House hacking in Los Angeles, CA

[Sophie Latapie]

Hi all! Newbie, prospective investor here. I'm hoping to house hack a duplex in Los Angeles County for my first investment property, but my mortgage banker (who's also an investor) said it's pretty much impossible to find a property where the generated income covers all, if not any, of the mortgage. He also said it will take years to see cash flow. I understand I live in an expensive, competitive market - but are those realistic expectations? Is house hacking - or at the very least, seeing positive cash flow in the first year - absolutely impossible in LA County? Thank you in advance for the insight and advice! 

[Jon Schwartz]

Originally posted by @Sophie Latapie:

Hi all! Newbie, prospective investor here. I'm hoping to house hack a duplex in Los Angeles County for my first investment property, but my mortgage banker (who's also an investor) said it's pretty much impossible to find a property where the generated income covers all, if not any, of the mortgage. He also said it will take years to see cash flow. I understand I live in an expensive, competitive market - but are those realistic expectations? Is house hacking - or at the very least, seeing positive cash flow in the first year - absolutely impossible in LA County? Thank you in advance for the insight and advice! 

Sophie,

I'm going to echo the previous posters here and say your mortgage banker is correct but wrong.

It is basically impossible to find a house hack in which the income covers all of the mortgage. However, it's entirely possible to find a house hack that significantly lowers your cost of living.

I house hack a duplex in Hancock Park. It's kind of a unique situation: I live with my wife and toddler in a beautiful 1932 building in an amazing neighborhood. My tenants pay $4975 for the downstairs units (they have a 3/2, and we have a 3/3). The most recently single-family-home sales on my block (like, literally on my block!) were for $2.29M and $2.68M. And I pay about $2100/month to live here. For a cost of a crappy two-bedroom in Koreatown, my family lives large in a beautiful neighborhood. Like I said, it's not your typical house hack, but it demonstrates the power of the concept.

When I was looking for my duplex last year, I built a spreadsheet that runs the numbers and estimates when you can move out and see cashflow. That's the most important metric as far as I'm concerned: when can I move out and see positive cashflow? For me, because of a large down payment, I can move out of this duplex anytime and cashflow. But I've also found properties where with a 5% or 10% down payment, you can move out and see cashflow in 1 or 2 years. I'm happy to share my spreadsheet with you.

Final thought in this rambling post: we all have our version of your mortgage banker who tells us our idea won't work. You should *definitely* do your own investigating before taking anybody else's insistence!

All the best,

Jon