Newbie Advice to buy a multi family unit in SoCal

[Gaurav S.]

I got introduced to BP yesterday and tried to read as much as I can but did not find some specific details for a beginner. I guess it depends what your goals are. So here are my details

I am 30 years old married with no kids. I work full time as an engineer and love my job.

Investing in stock market is my passion and I have done quite well. I am follower of Benjamin Graham/ Warren Buffett style value investing. Its getting hard to find value stocks nowadays in the market and hence I am thinking about buying real estate property.

I have around 150k in non-retirement account but I am not sure how much of that I will be willing to put into the RE investment.
Also I currently rent an apartment. So I was thinking of buying a multi-family unit and rent one unit for myself. This way I might be able to skip the property management costs.

Any property that gives 10% yield unlevered per annum including the cost I have incurred if I was renting would be a good deal in my opinion.

I have a 780+ credit score and should not have problem getting a loan.

So my question is how do I start ? I would like to buy the property in Ventura/Camarillo/Thousand Oaks area since I work in Santa Barbara. Is there a bird-dog I can hire to find such property for me ? What are the sequence of things I should be doing from today onwards to make this happen.

Thanks for your time
Gaurav

[Josh P.]

If you are willing to broaden your horizons to anywhere USA, then I would certainly do so.

For instance in Palm Springs, CA where I live, you can purchase multifamily properties for below replacement cost. I'm not sure what the demand for rentals is in the off season, though.

You will get benefit from an owner occupied situation in terms of lower interest, being able to bid on HUD+Fannie and not longer having to pay rent, but will these benefits offset the premium price you will be paying in your target area? Honestly, in your position, you could do both. And by both I mean get into an owner occupied multi unit, and invest in an area where the price per unit isn't so high, an area where you would actually have some monthly cash flow.

Just for kicks lets run some numbers on a specific listing I found on the Ventura county craigslist. ,

listed at 550k
income per unit 1,900
Monthly payment 3273.35 (5% 30 year fixed)

Thats with .7% property tax and doesn't count insurance.

So basically in a best case scenario, you would have to come up with 3273.35 per month plus insurance minus the
1,900 per month in rent.

Appreciation rates in Thousand Oaks over the last five years have been 5.25%, with an average annual rate of 1.05%.

Total appreciation in the last ten years has been 96.76%

Thats the reason, you're paying 550k for a duplex that would sell for replacement cost in my town. In my opinion, the price per unit in Ventura county still reflects the price increases brought about by last decade's real estate boom. I'm sure they have fallen somewhat since '08, but not enough to merit investing with a buy and hold strategy beyond your owner occupied unit.

If yo can find a multi unit in Oxnard that would actually cash flow and you don't mind the condition, location or commute then that would be even better. You would have a property that would be doing something for you beyond supplementing your new jumbo loan.

Last thing I'll say is this. I own a property in TX, a triplex I paid 55k for the property, exactly 10 percent of the asking price of the above example.

I did a cosmetic rehab for around 6k and rented out one unit as a furnished corporate rental.

I get rents of 2,200 per month. My mortgage, taxes and insurance on a 15 year note total around 760 a month. It is managed locally.

I don't have to worry about my property depreciating half its value. I don't have to worry about the economy taking a dive and people not being able to pay me rent that is sufficient to cover most if not all of my expenses.

You can't get those kinds of numbers in Ventura County where the prices are still crazy because of a few crazy years.