All Forum Posts by: Jon Schwartz

Las Vegas is a solid market! I'd keep a close watch on it in the coming year as COVID works itself out. I'm sure there's opportunity to be had!

Rehabbing can be pricey, but if you're smart about it, the equity you build in the property will be more than the cost of the rehab. And some flippers do duplexes, meaning you can totally find move-in ready duplexes on the market. As for neighborhoods, there are duplexes everywhere. I sure wouldn't mind living in this duplex in Beverly Hills:

https://www.redfin.com/CA/Beve...

Anyway, if you want to talk more about househacking, it's a nerd passion of mine -- happy to discuss!

Best,

Jon

Benjamin, it's funny you ask about the consensus on this. The consensus here is definitely that investing on out-of-state cashflow markets is a godsend to us cursed Californians! I mean, the BP podcast is co-hosted by the guy who literally wrote the book on out-of-state investing! And he's a Californian!

I, however, disagree with the consensus. I like CA markets, especially my market down here in LA. Extremely high rents and extremely low cap rates provide an amazing opportunity for wealth creation. The ticket price is high, yes, but with creative strategies like househacking and live-in flipping, even a newbie can their foot in the door of CA investing.

Those are my two cents.

And everything you need to know about out-of-state investing you'll find in David Greene's excellent book Long Distance Real Estate Investing.

Good luck!

Best,

Jon 

Hey Sarkis,

LA investor and landlord here.

LA is definitely a "get rich slow" market. What makes our market unique and challenging is that rents are extremely high and cap rates are extremely low. This translates into a high barrier of entry: prices are high, and immediate cashflow is very hard to find.

However, because of fast-growing rents and low cap rates, properties in LA appreciate at a greater clip than in your typical Midwest market. An LA triplex that just breaks even now will suddenly have cashflow and be worth a lot more when your first new tenant moves in.

In a philosophical sense, money moves slower in LA real estate, but it's building in size that whole time.

That's why I recommend new investors who want to invest locally in LA consider househacking. As an owner-occupant, you have access to loans with lower interest rates and lower down-payment requirements. Your cost of living is usually reduced when you move into a duplex or triplex that you own, and if it's a good deal, the property will cashflow whenever you decide to move out. I'm pursuing this strategy now; I bought and move into a duplex last year, and now whenever I decided to move out, I'll have two units that cashflow.

I think this strategy is going to build more wealth over the next 5-10 years than the BRRRR strategies and "value-add syndication" rackets that are popular on Bigger Pockets. It's not as exciting as flipping a BRRRR, plugging the profits into two more, flipping those, etc.... but your personal balance sheet doesn't care whether you're having an exciting time or not!

Good luck!

Best,

Jon

Angeli,

The first consideration when choosing a market is population growth. The second consideration, in my opinion, is familiarity and access. Where is your family in Nevada? If they're in a growing market, I'd go with that market. Google their city and "population," and you'll get a nice chart showing population growth. Then google some other cities and compare.

If you do go with the Nevada market, don't use your family's real estate agent. Find a real estate agent who has a track record of working with out-of-state investors. Every real estate agent will tell you than can work with an investor; do your own research and find one who has.

Question for you: have you considered househacking a duplex or triplex in LA? If the property is owner-occupied, you can buy it with as little as 3.5% down -- as opposed to the 25% down payment required to buy a non-owner-occupied investment property. I'm a big fan of investing in LA for longterm wealth-building and househacked a duplex last year.

All the best,

Jon

 David,

Welcome to the party!

I'm an investor, a duplex-dweller, and also midway through getting my salesperson license. I've completed the courses, have mailed in my application, and now I'm just waiting to schedule an exam. LA's insanely backlogged; I'm hoping to sit for the exam by the end of the year!

What you're describing is usually called househacking. One iteration is buying a 3- or 4-bedroom house and having roommates; the other is buying a multifamily property and having tenants. I prefer the latter. I househacked a duplex last year, and I'm extremely happy with the investment.

One goes about buying a duplex, triplex, or fourplex almost exactly as one goes about buying a single-family home. Any property with 4 units or less is considered residential, and all residential properties are financed the same way. What that means for you is: get preapproved by a lender, browse Redfin or Zillow for multifamily listings, inquire about interesting listings by way of an agent (or yourself when you're licensed!), and eventually start making offers.

The big difference between buying a multifamily and a house is in the numbers -- and this is where we start figuring out what a good deal looks like. Unlike buying a house, your mortgage and expenses will be offset by rental income, so you'll effectively be paying much less to own a house or even rent an apartment in that neighborhood. (I pay less per month than my tenant and significantly less per month than people who just bought a house a block away.)

That's the reasonable expectation: to significantly lower your cost of living. In Los Angeles, you really won't find a multifamily that will cashflow while you're living in it. The ideal property, in my searching, is one that costs less to own than you'd pay in rent while living there *and* will cashflow when you move out. That's a good deal.

What's really powerful about househacking is that you're earning outsized principal paydown and appreciation relative to your monthly out-of-pocket. It's like double leverage. You're paying the equivalent of rent, but you're getting a tangible net worth boost every month in the form of principal paydown and you're reaping the benefits of longterm appreciation on a large asset. I could go on forever. Househacking is the bomb.

Anyway! I just finished making a calculator spreadsheet for figuring out the numbers on househacking -- literally, I was up to 1 AM last night double-checking all the formulae. Find a property, enter basic information from Redfin and Zillow, and the calculator will tell you monthly out-of-pocket, when the property will cashflow, longterm projections, etc. Send me a colleague request and I'll send you the spreadsheet. (BP members need to be colleagues in order to send each other attachments.)

Regarding your timing, I think now is *not* a great time to buy. Nobody reasonable is forecasting a housing crash; that's not the problem. Rather, there's just a ton of uncertainty with any purchase right now. Tenants have a lot of leeway through Jan 2021 at this point, so you shouldn't buy a property unless you have enough reserves to survive no rent collection for the next 4-6 months, minimum. The other scenario in which you should consider buying now is if the cost-of-living savings will be significant. Otherwise, take your time, learn the market, and we'll have a clearer picture of the future later this year.

Regarding multiple co-applicants on the loan: could you be more specific about your scenario? Are you and several buddies planning to buy and occupy the property together? Or are you aiming to have a more affluent/higher income party (like a parent) co-sign with you for their impact on the underwriting? Or something else?

Looking forward to helping you with this! Househacking is awesome, and the younger you get started building that foundation of equity and wealth, the better you're setting yourself up for your life as an investor.

Best,

Jon

Ian, as everybody here has been alluding to, yes, you and your landlord can mutually agree to end a lease.

The problem here is that you have roommates. Your lease probably has language that says each signer is "jointly and severally liable" for paying rent. That means that each of you can be held responsible for the full amount of the rent. Until you, your roommates, and your landlord agree to end the existing lease, you're still on the hook.

I recommend you talk to your roommates, then your landlord. First, you have to get your roommates to agree to taking on a new roommate. Then, you have to convince your landlord to entertain replacing you on the lease with this new person. Your landlord will want to qualify the tenant, so assure him/her that he/she has final say on whether or not this new tenant can take your place.

The issue for your landlord is that you and your roommates jointly qualified for the apartment, but maybe the new person you bring you won't have income or good enough credit that the new tenant mix qualifies. Your landlord will want assurance that your "replacement" is solid.

I'm not a lawyer, but I am a landlord. That's my 2 cents!

Good luck!

Best,

Jon

Jonathan, are you looking to buy your first primary residence or your first investment property?

I'm seeing forecasts that expect a dip in home prices next year as federal stimulus, eviction moratoriums, and forbearance programs wind down. At that point, we'll be in a more traditional, hopefully not-too-terrible recession.

However, the residential real estate market is unlikely to tank as it did in 2008 because homeowners have much more equity in their homes now. And the commercial real estate market is unlikely to tank because there's so much capital on the sidelines that investors are getting desperate to deploy.

This all means that owners won't lose their properties en masse like in 2008; instead, those unable to hold onto their properties will sell. More inventory on the market means prices will drop, but not crash.

Anyway, are we talking primary residence or investment property in your case?

Best,

Jon

@Kyle J., are you reading that to mean a 15-day notice is now standard on ALL evictions? That's what it reads like to me. Is that permanent?

 Jennifer, I'm not a lender (and I'm sure some will chime in shortly), but have you gotten any quotes from a residential lender? A residential lender should be able to offer a 30-year or 15-year fixed-rate refinance loan on a 4-unit provided you have enough equity in the property -- and especially if you're under the high-balance conforming limit.

@Geoffrey Davenport, I'd recommend refinancing now because a lower mortgage payment will lower your DTI and give you more buying power on the triplex.

For multifamily househacks, I recommend buying at the top end of your budget so long as you have a decent reserves to weather a few months’ vacancy. Buying a larger property that collects a little more rent will produce much more principal paydown without raising your net monthly cost of ownership (potentially, every scenario must be analyzed properly).

Good luck!

PS DC native here. Miss the Midatlantic terribly!