's great that you're meeting with an agent friend, though I must ask: if your friend an investor? You're going to get a much different, perhaps not-so-helpful viewpoint from an agent who just sells houses to retail clients.

Best,

Jon

 Pablo,

An early welcome to LA! It's an interesting and complex real estate market out here. Rent control laws and a huge diversity of submarkets make LA difficult, but very rewarding with the right amount of research and diligence.

I think you'll be in a great position to househack a fourplex if you're planning to enter the market in the second half of 2021. Right now, the eviction moratorium both A) makes it difficult to estimate cashflows in the near term and B) makes it potentially difficult to move into a fourplex if it involves relocating a tenant. This is allowed under LA rent control, but if the tenant refuses to move out, you have to go through the eviction process -- and evictions of any kind are still on hold. Come mid-2021, the eviction moratorium should be lifted, the backlog should be worked through the court system, and we'll have our normal processes in place again.

More importantly, though, a lot of investors out here are anticipating price declines in 2021. The eviction moratorium's expiration will create an increase in vacancy, and the expiration of forbearance programs in April 2021 will force some owners (of multifamily, not just SFRs) to sell. Put these together, and you get lower valuations across the board. Nobody's predicting a crash, but more like a 10-15% dip. (And none of us has a crystal ball, of course!)

A commenter above asked if you'd really get a better IRR in LA. If you enter the market during next year's softness, I think you will. Real estate is slow-moving and cyclical, and LA peaked late last year/early this year. Next year is the time to jump in.

As far as your options go, if you're serious about LA, I think you need to sell the Nashville properties. Reason being: LA is expensive.

If you cash-out refi at 75% LTV on both Nashville properties, how much capital will that produce?

If you sell both properties and come to LA with $115K, you'll be able to put 10% down plus closing costs on a $1M property, roughly. You're gonna need that money if you plan to buy and live in a fourplex. Finding a $1M fourplex in a decent neighborhood is really tough out here. You might have to settle for a triplex. (And really, duplexes -- including the one I'm househacking right now -- go for well over $1M is really good neighborhoods!)

(Side note: a friend of mine bought a $1M fourplex in a gentrifying neighborhood called Highland Park in 2017 or 2918. He had to fix the foundation and replace part of the exterior stucco. Anyway, now he's getting something like $2500/unit, all 1-beds. LA is a tough, expensive market -- but there's a lot of reward!)

There are a few pockets in LA where inexpensive submarkets border more expensive markets, so you can find a great opportunity in a slightly rougher patch two blocks from a great area. And if you're targeting an area like this, there are some great loan programs sponsored by the government to help you.

I'm a nerd for the LA market; shoot me a message if you have more questions. I'd love to download everything I know so you have a reasonable expectation of what to expect out here.

All the best!

Jon

 Mayank,

If the goal is to smooth out the ups and downs of the entertainment biz, then cashflow is for sure a priority!

Lexington, KY offers some compelling opportunities. It's a generally well-off city with a very poor, quickly gentrifying core. Check our Rebuilt Investments.

I also really like Columbus, OH. Great agent out there named Remington Lyman. The best I've met in terms of working with out-of-state investors.

Best,

Jon

Mayank,

Welcome, buddy! How're you enjoying this heat?

 Firstly, here's my favorite book for understanding the numbers behind this whole thing of investing in real estate:

https://www.amazon.com/dp/B018...

100% no fluff, all knowledge.

Between understanding the math and listening to personal stories on the BP podcasts, I think you'll start developing a strong foundation. When a question comes up, ask it here!

Also search "LA real estate" on meetup.com and start attending some virtual meetings. They're great for learning the lingo, understanding different processes, and meeting people.

As far a buying out-of-state while renting in LA, I was in a similar quandary when I first discovered BP. After a year of researching markets, including a four-day trip to Fayetteville, AR, I decided to househack in LA. All other things being equal, appreciation in high-appreciation markets builds more wealth over time than cashflow in cashflowing markets.

The caveat is that you need income from something other than your real estate. I'm a TV and film editor (we're industry bros!) and support myself just fine from that. For me, real estate investing is a ten-year program to replace my income. I mathed it out, and I think I'm better off riding LA appreciation for most of those ten years and then trading my LA assets for cashflowing properties in the Southeast closer to year ten.

You're right about the high LA price points, though. A duplex on Melrose ain't cheap! It's possible to get into a duplex with an FHA loan and only 3.5% down, but the monthly cost of that mortgage will prevent you from moving out anytime soon and cashflowing. It really depends on your specific situation. Message me if you'd like to chat more; I'm a nerd for this stuff!

Best,

Jon

 Interesting...

You're probably right if you're trying to go from 0 to 60 using real estate as your primary income.

I think REI works best if you already have an income and has a long time horizon. It's like that saying that people overestimate what they can achieve in a year and underestimate what they can achieve in a decade. If you have income and educate yourself about what separates a solid buy from an average (not to mention stupid) buy, you get really change the trajectory of your life and be somewhere you didn't expect in ten years.

Nate, statistically you're right as far as Americans go. CA suffers from a net outflow migration to the other 49 states.

However, more people from the rest of the world move into California each year than Californians move out into the rest of the US. So our total/global net migration is positive.

The other drive of population growth in California is births. More Americans are born in California each year than in any other state.

Best,

Jon