All Forum Posts by: Rick Albert

I'm a 2x house hacker in LA and a case study in the Bigger Pockets Book, "The House Hacking Strategy." I also invest out of state.

The concerns you bring up are valid. Keep in mind studies have been made to where rent control actually lowers vacancies and increases rents. For example I have a unit in Nashville that has been sitting on the market for months. My ADU here in LA rented in less a week (the tenant moved in three days after the painting was done). I had multiple applications and inquiries were still coming in.

Also keep in mind your goals. An argument can be made that you build wealth FASTER with higher priced properties. You have larger loan buy downs and the appreciation dollar amount is higher. For example a 3% appreciation on a $1,000,000 asset is $30,000. That same 3% appreciation on a $100,000 asset is $3,000. The same rule applies to rising rents. And because you can put so much less money down, your Cash on Cash Return is even higher. You put 3.5% down and you almost make up your down payment in one year. Of course values fluctuate and this is over a long period of time.

What LA and NY also have that other markets may not is high paying jobs mixed with no land to build more housing. So even though there may be a decline in population, it almost doesn't matter because there isn't enough housing to go around anyways. They just talked about this in the latest BP podcast episode.

You could also do what I did and what some of my clients have done, which is we use our LA properties as a vehicle to buy more properties. We use HELOCs because of the larger appreciation and use that as down payments. With the exception of the property I'm about to enter escrow on, I haven't done a down payment of my own since 2015. Between a 1031 Exchange, HELOCs, and a partnership, I'm up to 15 doors including my personal residence. To be fair I did ride the low interest rate and high appreciation train, but you get the idea. You can also do a different strategy than what I did to get started.

To play devil's advocate (and keep in mind I have no skin in this since I'm in a different market):

-You want to tailor to investors, then be prepared to sell at an investor price. For example, I have a duplex that I tried to sell off market through Facebook Groups. I told them the price, which was fair for the market, but everyone wanted a deal. Plus if they know you are trying to avoid the Realtor fees, then they will want to avoid them too. I've seen it happen. The seller doesn't really net that much more in the end. 

-If you have a single family home with a guest unit, you are likely going to sell at a higher price to an end user. For example I just sold a house with an ADU in Los Angeles to an end user for $930K. I was getting offers from investors tops $850K. Flippers were in the $700K range.

-You don't really know how high of a price you will net unless you go to the open market. I've sold properties off market and I will admit for the most part it has been fine. But with inventory being low and you having a guest house, it might stand out.

-Really the advantage to listing it in the MLS is the reach. You post in FB groups that might be a few hundred plus here on BP which would be maybe a few thousand (making up these numbers). But posting in the MLS gets you on Zillow, Realtor.com, etc. which arguably could be tens of thousands of eyeballs. I wouldn't care who buys my property, I want to net the most amount of money in the shortest amount of time.

-If you are set on selling off market and too investors, I recommend reaching out to all of the property managers in the area and see if they have clients. They will look great having something off market and if it closes, then they manage it.

Martin,

People live near freeways all the time and for literally years. Thousand Oaks has become increasing popular and has a lot going for it (major pharma, university, etc.). No one can predict the future but generally speaking you are probably fine over the long run.

Did your Realtor not mention the proximity to the freeway? I'm not blaming, but this is generally a discussion item. Doesn't change anything other than to keep in mind going forward.

In terms of what to do, for some people the noise is unbearable, for others it may not. You will be surprised. Especially on the rental side where prospective tenants may not care because they aren't living there long term.

I live near a freeway where sometimes you hear it. You can replace the windows. We switch to dual pane and made a world of difference. If you want to spend the money you can consider triple pane. Maybe it's triple pane for the windows facing the freeway noise and double everywhere else. You could do things like outdoor speakers, waterfalls, etc.

Visually, unless you are in an HOA or other restrictions, maybe you can hedge the backyard for added privacy.

The goal for most people is to keep the property, not sell. Especially at a loss. I wonder if a mid-term rental makes sense. You can charge more, the furniture is already there, and if the house is stunning then it could get attention. There are executives that go to the Thousand Oaks area and need a place to stay. 

I would not dump $500K into the mortgage to refinance. For $500K go buy another income producing asset to offset any losses you might have. Basically dollar cost averaging. 

Hope this helps and happy to brainstorm. 

I don't have experience in either of those markets, but I do come from a tenant friendly market (Los Angeles). 

A couple of things to note:

1. Vetting is everything. Have a criteria, follow your gut, and you will likely do fine. The times I know people had problems with tenants are when they made exceptions or weren't thorough enough on their vetting process.

2. There have been so many studies on rent control it's ridiculous. They all came to the same conclusion: rent control keeps prices high. Oregon enacted rent control in 2019 and rents doubled in a few years. If you can navigate it, it can be very profitable.

3. For Arizona, I would look at how much new construction is happening. Some of the challenges I've had with areas like Texas and Florida is that they are doing so much building that the only way you can compete is by price. 

Do the numbers work to keep it? The entire point of owning rentals is to actually own. 

Sometimes it makes sense to sell if the numbers don't make sense to keep it, there is better use of the equity, etc.

Alternatively, could you do the cash out refi and build an ADU? You aren't necessarily building that much equity (cost of building exceeds the value) but it is a third option that is a hybrid.

Another factor is location. I hear what Zeona is saying, but it may be irrelevant if say you are in the North San Fernando Valley where people from the Palisades aren't going.

I use my house hacks in Los Angeles as a vehicle to expand the portfolio. As you mentioned, things are appreciating quickly in your area. That means later on you can remove PMI, get a HELOC to buy more properties, etc.

Then, if it is still negative cash flow, but the equity is there, then consider selling. 

Although things will change this year, between HELOCs, 1031 Exchanges, and a Business Partnership, I'm up to 15 doors (including my personal residence) and I haven't done a down payment since 2015. That started because I house hacked in an expensive market.

Actually, some lenders have a problem with switching it over to an LLC. The loan was personally guaranteed by you, not a corporation. The lender may call the loan and want you to pay the remaining balance. There is actually real risk here. From what I hear it is low, but still there.

Keep in mind your loan will likely get sold, so you need to do more due diligence other than what a loan officer is telling you. I would consult an attorney who specializes in this.

Also, assuming the property is in California, if it wasn't subject to CA Rent Control, once it goes into the LLC, it might be. That was one of the caveats with AB 1482.

So what you want is what everyone wants. Here's the challenge: If the numbers work with a low down payment, why wouldn't an investor putting 20%-30% just buy it and could likely offer more?

The challenge with property managers is that they are actually very expensive. They say they charge 10%, but that doesn't include finding new tenants, renewals, upcharge for maintenance, etc. I've seen the actual cost to be around 15%-20%. Also many PMs don't manage by the room but that's for you to find out since I don't know your market.

You have to run the numbers. Where is it located? Near popular attractions or a university where a mid-term or short term makes sense? What are the laws around it? Did you factor in utilities, internet, etc.? Maybe even college housing.

I would think that maybe splitting it into two units might be more profitable. For example a 6 bed rents for $4K but two two bed units might rent for $5K total. I just made up those numbers but you get the idea.

If it is that close to a University, this is going to sound outrageous but rent it out to a Fraternity/Sorority. The national organizations can have a lot of money backing them from Alumni and it would be a very long term lease. 

Based on the design, I would go with sororities if possible. They don't typically throw parties there like they would at a fraternity house. Here in Los Angeles at USC sororities can't throw parties there and I've seen one of the houses and it was like this and immaculate.  

 If this is not a destination, then I would pass on it. Just because people come through doesn't mean they are stopping.