Newbie in LA - Los Angeles or AZ Market?

Question

I’ve been doing a lot of reading, following forum discussions here, attending MeetUps and trying to network.

I live in Los Angeles but just can’t convince myself that I can 1) afford a decent duplex / triplex in a decent area or 2) plug myself in enough to find a good deal before it’s gone.

Ideally, for my first deal (focusing on either a duplex or a single family w/ ADU), it would be within close proximity to me so I can maximize the learning experience (property management, rehab etc).

However, if I’m priced out of LA, am I better off looking at markets like AZ nearby?

Wes Blackwell · Answer

@Daniel Whitmore

To build off of what Account Closed said, Arizona has extremely high population growth (#4 in the nation), with Buckeye being the fastest growing city in the US with a population over 50,000. For the 3rd year in a row, Maricopa County (Phoenix) has gained more people than anywhere else.

Why?

Two reasons: One, there are thousands of other people in your exact same position that are realizing despite the fact that LA has the jobs, it doesn't have affordable housing. And two, we're #1 in net migration for seniors as all the baby boomers turn 65 and get tired of the cold weather elsewhere.

The area's population is set to nearly DOUBLE by 2050 up to 12 million. Lots of growth coming, as we're in the middle of a dessert, so there's always room to build. Right now we have roughly half a month's supply for homes priced under $250k, and we don't hit three months supply until $700k or so. There's just so much demand. Median home price is half what LA is at only $270k or so.

I've been bringing lots of priced-out, few-option California investors this way, as the money simply goes way further. Plus it's only a 6 hour drive from LA and an hour-long flight. Not like you have to take a week off to fly 5 hours to Michigan or Ohio if your property needs your personal attention.

Sounds like you might have some options in Hemut though, and I agree it's much easier to invest a place you're already familiar with. But if that doesn't pan out give AZ a closer look. There's gold to be found here for sure.

Account Closed · Answer

Hey Daniel,

I think both LA and Arizona are good options.  LA has great long-term fundamentals.  It's a major city with a growing population, increasing foreign investment and a chronic lack of supply.  Los Angeles and Honolulu were ranked the most difficult cities in the U.S. to build apartments.  That means supply will remain tight and demand will remain high.

Phoenix, on the other hand, is the fastest growing city in the U.S., and is still relatively affordable.   However, it's fairly easy to build new construction, so it may eventually be at risk of overbuilding (you might check stats on this).  But both are very solid markets.

If I were starting out, I'd stay local, only because familiarity lowers the risk.  If you don't plan to live in the duplex, I'd venture into submarkets that are transitioning the fastest.  Off the top of my head, Long Beach, South LA, Boyle Heights and East LA are all formerly marginal areas that are improving steadily and are much more affordable than more established areas.  There are others, too.

Managing yourself would be a great educational experience, but you might hire a property manager for the first year or two, and watch how they do things.

Hope that helps.  Good luck!

Mark

LA has the advantage of being local to you, so you'll have more access to the property and control.  If you plan to live in it, location

Michael T. · Answer

Daniel,

It is great to be able to be hands on with your property and the best route to go here in the Los Angeles market is some type of multi unit whether it be 2, 3 or 4 units.

Here in Los Angeles you have to remember that many lenders will not consider the rental income unit on an ADU so it's better to pursue a true multi unit so you can get into it.  The FHA lending for the Los Angeles market is very generous for multi units which allows you to get into the market.

Take a look at the FHA lending limits for Los Angeles County.  https://fhaloans.guide/loan-limits/california/los-angeles-county

My recommendation is to buy in Los Angeles for appreciation and out of state for cash flow.

Thanks,

Account Closed · Answer

It's rumored that California has high taxes. But then, hey, that's only a rumor.  ;-)

You need to calculate profit after ALL expenses to know what a good investment is. How much do you wind up with in your jeans.

We moved from the Seattle market where I had been investing in real estate for about 15 years because of the increasingly higher taxes and landlord hateful atmosphere. We checked out California and it was even worse and going downhill from there.

We checked out Arizona, which has low taxes, great prices, high rents, landlord friendly, no earthquakes or canyon fires or hurricanes, growing population, growing economy and high profits that stay in our jeans. It doesn't take a rocket scientist to compare two choices and run the numbers.

Geordy Rostad · Answer

Hey Daniel,

I just saw this fresh thread with a new investor who lives in Hemut. You should reach out and see if he can tell you about the good and bad areas or any other questions you may have about the area:

https://www.biggerpockets.com/forums/55/topics/713917-newbie-from-hemet-california

Daniel Whitmore · Answer

@Eric Carr thanks so much for the feedback, Eric. I totally agree with you and appreciate your positivity. It’s iust a matter of me doing my due diligence and then having the courage to take action. Knowledge is power. After I finish my first deal, I’m sure it gets much easier for the 2nd and 3rd.

I’m now looking at out of state markets such as PHX, SLC and ATL. Is there a good website or online resource to find the info you highlighted - evictions, foreclosures, rental Income, annual appreciation etc? Even just a quick snapshot?

Lee Ripma · Answer

@Daniel Whitmore

I don’t know where you’re willing to live within LA so certainly narrow that down. I will tell you that I would buy a 2-4 unit if I could find one that would lower my monthly out of pocket cash but I haven’t found any. My issue is that I only want to live in reasonably nice areas near downtown so being willing to live somewhere that currently isn’t as nice would help. One thing to consider in LA is tenants rights so you might want to think about doing a house hack on a SFH (rent or Airbnb rooms) rather than a 2-4 unit. If you do a 2-4 unit you’ll want units delivered vacant or you’ll want pre-negotiated buyouts with tenants. I would focus mostly on the potential for future appreciation when looking at a 2-4 unit, that’s where your returns will be and that’s why you’re better off picking somewhere in the path of progress that isn’t yet nice. There several lenders that do conventional loans with 5% down where you pay PMI upfront at close or you pay higher interest. Much better terms than FHA. I was a newbie just a few years ago and I went out of state. There are certainly benefits to owning in LA, mostly massive appreciation. If you’ve got equity you can use it to scale up elsewhere or in LA. So there is a couple of thoughts for you and keep us posted on what you go with!

Bevla Reeves · Answer

@Daniel Whitmore YEP!! ;))

Many Californians are investing in AZ.  It is the affordable option.  Let me know how I can help.

Good luck warrior!

Geordy Rostad · Answer

Have you considered looking at a more remote area around where you are now? Hemut has some pretty affordable duplexes. That way you could still run out there if you needed to in a reasonable drive.

I'd suggest building your contact list with contractors and property managers though for any area you want invest in.

Eric Carr · Answer

There are a few websites to pull all of that together, let's put together some metrics and talk shop. I received your DM

Newbie in LA - Los Angeles or AZ Market?

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