Investing in Los Angeles

[Sarkis Gezalyan]

Hello everyone, quite new to investing but have been reading the forums and watching the videos on BiggerPockets. My question or concern is, all these people who are investing are talking about quickly turning around their first investment into multiple units and they get the ball rolling either through cash flow or appreciation. In my market (San Fernando Valley/Los Angeles), I can't wrap my head around this. Everything I run the numbers either requires a large down payment and at a lower than average price. I guess my question is, do other beginner investors notice that getting the ball rolling in Los Angeles is much slower than other parts of the country?

[Jon Schwartz]

Originally posted by @Sarkis Gezalyan:

Hello everyone, quite new to investing but have been reading the forums and watching the videos on BiggerPockets. My question or concern is, all these people who are investing are talking about quickly turning around their first investment into multiple units and they get the ball rolling either through cash flow or appreciation. In my market (San Fernando Valley/Los Angeles), I can't wrap my head around this. Everything I run the numbers either requires a large down payment and at a lower than average price. I guess my question is, do other beginner investors notice that getting the ball rolling in Los Angeles is much slower than other parts of the country?

Hey Sarkis,

LA investor and landlord here.

LA is definitely a "get rich slow" market. What makes our market unique and challenging is that rents are extremely high and cap rates are extremely low. This translates into a high barrier of entry: prices are high, and immediate cashflow is very hard to find.

However, because of fast-growing rents and low cap rates, properties in LA appreciate at a greater clip than in your typical Midwest market. An LA triplex that just breaks even now will suddenly have cashflow and be worth a lot more when your first new tenant moves in.

In a philosophical sense, money moves slower in LA real estate, but it's building in size that whole time.

That's why I recommend new investors who want to invest locally in LA consider househacking. As an owner-occupant, you have access to loans with lower interest rates and lower down-payment requirements. Your cost of living is usually reduced when you move into a duplex or triplex that you own, and if it's a good deal, the property will cashflow whenever you decide to move out. I'm pursuing this strategy now; I bought and move into a duplex last year, and now whenever I decided to move out, I'll have two units that cashflow.

I think this strategy is going to build more wealth over the next 5-10 years than the BRRRR strategies and "value-add syndication" rackets that are popular on Bigger Pockets. It's not as exciting as flipping a BRRRR, plugging the profits into two more, flipping those, etc.... but your personal balance sheet doesn't care whether you're having an exciting time or not!

Good luck!

Best,

Jon