Newbie in L.A. with a clean slate

[Adolfo Lopez]

Hello BP members, I am in my 20s still living at home in Los Angeles and wanting to start in real estate. I have excellent credit, cars paid off, 180k in savings, Zero debt, and do not want to depend on a 9-5job. My question is what route do you guys recommend in my situation. Should I buy a 4plex and live in one? Or keep renting and invest my money out of state? Crowd funding? Giving the current uncertainty of economic situation, should I wait a few months and see what plays out? My goal is to generate wealth to where I can live off of real estate and not HAVE to work a regular job. Hope to hear some great options

[Jon Schwartz]

Originally posted by @Adolfo Lopez:

Hello BP members, I am in my 20s still living at home in Los Angeles and wanting to start in real estate. I have excellent credit, cars paid off, 180k in savings, Zero debt, and do not want to depend on a 9-5job. My question is what route do you guys recommend in my situation. Should I buy a 4plex and live in one? Or keep renting and invest my money out of state? Crowd funding? Giving the current uncertainty of economic situation, should I wait a few months and see what plays out? My goal is to generate wealth to where I can live off of real estate and not HAVE to work a regular job. Hope to hear some great options

Adolfo,

Welcome to the party!

First off, thanks for making an intelligent post. I feel like a lot of posts in these forums are basically, "Hi, how do I make money in real estate?" Your post, on the hand, is more like, "Hi, here are my circumstances, here are some options I'm considering, what do you think?" You're going to get much better feedback from the community this way.

I'm going to give you some forcefully opinionated advice: you should absolutely buy a fourplex in Greater LA and live in one of the units. Let me explain why.

You're in a powerful buying position: good savings, no debt, and excellent credit. Given this, I'm assuming you have a decent job. Perhaps you want to escape the 9-5, but having salaried income is a huge asset when you're first acquiring properties. So, difficult though it may be, don't quit your day job just yet!

 Instead, continue to live on that income and buy a local fourplex for the appreciation play -- not just organic appreciation, but forced appreciation, too.

As an owner-occupant, your lending options will be better. You're eligible for a smaller down payment on your investment, and your rate will be slightly better.

So buy a fourplex, move into the worst unit, and start renovating it. As soon as another unit opens, renovate it. Every month, your cost of living will be lower, your debt on the property will be lower, the value of the property will be higher, and your balance sheet will be that much improved.

In several years, you should have an asset on your hands worth considerably more than you paid for it. That's when you refinance or 1031 exchange to grow your portfolio -- and I'd say that's when you can start thinking about cashflow. If you don't need the cashflow right now (and it sounds like you don't), you'll do better by building equity in a market like Los Angeles than chasing cashflow (at the cost of equity/appreciation) out-of-state.

Timing-wise, I'd say wait. The market is really confusing right now. Most big analytics firms are now projecting an increase in home prices next year, so I'm probably wrong in my prognostications. That said, I look at the unemployment numbers and underlying reality of our situation, and I see more economic fallout coming after the Presidential election. I don't think this is a moment to be in a rush, I really don't.

FYI, I'm househacking a duplex in LA  now. I *wish* I could be househacking a fourplex, but I have a wife and a kid, so we needed a 3/2 and I couldn't find a fourplex with anything larger than 2/1's. I also *wish* I had bought a duplex or larger when I bought my first home at age 28. Bravo to you for pursuing this path!

Where in LA would you look to househack a fourplex?

Best,

Jon