All Forum Posts by: Jon Schwartz

@Eric Alvarez, thank you for your service, and welcome to the party!

Socal is a huge market. Even just LA County is a huge market. There are many places that are great for flipping and many places that have relatively good cashflow.

I'd recommend you start in your parents' backyard -- not literally, of course. But the east part of LA County, the San Gabriel Valley area, tends to have better cashflow than coastal areas. I'm currently househacking a duplex and eyeing my next investment, and I'm definitely looking at El Monte and Temple City.

If I were in your shoes, I'd first focus on a multifamily to househack. Since you'll be living there, you should chose an area you like, probably not too far from your folks or any friends you have around here. Ultimately, Socal is an appreciation market more than a cashflow market, so you want to find an area that's experiencing a lot of growth and development. You want to keep your eyes peeled for new apartment buildings being built, new coffee shops, and other signs that big players are investing in the area.

You also want to find a property that you can improve to build equity. You don't have to buy a total junker. You want something that's livable but at least ugly, then spend a little money making it more attractive, and you'll be building equity in the property.

You're eligible for a VA loan, for with a multifamily, it's a math problem to figure out how much cashflow you'll have coming in and how that will offset the mortgage and other costs. I love figuring out these math problems -- it's what got me into my duplex!

Have you researched VA loans?

And how's Japan treating you? I love Tokyo.

Best,

Jon

 Jordan, are they suing for damages? What damages are they claiming?

@Nicole Nicole, walk away. I don’t know what paperwork you did or didn’t sign, but it’s very possible that “your” agent is actually only legally representing the seller. In this case, she doesn’t have a fiduciary responsibility to you.

At best, “your” agent is filling a dual-agency role in which she’s burdened with representing you and the seller — and it sounds like she’s doing a terrible job with it!

I might even reach out to the CA Dept of Real Estate and seek guidance. It sounds like “your” agent may have acted unethically.

Emily, good on you for educating yourself and wanting to get started!

There are tons of meetups doing online gatherings now. Go to meetup.com and search for "real estate san bernardino." You'll have no trouble finding a few groups to join and meetings to drop in on in the next few weeks.

Best of luck on your journey!

Jon

Mike, congrats on several measures! So smart to pursue househacking a fourplex! A credit score in the 800s is crazy good! And you're only 25! I wish I had figured out this much as that age.

Let's get into some details...

Buying a fourplex with an FHA loan is a fantastic move because the FHA borrowing limit on a fourplex is *really* high: $1.4M.

Of course, the problem is qualifying. With your great credit score, you can get away with a 50% debt-to-income ratio -- which means all of your debts, including the house payments, can't be more than 50% of your income.

$50k/year is $4167/month, and half of that is $2083/month. Assuming you have no other debts (ie, car payment, student loan, alimony), using today's rates on a traditional, 20%-down-payment mortgage, $2000/month affords about $400,000 in borrowing. If you have $100K for the 20% down payment, then a $500k property is within reach!

However, a mortgage is going to cost significantly more if you put just 3.5% down because you also have to pay mortgage insurance. And if you're only putting 3.5% down, you'd have to borrow $482,500 to buy a $500k building.

So you're aiming for a decent target, but it'll take some more savings or a raise to get there.

Question for you: where are you seeing these properties that cashflow with 3.5% down? That's not been my experience with the LA market. I'd either like to know what you've found or, if it's the case, correct your math!

All the best,

Jon

@Evan Polaski, touché! Cash-on-cash should be calculated on profit after accounting for reserves!

Martina, no need to excuse yourself for newbie-ness. That's what the forums are for!

Cash-on-cash return is the amount of profit after you've paid all expenses and the mortgage divided by the amount of money you put into the investment to begin with.

Let's take an example: if you buy a $500K duplex to rent, you'll need $100K down payment plus closing costs, etc. Let's say the total amount of money you need to buy the building is $120K. That's your cash in.

Each month, you collect rent from your tenants, pay the water bill, pay the gardener, pay your mortgage, and end up with $200 left over. That's your cash out for the month.

$200/month equals $2400/year. To calculate your cash-on-cash return, you divide $2400, your cash out, by $120K, your cash in. 2,400/120,000 = 2%

Does that make sense?

I think there are plenty of good submarkets in the San Gabriel Valley! I like a lot of areas from Alhambra through El Monte. Where does your husband's family live? I would certainly be happy with a property in El Monte that has a cash-on-cash return of 2% and is in a area that's improving and seeing development.

Mike, just wanted to chime in to say that CA has the 16th-lowest property tax rates and 2nd-lowest homeowners insurance rates in the country, so I'm not sure why you're bumping up your 1% rule for CA!

 Martina, I invest in CA for the appreciation. Appreciation gets a bad rap on Bigger Pockets, but it's the real wealth-builder in real estate. I'm not looking for 2%-rule or 1%-rule properties, though. I'm looking for properties that have a 1% or 2% cash-on-cash; that way, I know there's just enough cashflow for the property to pay for itself while it appreciates. I also looking for properties that have 1-2% cash-on-cash and below-market rents. That way, as soon as I have a tenant turnover, the property will cashflow great.

Good luck!

Jon

Real estate investing is real in major California markets. I could fill a stadium with the people who've made millions in California real estate over the last four years.

It's just that buying a market-priced SFR and renting it out isn't the right strategy for California.