Is it a good time to buy a BUY and HOLD investment property?

Question

I live in Los Angeles and have been planning on buying a investment property. But the prices in LA reflect the ones we had during the housing crash in 2007 or in some cases more than that. its hard to find a SFH below 500K in LA (San Fernando Valley). So I was kind of thinking may be I should wait. I currently own a home, and already sold one hold and buy property this year. Any suggestions or insight from experienced investors is greatly appreciated

John Thedford · Answer

Nobody knows for sure. Your area is extremely expensive and I don't know how investors get a good ROI except with appreciation. To me, that is gambling. I would look in other areas where you have the ability to find deals that cash flow. Remember when everyone lost their butt in 2007? They were all leveraged to 110%. That could still happen again. The few that did survive were not heavily leveraged. So, it is a double edged sword. It can work for you or against you. I will NEVER leverage to that extent and know that even in a downturn I will survive.

Sri Voodi · Answer

@Fay Chen

My venturing into real estate started with a primary home. When I first started, we were looking for a primary residence and after a few years we wanted to upgrade to SFW from a townhome. Then we rented the townhome for 3 years and made some good Tax free money, as it was a primary residence. In no way both of my houses are shit holes, they are in a good condition and townhome was sold with in a week of listing (just to give you a sense). As you said in real terms I wouldn't call it an "investment" property, but this method has been serving us good so far. Currently we are gave another offer for another primary residence and will know if we will get the property in a week or so. Now our current home would be rented for a year or two and then we will decide if we want to sell it.  Will keep you all posted

Fay Chen · Answer

That's interesting... I personally would not call a primary residence "investment" unless I can at least break even if I rent out the property. I know living in an investment property is a very attractive idea (like Brandon's BRRR strategy). But sometimes buying an investment home and putting your family in a satisfying home are conflicting interests.

Honestly, if I have a family, I would not invest the same way I do now. I struggled previously with living where I want to live vs. investing where the number makes sense. What I have learned is that versatility is the key of getting a good deal in LA. People generally leave money on the table when they have to move in a certain house during a certain time. To stay versatile, I moved 4 times in the last 2 years. I rented a room month-to-month in a condo with luke warm showers and biting carpenter ants. I moved back with my parents twice while my homes are under construction. I don't think I would do the same if I have kids. I would much rather invest my money where I get a solid cash flow and rent in a good school district. The cashflow will subsidize your rent while you can take your time looking for the right primary residence in the right neighborhood at the right price.

Fay Chen · Answer

It's hard to find an owner-occupied investment property in LA, unless you don't mind living dangerously... What if you buy something that gives you a good cash flow and just rent in a good school district?

Sri Voodi · Answer

Sorry Fay I misinterpreted your suggestion.

Sri Voodi · Answer

@Fay Chen - The problem with buying a property in a good school district is the prices are currently so high and very speculative, and the rents wont even cover your expenses (in some cases may be break even). The property I sold this year was in a similar fashion, rented it for 3 years and sold this June, though I made good money. The cash flow was insignificant and just the appreciation came handy. The other approach I'm looking at it, is to buy a primary home and rent my current home for a year (Cant sell 2 primary home in span of 2 years to be tax free) and then sell it and pocket the profit and keep repeating the same cycle may be every 3 years - what do you think? I know the inconvenience part of relocation, but I believe in no pain no gain

Sri Voodi · Answer

@Fay Chen

Thanks for the information. I know there are properties below 550+ in LA area. But from my current and previous experience with investing, is that it is all about SCHOOLS, SCHOOLS, SCHOOLS - even Location doesn't matter. Anyways we spend a lot of time in commuting. I personally know people who commute more than 2 hours (one way) to work just because of schools. And not many areas in LA have a good schools, in the areas where there are, they get scooped up in matter of days. But I will keep looking, as I have been in the past 6 months

Fay Chen · Answer

There are a bunch of them under 500K!

Sri Voodi · Answer

Thanks Tyler, Michael and John for your insights. we both have a full time jobs and pretty young family with 2 kids, so I don't think I can venture into out of state opportunities yet. May be when the girls grow up.

Is it a good time to buy a BUY and HOLD investment property?

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