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Updated over 8 years ago, 04/04/2016
Is Now a Good Time To Invest? (First Time Buyer in LA, CA)
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
I feel the same way Lance. Hope you get a good response.
If you find a SFR property in LA that cash flows well may very well be a flip too. LA has lower cap rates and IMO is more geared towards appreciation than strong cash flow. Hard to find property's in LA that cash flow without large down payments.
Cash flow is not a metric of profitability. Change your metric and you will see that LA is a very profitable market.
Please explain further Bob. Do you mean cap rates? Cash on cash? GRM? Or do you just mean potential for appreciation - if so what is the narrative there. Thank you!
Know your market changes. Appreciation and rent growth will be your top profitability predictors. Without those you will basically just be getting your own money handed back to you in low monthly cash flows.
Thanks for the insight Bob. There are a few issues with praying for rent growth and appreciation. One - there is no guarantee, and I am uncertain why they would go higher from here. #2 - much of LA is subject to strict rent control. Any further info or abilities to shift my thoughts are much appreciated!
Originally posted by @Lance Knapp:
Thanks for the insight Bob. There are a few issues with praying for rent growth and appreciation. One - there is no guarantee, and I am uncertain why they would go higher from here. #2 - much of LA is subject to strict rent control. Any further info or abilities to shift my thoughts are much appreciated!
1. Where are you getting this guaranteed money? 2. don't buy rent controlled properties.
You said that I should be more interested in rental growth and appreciation. And I said rental growth and appreciation is not guaranteed. See what I mean?
Once again I appreciate the advice and am not trying to be pessimistic. I simply am looking for an experienced investor to give some insight on why there would be appreciation in West LA from here since it has already appreciated so drastically in recent years. Deals today lack income, so I am trying to wrap my head around why to invest now. Thank you
Originally posted by @Lance Knapp:
You said that I should be more interested in rental growth and appreciation. And I said rental growth and appreciation is not guaranteed. See what I mean?
And I asked where you were getting guaranteed anything.
interesting question. I guess nothing is guaranteed.. An appeal to LA is definitely population density, so even though there are thin returns perhaps the market is safer.
Originally posted by @Lance Knapp:
Once again I appreciate the advice and am not trying to be pessimistic. I simply am looking for an experienced investor to give some insight on why there would be appreciation in West LA from here since it has already appreciated so drastically in recent years. Deals today lack income, so I am trying to wrap my head around why to invest now. Thank you
I am not telling you where to invest. I pointed out that your cash flow metric was not a predictor of profitability. If LA is at the top of the market why do you think other areas are not? Maybe now is not the time to be buying anywhere. Have you even looked at the rent growth and appreciation rates for the type and location of the properties you are looking at? My markets generally double in ten years. If the prices were 110% of last decades high I would probably not be a buyer.
Hey Lance! Yep, appreciation potential is all you will get around here. Not even sure how that is right now because of where we are in the market. Maybe Bob can elaborate more on that one.
I live in Venice and have scouted deals around SoCal and there's just not much for cash flow. I've always been out for cash flow so I ended up buying out-of-state.
Originally posted by @Lance Knapp:
interesting question. I guess nothing is guaranteed.. An appeal to LA is definitely population density, so even though there are thin returns perhaps the market is safer.
"thin returns"? Still using the wrong metric. How bad can an investment be in LA when you compare rents and prices to the past?
This is great advice Bob, very much appreciated. What is the best source of rent growth and appreciate rate data? Thank you!
Originally posted by @Ali Boone:
Hey Lance! Yep, appreciation potential is all you will get around here. Not even sure how that is right now because of where we are in the market. Maybe Bob can elaborate more on that one.
I live in Venice and have scouted deals around SoCal and there's just not much for cash flow. I've always been out for cash flow so I ended up buying out-of-state.
I don't know how long you've been in LA but it would be interesting to compare your rent and the value of the property you rent from when you first got here and now. See you are losing ground to rent growth and appreciation! I'm sure it was more expensive to buy than to rent initially but now your landlord is raking in the CASH FLOW and probably has massive appreciation equity.
I
Originally posted by @Lance Knapp:
This is great advice Bob, very much appreciated. What is the best source of rent growth and appreciate rate data? Thank you!
Old Investor Guys/Gals.
Some people look at USA.com
http://www.usa.com/hawaii-state.htm
And I like neighborhoodscout.com
but you have to remember that their numbers are for whole neighborhoods and all types of properties. It is better to get the info for your target area and property type. That is where experience and time will help you. A good Realtor will be able to tell you what properties sold for and rented for over the last decades AND tell you what caused an abnormal blip up or down.
Cash flow?
Indianapolis is located close to the center of Indiana. Indianapolis is between the Marion, Hancock, Hendricks, Hamilton, Johnson, Shelby, Boone county. Indianapolis has 361.43 square miles of land area and 6.59 square miles of water area. As of 2010-2014, the total Indianapolis population is 835,097, which has grown 6.81% since 2000. The population growth rate is lower than the state average rate of 7.60% and is lower than the national average rate of 11.61%. Indianapolis median household income is $42,076 in 2010-2014 and has grown by 5.06% since 2000. The income growth rate is much lower than the state average rate of 17.25% and is much lower than the national average rate of 27.36%. Indianapolis median house value is $117,200 in 2010-2014 and has grown by 19.35% since 2000. The house value growth rate is much lower than the state average rate of 30.12% and is much lower than the national average rate of 46.91%. As a reference, the national Consumer Price Index (CPI) inflation rate for the same period is 26.63%. On average, the public school district that covers Indianapolis is worse than the state average in quality. The Indianapolis area codes are , .
LOL Bob, you hate on Indy so much. BUT you are consistent, I'll give you that :)
@Account Closed
Originally posted by @Alain Perez-Majul:
LOL Bob, you hate on Indy so much. BUT you are consistent, I'll give you that :)
@Account Closed
Thanks! But, but I am a Hoosier! Born in Madison Indiana. It's just the FACTS. Shoot, I sold real estate in Northern Kentucky back in the 70's. I know a bit about the tri-state market. I've even been trying to get someone here on BP to sell the Indianapolis Fletcher street property (converted church) so I can exchange my beach front Honolulu Gold Coast condo in Jan or Feb. each year with the new owners.
@Ali Boone thanks for the reply Ali. Is there anywhere in particular you have invested in recently that you would recommend?
@Account Closed thanks for providing those websites! I will begin researching and see what I can find. As for what you said about rents having appreciated since I moved here 3 years ago, you are absolutely right. My concern is that wages have not grown with rents and the underlying economy may have weaknesses. I don't want to be caught chasing or "swimming naked"
@Account Closed
So to address the topic with a question: if you can get an Indy property and fix it up right, all in for 50K, that rents for $750 in a neighborhood that never goes unrented, and assuming that half of your monthly rent amount is eaten up by all the expenses involved (so you're left with $375 net), what's so horrible about that? Although it's obviously no home run, and you can do much better in Indy, what's bad with that 9% return?
How do you justify LA being better?
I believe, assuming I'm reading it right, that @Account Closed's point is that indy is riskier because the population metrics are saying you're going to be stuck with 375 net forever if things go well. You'll break even after 11 years, because that money you're getting isn't going to go up or down. If you're unlucky and things don't go well it might be 20+ years before you recover your investment. Additionally, your 375 net doesn't change (much) with inflation because no one wants to live there and salaries haven't risen to match.
If you invest in LA, AND the numbers in LA say it's a good market (read: everything indicates it should appreciate, people are moving in, salaries are growing, etc) then you get break even returns on cash, but the home value goes way up and you make it up on sale, OR the rental market goes way up and you make it back on rents.
For an example of this, 3 years ago 1 beds in SF were going for ~2600, nowadays they're going for ~3400 on the low side. That's almost $1000/30% extra rent per month in 3 years (or, 10% / year returns on top of everything else); you're not going to see that kind of rise in rents in indy. You can then take that extra money and use it to justify a higher sale price, or just pocket it. Is now a good time to buy in SF? No idea, I'm priced out of the market, so I haven't investigated it :)
In LA? You'll need to run the market numbers to find out.