All Forum Posts by: Matt Mason

Make sure you get some contractor bids on what you want to do to the Townhouse before you close so you know what you are getting into.  Yes, you have to add those carrying costs to your budget as you noted.

On the HOA, make sure you get the financials and meeting minutes for the last 5 years and try to talk to some of the people who live there already to start your due diligence there.

Santa Monica is more value add. How do you feel about doing that much work? It is also a better neighborhood and more functional city. However, I would worry about the HOA. How many units? I have a townhouse in a 4 unit complex where everyone would have to outvote me to do anything without my permission. In other words I have control (everyone kind of defers to me here since I have lived here so long and know the building inside out). Other than that I'd prefer a building of over 100 units where you can have professional management. I'd avoid 10-50 unit buildings. Just hear too many horror stories.

I probably like the Little Osaka neighborhood better myself, but that is me.  It is going to take quite a few years for this to be a cash flowing asset, so I'd more carefully weigh where you want to live as these sound like two pretty different places.

It is your property taxes.  They are a whopping 3.3%.  Not sure if that is right as I know Texas has higher property taxes, but my guess is that your expenses will be higher than 50% if the property taxes are anywhere near that amount.

 Turnkey companies go after newbies who live in expensive markets.  Some turnkey marketers are headquartered in CA, because they need to find investors for their often overpriced deals.  

You would really give up a ton of equity for increased cash flow in years 1-3?  If you find mismanaged properties in LA where you can do some nice returning value add projects you will have both appreciation and in a few years cash flow better than you will get on anything turnkey.

With turnkey you don't have much of a viable exit.  Everybody is focused on initial cash flow, which is often over marketed and overstated that they have no plans for their investment 7-10 years down the line.  I suggest almost everyone take a long look at their local market first and see what they can do before going out of area.  Doesn't matter to me though so best of luck to those doing so.

Turnkey companies are not in many cities in the US.  Except for some in Texas, they seem to concentrate in low growth areas.  You won't find them in Denver, Seattle, Portland, DC, Boston, etc... either.  I wouldn't necessarily say those are all bad markets.  

The turnkey cos tend to go after newbies in expensive markets trying to get in on their first property and while the initial cash on cash returns look good, I have my doubts on many achieve these returns over the long term.  In fact, there was a forum a while back asking people who had turkeys over a long period about their experience and almost no one spoke up, which I thought was telling.

On the other hand I've seen quite a few people who bought turnkey, complain about tenant quality, evictions, vacancy, excess maintenance costs, etc...  At least in the Bay Area and LA and the tighter markets I mentioned above, your units won't ever sit vacant from lack of demand and you get professional tenants that would their own houses in lower cost markets.  Unless you price incorrectly, you are talking days or a week or two of vacancy at most.  Even during the Great Recession, rents barely dipped here.

You are right if all you care about is cash flow for the next few years, then the OP should maybe think about turnkey.  However, if she takes a longer term view and wants to learn more about real estate, she should house hack locally IMHO.

Kaitlyn,

At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career.  House hacking is a great way to start in CA as you will learn a lot quickly.  You may not want to live next to your tenants long term, but you don't have to live there forever.  I know a lot more people who are successful now that started house hacking over going out of state.

As far as buying a few small properties out of state, I think there are a lot of problems.  One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on.  You still have to manage your manager or asset manage your properties.  That is much tougher from afar and you better subtract occasional travel costs from your returns.  A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.

You have to think of your exit strategies too.  Who are you going to sell to?  Another out of state investor?  If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs.  If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated?  Not easy from long distance.

Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively.  I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13.  Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better.  However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot.  The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.  

Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them.  I'd always ask myself on these out state deals why isn't someone locally buying this.  Just my 2 cents.

Del Boca Vista was the fictional retirement community where Jerry Seinfeld's parents lived in Florida on the show "Seinfeld".  Sounds made up to me.

I should correct myself as Beverly Hills rent control, but it generally does allow for 10% increases vs. 3% for Los Angeles. 

Yes, that is my understanding.  It was just a house before and was never subject to rent control, so if new apartments were built on the property it would still not be rent controlled, although I would double check this as I haven't done this myself so I never really researched.

On your other question, you can't just demolish a rent controlled apartment building and put up a non-rent controlled building at least in cities like SM and LA.  There are Ellis Act restrictions on this.  Otherwise, everyone would be doing this.

If it was just one unit (a house) it would not be rent controlled in the City of Los Angeles.  New apartments built after 1978 are not rent controlled either.  However, I'd be more concerned that the new apartments were built with proper permits and in accordance with the zoning.  If the property was listed as just one unit before on all property records then I do not think you have a rent control problem.  Like I said, I'd do a thorough search of the property records before making any determinations on anything.