First-Time Investor in LA

[Max Grust]

I'm looking to invest in my first RE deal at age 26. I live in West LA and work in commercial real estate finance so have experience with analyzing deals. I'm interested in the buy, hold, and sell strategy with a cash flowing property. I will be partnering with 2-3 other people so our budget is ~$400K and we are looking at anything from a duplex to a fourplex. 

Not sure if an out of state (i.e Las Vegas, Phoenix, Kansas City) property for our investment is the correct decision or to stay local in Los Angeles. Also would preferably like to find an off-market deal so not sure how plausible that is with being out of state. Thanks 

[Damian Ramirez]

Hey @Max Grust,

I reside in the LA area as well, however work from Newport Beach. I personally don't invest in LA or in California, only in rare exceptions where there happens to be a good flip that comes our way. Since the California market is so expensive and over priced with very little opportunities to obtain a cash flowing rental, we focus on the midwest states such as Cleveland, and at times Columbus.

I recommend that you start looking into out of state investing and begin vetting possible markets to jump into. For example, properties in the midwest markets are priced lower than those here on the coast, we usually find a distressed property in a C+ and above neighborhood for about 70-120k, sometimes more, depending on whether its in a C,B or A neighborhood. Rehab can vary on how distressed the property is, we've had rehabs for flips around 40-80k and at times even lower or higher and rehabs for rentals ranging from nothing needed or 10k to up to 50k due to the amount of work needed or if there was an issue with the contractor. You can even find way cheaper properties in these markets if you decide to venture in to D grade neighborhoods.

Your best bet as a California investor would be to look into out of state honestly. It takes a lot less money to be put upfront, and you have a higher chance of obtaining a cash flowing property out there than here in California. If you use a hard money lender, you can possibly spread your 70k between 2-3 properties and possibly even more if you aim for D grade neighborhood properties.

If you're anxious and a bit afraid of investing out of state since you're further from the project, look for a partner that has experience in a market you're interested in. If you have capital and no experience, find a partner with experience, a track record, boots on the ground and who might need extra capital (such as your 70k). Although make sure to ask as many questions, vet them properly, get it in writing/contract and to verify the info they tell you with other experienced investors.