Buying a rental property, but moving to LA

[Michael Avillion]

Never bought a home. Learned about real estate through a friend, and just started reading about it this past week! My wife and I are moving to LA (near south of Glendale) this July for a 2 year medical training program. I have access to VA loan through the military. I want to invest in real estate, but am nervous about LA prices. My wife has a close friend who is also real estate agent agent in Charlotte, NC, which seems to be a hot spot for buying real estate given the boom in population. Additionally, I am from NC, and have family in Fayetteville, NC, so I really like the state.

I want to make a wise investment. We are saving for adoption and finally have the funds, and will hopefully have a new baby by the time we move. It seems Charlotte is the smartest option (houses in the 150-250K) range with a close friend who can help, versus hedging on good appreciation in LA. An option is we could rent for a year, then buy a home in LA and rent that out while we stay in our rental (wife wants to stay in one spot with a newborn). 

Any advice? Also, any good additional books? I just rented Real Estate Investing for dummies (4th ed) from our library. I am listening to "How to Invest in Real Estate" By Brandon Turner and Joshua Dorkin, and really like it.I am in the medical field and don't have tons of time to put into home development flipping, mainly looking for passive income to diversify and capitalize on these low interest rates. 

Thanks so much. I just heard about bigger pockets and this is my first post. 

[Dmitriy Fomichenko]

@Michael Avillion welcome to BiggerPockets! Did you read the Beginners Guide?

[Jason Hsiao]

Before you find the deals you have to find yourself @Michael Avillion. The first decision point I'd say is usually are you looking for cashflow or appreciation, that will help you narrow down quickly what market to focus on first.

NC is a great market, esp if you have local help. I'm partial to RDU area myself ;-)

[Antonio Cucciniello]

@Michael Avillion I would take the money you do have an invest it in a cheaper market and if Fayetteville is what you know that works even better because you will have the confidence to invest there where as what blocks most people from doing out of state is not knowing much about the market there.

You can try to use your VA loan but only if you find a property that will cash flow when you move out!

[Michael Avillion]

Thanks for the responses to my long post. I appreciate the time you took to respond.
After considering your comments, I agree that investing in a cheaper market that I know in NC is the safest first purchase. I am looking to cash flow for now, passively, rather than appreciate and sell.

[Dan DiFilippo]

I don't mean to critical and I don't mean to get super into forecasting (even though that's a lie - I do), but what is "hedging on good appreciation in LA"?  Like an appreciation play?  I think that's old-paradigm thinking.  The last five years have definitely featured some explosive moves up in those real estate markets that were already high value.  Even though those markets have been slowly bleeding down their own value down to the lower value ones.  I don't necessarily see why appreciation is any sort of guarantee in LA or NY.  And I would argue that there's a tremendous solvency risk.  Which is to say, yes, you might buy for $500,000 in SoCal and hope for the I suppose somewhat decent chance (let's say 25%) that it will be worth $550,000+ three years from now.  So that's a 10%+ return.  But a 25% chance that the fake market that we know we're in experiences a rapid repricing.  In that case, you could find yourself down at $400,000 three years from now.  This would seem to be a much greater likelihood in higher value markets rather than lower.  So while the LA outcome distribution probably features higher tail risk (either tail), somewhere like NC probably has a smaller chance of outsized moves in either direction, but it does have significantly strong market fundamentals (intrinsic and macroeconomic), so I think NC offers much more stable and sustained appreciation.  And the fact that NC investments throw off cash is just a bonus.

[Kevin Romines]

The issue that is being missed here is that fact that the VA loan requires owner occupancy for the 1st year. And if you are going to rent it, you technically have to move it off of a standard VA purchase loan, to a VA IRRRL loan which only requires that you have owner occupied it for at least 1 year at some point in the past, and it allows the home to be a rental, where the standard VA loan wont allow that.

With the move date coming up this July, how do you account for the 1 year requirement if you buy in NC? Now you could buy a 1-4 unit in LA, live in one of the units, get rents from up to 3 other units. If the CA market takes a crap on values, who cares, you keeping this as a long term hold for cashflow. So it doesn't matter if you are underwater, if the property still cash flows. You only worry about value at a time when you want to sell. So time the sell with a high market. At any other point, you are only concerned with cash flow.

If you are truly moving to LA in a few months and will be there for 2 years, you can satisfy the 1 year owner occupancy requirement at that point, you will also need a place to live, so buy a 2-4 unit, the rents will most likely cover your mortgage or at least close, giving you a place to live virtually free, also giving you cash flow, and the ability to participate in the large value upswings on the LA market. 

That to me is the better plan, that also doesn't violate the 1 year clause of the mortgage. 

Just my 2 cents. 

[David Pere]

@Michael Avillion I love the idea of house hacking in LA, and there are a few incredible real estate agents that I would be happy to hook you up with if you'd like. @Jon Lallande is one of the best VA lender around, and will be able to answer any and all questions you have about buying a property in LA!