House Hacking in LA - Too Late?

[Kate Bogart]

Hi all,

I just had a super discouraging talk with a real estate agent who invests/flips himself in the LA area. He told me I'm too late to the game and basically won't make any money house hacking with a FHA loan. He believes the market is due to reset soon, and the only way to get a somewhat good deal is all cash & finding the property before it hits the MLS. Wondering if anyone else in the LA area agrees with any of this?

[Chris Mason]

If you're defining the objective as "live rent free!" in a duplex wherein rent from one half covers the full PITI, that never really happened in hot CA markets anyways. Some of the legacy articles on this website were written by folks in 2012 that at the time lived in low appreciation midwest markets.

A reasonable California (Bay Area or SoCal) goal post to see is if your "slice" of that PITI after collecting rent and paying expenses is more, or less, than what you would otherwise pay in rent for a comparable living situation.

For example: Renting a 3/2 in that neighborhood is $2500/mo.

Or you own a duplex comprised of a pair of 3/2s, and the PITI is $4000/mo plus $350/mo in maintenance (some months you will have zero maintenance, other months you're replacing a water heater, this is a super rough long term average number, adjust accordingly if it's a 100 year old home instead of a 25 year old home, etc). We just said that renting a 3/2 is $2500/mo, so that means you are pulling in $2500/mo. You are cashing a $2500 check, and writing checks for $4000 and $350.

So you're paying $1850/mo to live in that type of property in that area, as an owner building equity etc. As opposed to renting a substantially identical unit for $2500/mo. Ahead $650/mo, before considering any potential equity gains from paying the balance down, appreciation, tax write offs, etc.