Where and how to invest?

[Logan Allec]

What to do?  I know nothing.  I don't even know my strategy.  I'm looking for wisdom, stream of consciousness, whatever--any suggestions that wouldn't require me to step away from my current employment.  I have a growing pot of disposable income to invest as I'm single, living like a bum, and keeping steady at a decently-paying job.  I want to make the smartest moves I can financially before settling down, getting married, buying my own home, etc., and I'm willing to live like a pauper in order to do so.

I've been seriously considering buying turnkey property out-of-state (I have been thinking in Austin for appreciation [that's what the turnkey companies tell me--though some reports I've found online claim that Austin is wayyyyyy overpriced right now] or Indianapolis for cash flow [ditto]), but given my age and station in life I feel like I can be a bit more "risky" than merely paying retail (or more) for a property to get a few thousands a year in cash flow just to sit on it and wait until the mortgage is paid off.  Or is that just youthful naivety talking?  Does this rather boring approach actually pan out if I start now and acquire 5ish properties by the time I'm 30 and 10ish by the time I'm 35?

And this probably sounds silly, but recently I got the illustrious and romantic idea to purchase a 4-plex using FHA financing in San Diego (read: expensive and won't cash flow, but vacancies would be low [very desirable city], and although prices have increased substantially in the past few years, I have to think there's still some room to grow, especially if I'm in it for the long-haul, though I know that multis don't appreciate as much as singles). Is there any redeeming value to this idea? I figure I am going to buy a personal residence in the next five years anyway, so might as well take advantage of the FHA program. Or is this stupid and should I just keep my expenses crazy low like they are right now and invest invest invest somewhere else? My gut tells me the latter.

Any words of wisdom?  Were you ever in my shoes?  If you weren't, what would you do if you could turn back the clock?

[Mike D'Arrigo]

@Brian Gibbons I'll give you a call tomorrow.

[Brian Gibbons]

@Mike D'Arrigo 

This video was done a week ago w a RMLO in San Diego

with me talking about Seller Financing and Dodd Frank

[Edited]

Weak real estate agents that do not talk about seller financing as a tool to help home sellers sell on terms should be sued for malpractice.

Help the home sellers sell, any way that is a win win.

[Logan Allec]

Hello--just to give an update since everyone has been very helpful and to also ask for some advice, specifically regarding LA rent laws, from the helpers--I am interested in buying a certain fourplex (under rent control--built before November 1978) in Northeast LA using FHA financing and occupying one of the units as my first rental property. The property looks pretty crummy (and the price point the seller is looking for certainly reflects this), and the rents are way below market, but no structural issues. I would like to spruce it up to attract higher-quality tenants, especially since several surrounding houses have recently been remodeled and look really nice--this property sticks out like a sore thumb--and there are some nice skyline views from two of the units that I think could entice some younger professional types (very short commute to downtown to boot).

Anyway, how can I get rid of the current tenants so I can rent to new ones at higher rents? Anyone "been there, done that"? I spoke to the HCID this morning and was told that even if I were to evict one of the tenants for owner-occupancy, I would be required me to pay the tenant thousands of dollars for relocation assistance! How do LA landlords get by owning rent-controlled units? Any wisdom from experience, especially from those who have been in my shoes (buying FHA owner-occupied in LA), is welcome!

1 bed / 1 bath: $721/month - 1-year lease
2 bed / 1 bath: $735/month - month-to-month
2 bed / 1 bath: $735/month - month-to-month
3 bed / 2 bath: $1030/month - expired lease (was told by the HCID that even if a lease is expired, if the tenant has lived there over a year, he/she is protected like any other tenant with a valid lease)

Also, this thought has crossed my mind several times over the past couple weeks--if I'm gunning for appreciation anyway by investing in SoCal, and in Los Angeles in particular, why should I not just go for single-family homes, which have higher demand anyway (and presumably appreciate better?) and are not subject to rent control, rather than multi-families?

Any thoughts from LA folks (who invest in LA) on this thread @Matt R. ?

[Matt Skinner]

Hey thanks for reaching out @Logan Allec !

I own one rent controlled building in Los Angeles.  It's a 23 unit (so sadly no evictions for owner occupancy ).

Here's The Good, The Bad, and The Ugly on Rent Control...

The good:  

Your tenants will NEVER LEAVE!  They will pay rent on time because if they give you cause to evict them they will have to go and pay market rent somewhere else.  You will never have vacancy issues because THEY WILL NEVER LEAVE.  No matter how run down you let your building get, they will never leave.  They may call the housing authority who will force you to do minimal repairs but THEY WILL NEVER LEAVE.   

Before you buy the property ask the Seller if he can deliver it vacant and/or if he will find out exactly how much it would cost to deliver it vacant.  Even if you were going to scrape the lot there would be relocation fees dictated to you by the city.  Sometimes it's worth it. So in the end, whether you have a lease or a month to month, there is no getting rid of tenants.  

The Bad:  

The Socialist Republic of the City of Los Angeles will be kind enough to allow you a rent raise each year.  The Housing Authority gets together once each year and decides what they will allow the residential income property owners to raise rents by each year. Usually that rent raise is 3 to 5% depending on the economy.   There are almost NO years that they disallow any rent raise.  So you are pretty much guaranteed a rent raise of 3% each year - which is MORE than most areas; especially if you are considering crappy little houses in the mid-west.  

So if your tenants will NEVER LEAVE and you are basically GUARANTEED a 3% RENT RAISE each year... What's the problem with rent control, you ask?

Sounds like a pretty safe bet to me.  That is precisely why you will pay a lower cap rate in Los Angeles, New York, San Francisco, Santa Monica:  because it's a pretty SAFE real estate play.

Now the UGLY:  

The Ugly thing about the concept of rent control is that there is absolutely ZERO incentive to fixing up a property.  This is ugly for the tenant.  This is ugly for the property owner. This is ugly for the city.

In a free market, capitalists can be rewarded for meeting peoples needs and solving problems; like improving dilapidated buildings.  In a socialistic society there are no incentives for the smarter more capable people in society (you) to work harder, or expend extra effort to help those that are less fortunate (your tenants).  After all, that's the governments role (dontcha know?) because there are more of them then there are of you - and this is, after-all, a democracy.  

With rent control the government tells you how much to raise the rents, when your tenants can move, what repairs you need to make, etc.  

You collect checks and hope your tenants don't ***** too much to the city.  

If you buy right, and there is no negative cash flow, rent control can be like an ATM machine as your tenants retire your debt.

Note:  When you have a vacancy, you may rent that unit for full market value. This is the only time it makes sense to do any upgrades to the unit.    

If you tear the building down and build something new, you would not be subject to rent control (if it's built after 1978) in Los Angeles.

With rent control, it's better to have your tenants on a month to month (since they're not leaving anyway) so you can implement the rent raises immediately when they are granted. We literally take the notice sent out by the Housing Authority that tells us how much the rent can be increased, make copies, and send it to the tenants with a letter that says: "They City politicians you elected have increased your rent.   Starting next month, your $1000 rent will now be $1,050.  Please call the Mayors office if you have any questions."

[Matt R.]

That's funny Matt. It is not me it is the mayor...I just work here:)

That 3% annual creeps up slowly but surely though.

I think Matt Skinner sums it up Logan. I am just learning the house hacking game so I am on the same learning curve as you. I spoke briefly with J. MARTIN yesterday and he is doing this up in Oakland now. What he explained was that you got upto six months to settle in the plex as far as the OO. I think if you can get outside the reach of RC that will be a big bonus moving forward or at least minimize that part. There will be some areas with more tunover too. Like Matt said, as soon as they move out it is bam right up to market rents. Check Burbank too!

[Matt R.]

I am not sure I totally agree with this video...but this video covers some of Matt Skinners real world LA experiences. However, I have seen the opposite in some of the nicer RC areas. 

[Logan Allec]

Thanks so much, @Matt Skinner and @Matt R. . Matt Skinner, I never thought about how rent control could be a positive if one plays it right. Or that month-to-month is a better strategy in rent-controlled areas. Seems now I need to hone my search in on properties that are currently rented at- or nearly at-market with one unit that can be delivered vacant for owner occupancy OR some diamond in the rough completely vacant property that just needs some cosmetic upgrades to be rentable at market to quality tenants. It's amazing how much I've gained from this site--especially the people who posted on this thread--since I asked my original question three weeks ago. I was kind of fumbling around with ideas back then, but now I have some focus and am learning more everyday. Wished I would've known about this site two and a half years ago when I first caught the FHA multi-family house hack bug. But better late than never.

[Matt Skinner]

I have a friend who is a single guy.  He is a very successful real estate professional and one of my accredited investors.

He lives in a rent controlled apartment in Sherman Oaks; walking distance from lots of cool shops, Starbucks and some cool bars. 

He has rented his 2 bedroom apartment for nearly 20 years.   His rent is $900/month. The market rent would be about $2000/month if it was not rent controlled.  He owns a lot of real estate.  We own a lot of real estate together.  

He says he will never move.   

[Shane W.]

@Matt Skinner so you're saying your friend, who is RE savvy, is better off financially renting long term instead of house hacking over and over?

[Matt Skinner]

@Shane W. I'm not saying he is better off or not (I certainly wouldn't want to live in a 2 bedroom apartment forever).  I am simply demonstrating how rent control affects human behavior.  This guy clearly could have purchased a home (or paid more in rent) but has chosen not to because of rent control.  

Honestly, I'm not even sure what "house-hacking" really is...  

As @Matt R. video shows, rent control was intended by politicians to keep grandma (on a fixed income purportedly) from getting priced out of her sweet, doily laden, cat infested little apartment.  It was not intended for savvy accredited investors to live nearly rent free forever. 

By the way, his apartment is barely kept up by the owner.  Like the video says though, he is happy to fix up the interior of his own place to make his space nice; something that grandma probably couldn't afford to do on her fixed income.

[Shane W.]

@Matt Skinner yeah it's very interesting for sure.

House hacking is a term that I think @Brandon Turner has claimed as his own. 

It's when you buy a MFH and live in one of the units while renting the other units or even bedrooms in your place out. Therefore your live rent free while the other tenants pay your mortgage.

I'm sure there's a better technical term that someone of your experience knows, but that's just what the guys on the podcast use.

[Matt Skinner]

oh that's cool.  I should have done that. 

Dude there's a ton that I don't know!

[Matt Skinner]

@Matt R. you coming to the club/mastermind in Burbank tomorrow?  

Www.clubinaction.com

I want you teach my group about house hacking...  And you can meet my rent control "hacking" buddy.  

[Brett Synicky]

@Logan Allec 

Thanks for reaching out and sorry to respond so late.  I don't own anything with rc, and quite frankly have always just kinda written off any property with it. However, after reading some of the responses on this thread it's clear that I should consider it in the future, obviously only if the numbers work.  Sorry I can't be more helpful on the topic.  

Good luck!

[Matt R.]

Originally posted by @Matt Skinner:

@Matt R. you coming to the club/mastermind in Burbank tomorrow?  

Www.clubinaction.com

I want you teach my group about house hacking...  And you can meet my rent control "hacking" buddy.  

I will do my best to make it Matt. I have heard only great things about your club! 

[Logan Allec]

@Matt Skinner is your club open to a newbie?  I'd love to hear, live and in person, a group of people who know what they're doing discuss what exactly it is they're doing.

[Matt Skinner]

come on down @Logan Allec 

It's at Burbank chamber of commerce

Meeting starts sharp at 7:00 TONIGHT

Come early for a glass of wine or a cold beer

[Logan Allec]

Thanks @Matt Skinner .  Will spend my next two hours on I-5 but know it will be worth it.

[Matt Skinner]

great meeting you @Logan Allec 

I'm glad you were able to make it out to the mastermind last night!  

[Cathy Kirkwood]

Hello Matt, 

It was great meeting you at the mastermind last night, we really enjoyed learning and networking at the even, we are looking forward to seeing you again. Cathy

[Logan Allec]

Thanks, @Matt Skinner , for inviting me out!  I'd like to attend again, actually.  Whom should I reach out to for the membership deal?

[Joe Moore]

There is one other problem that is not being address.  That is the problem of eviction in CA.  It can take up to 6 months or longer to getting rid of a problem tenant.   

In Texas the whole process only take 21 days from the time you give them the 3 day notice to the time the Constable (Sheriff) shows up to show the tenant the door.  Plus the max  damages the tenant sue for is $500. 

[Joe Moore]

Also I forgot to mention CA is more of a tenant leaning state, while Tx is a landlord leaning state.