House-hack or buy investment property and rent?

[Jama Mohamed]

Hi all,

So I'm starting to get into real estate investing and have come across a problem that I'm sure many of you have had. Basically, whether to buy a house to live in and rent rooms out of or to buy a property somewhere and rent the entire thing out while living somewhere else. Here are some details-

I currently live in Los Angeles, California (Pasadena area) and am renting an apartment. I like the area and would love to own a home around here, but as you know the costs can be prohibitively high. I was so excited about the prospect of getting a house here and living in the area that I decided to go get approved for a bank loan and ended up figuring out that I can afford something in the $700k range with is barely enough to get something decent here. Since then I've been looking at deals with my real estate agent and have figured something odd out...

The cash ROI here is AWFUL, and by awful I mean negative negative negative. A 2 bedroom, 2 bathroom house might go for around $650k or so here and the average rents are around $1k/room or $2.2k for the full house. Doing the math and best case I'm down $1.5k/month with losses for the next 10 years (WOW). Total ROI is not positive either for that kind of deal!

So I'm just thinking, holy **** this is awful. Why would anybody buy a house around here? Am I missing something?

So now I'm starting to wonder, should I approach this from a different angle and instead buy an out of state property in a place that actually cashflows with renters. I really do want to buy/live in a house, but I'm not going to make a decision based on what looks shiny to me at the moment. And unfortunately buying a house here just looks like that kind of shiny stone...

Does anybody have experience with this or pointers you could give me? I'm really trying to figure all of this out! Thank you!

[Aaron Mazzrillo]

Where the market is right now in SoCal it is no longer a cash flow game. You missed that boat. It was moored to the dock from 2009-2011, but that ship has sailed. Now it is a capture the equity game. You buy as low as you can and either flip it, or hold it for 1-2 years, hopefully enjoy some appreciation, then flip it and cash out the captured equity. 

That does not mean you pay market value and hope it goes up. You buy well below market value, but you're not going to get that working with your agent.