Is Now a Good Time To Invest? (First Time Buyer in LA, CA)

[Lance Knapp]

I have looked at 50-100 deals in my area of West Los Angeles. It is difficult to find properties that are cash flow positive after expenses and debt service. Basically, the deals do not look very attractive. I am curious to know what experienced investors think of today's markets and whether or not now is a good time to buy. It worries me that we have had years of quantitative easing and low interest rates. I don't want to be the fool who buys at the wrong time when attractive opportunities could be around the corner.

Thank you for the help!! - Lance

[Account Closed]

Lance,

Not sure if your company shares data with you, but I know Marcus and Millichap, Cushman Wakefield and CBRE share data with their associates.  I would expect your company to do the same, but I could be wrong.

When people see I started investing in 2009, everyone says I got lucky.  They didn't see what I went through to get there.  As a Roman Philosopher Seneca said "Luck is what happens when preparation meets opportunity."  Well, I cluelessly bought my first rental in 1999 for $330k with negative cash-flow.  It's worth about $950k today, and I still own it.  That's about $3,000/month worth of appreciation in @Account Closed's terms not including principal pay down, and rent has doubled since.  :>)

When I attended my graduate school in 1999-2001, my favorite professor said something that stuck on my mind. He said "if I look on your night stand, I can tell you what you should be doing with your life."  I went home and saw 3 real estate books on my nightstand.  Not only I read real estate books, I analyzed local and out of state deals on my laptop night in and night out.  I flew to several states between 2000-2004 to check out real estate because the numbers looked so good on the spreadsheet.  Every state that I went to, I talked to local folks and relative of friends to get a feel for the market.  Luckily, I didn't buy anything.  So don't think I didn't pay my out of state tuition.  

Came back to the Bay Area with a pocket full of dreams and realized the grass is not greener on the other side, I kept analyzing deals.  It seems like everyone was getting rich with real estate except me.  Every property I analyzed was having $1k negative cash-flow and 4-plexes were negative $1,500-$2,000/month.  What to do?  Sometimes, the best thing to do is doing nothing.

2008 and 2009 came and all the stars lined up.  Whatever economic indicators you could think of, I've looked at and studied them. My favorite indicator depicted that the housing market in the Bay Area overshot to the downside.  When comparing the data going back to 1970, real estate in the Bay Area has never been this cheap.  Having the Great Depression as a template and several indicators mimic the Great Recession, I realized it was a super economic cycle where this event only happens once in a lifetime, I decided to go all-in.

It wasn't easy.  I told my parents and 4 siblings, everyone thought I was nuts.  I told my in-law parents and wife's siblings, and everyone thought I was crazy.  This is 2009 when the sky was falling.  Everyone was losing their job or concerning about it.  My wife was the only supportive person.  She said she believed I would be good at it.  

Fast forward a few short years, everyone in the family said quitting my job was the best decision I've ever made for both sides of the family.  All siblings and in-laws now own rental properties and have a house that they bought dirt cheap during the Great Recession.  Prop 13 anyone?

I've developed new niches and strict investment parameters along the way.  As I said above, I'll buy for the right price, and I'll sell for the right price regardless of where we are in the cycle of the housing market.  My break even is about 30% vacancy.  I budget for up to 20% rent reduction in my analysis.  I stress test my portfolio to be sure I can survive the next economic downturn.

As my investment parameters are quite strict, I don't buy every deal puts in front of me. I only buy deals where I can get 100% ROI on my investment, which includes down payment, closing costs, reserve and rehab costs. Anything less must be a prime piece of real estate with way below market rents where I can push them up.

People say you cannot predict future.  Well, J Martin is the only person that drank the cool-aid.  He has just retired from his government job at 31.  If history is any indication, there's a high probability that the housing market in the Bay Area will peak in summer 2017, and the next housing bottom is 2020-2022.   

My biz partner, who's also on BP, read one of my old posts I wrote in 2013 on another forum, where I stated the same prediction as above.  He was shocked that I had the foresight.  I don't.  I just believe history tends to rhyme itself. We'll see how it rhymes this time.

Now you know where I stand on the current housing market, the decision to buy or not to buy is up to you.  I'm still buying and selling, but I'm much more selective now.  

Best of luck.