Pre-Qualified by Lender in Los Angeles $800k. How to Start REI ??

Question

Hello BP Community:

This is my first post on BP.  I humbly appreciate you reading the below question.

Seeking expert advise on how to best start REI. I live in Los Angeles County (Whittier) and am interested in investing in SFR or MFR in the local area or Chicago (Berwick/Cicero area).  Open to all possibilities (house hacking, rehab, etc).  This month (Feb '17) I was pre-qualified for $800k (FHA 3.5% down), either SFR or MFR (based on W2 job).  For the past 45 days I've seen 20+ properties with my realtor (and on my own). Currently rent a townhouse in Whittier.   I'm inches away from pulling the trigger on a purchase.  Some questions I self debate include (among others):

a) Should I purchase locally or out-of-state? Local market is nearly as high as '08 levels.

b) Will i miss the appreciation opportunity in out-of-state deals (Chicago) by purchasing locally?

If you were me how would you begin in the real estate market?

Thank you, in advance, for your responses!

Brendon Woirhaye · Answer

Focus on your target market and look at every listing you can.  Walk neighborhoods and talk to people.  Keep looking.

Whittier does have an apartment owners association which is worth attending.  It is at the Whittier senior's center.

The next sessions will take place on the following dates:March 16, 2017July 20, 2017October 19, 2017Workshops are free for property owners and managers to attend. Arrive by 6:45 p.m. for complimentary coffee, cookies and the opportunity to network with other property owners and managers.

Syed Lateef · Answer

If your using an FHA loan you cannot do this for a multi-family in Chicago while living in California. There are owner occupancy requirements when using a low money down loan with FHA.

You would need 25% down to invest out of state

Eric Robert · Answer

Im an investor in the Whittier area on multi-family properties. In saying that, it is almost impossible to find an investment property that will cashflow using an FHA loan. If you can find a property that is distressed, rehab it, then use market rents, you may be able to cashflow. I house hacked my first property and it has been a good use. Im not sure about out of state properties, but I use @Felix Esqueda to find properties that are not on the MLS and he has always come through.

Brendon Woirhaye · Answer

Sergio,

I'm planning to be there, if you see me, introduce yourself.

David Faulkner · Answer

I second this sentiment. I see from your bio that you already have your primary ... would that cashflow if turned into a rental? If so, then I'd consider looking for another primary residence, something that is a great deal that you can force some appreciation via sweat equity, and move into it while converting your current home into a rental. This is one of the best, lowest risk, hands on ways IMO to build a portfolio initially and learn thebusiness of REI. It is key, however, to be disciplined and only buy when you find a great deal that you can reasonably afford. Buying at full turnkey retail market value a place that you can't afford to hold through a downturn would be the main danger that can be mitigated with this discipline. If you go this route, you are already in your primary, so take as much time as it takes in active searching, even if it is a year or more, and do not pull the trigger unless/until you find that great deal that you can afford. This is the best way for most CA newbies to go IMO.

Val C. · Answer

@eric

@Eric Robert hi, I'm val I live in montebello I'm working on my fico right now hoping to get into a multi family in Whittier  by November. The house I live in now is free and clear. My fico right now is 590. I can really use a mentor. I've been listening to many bp podcast trying to educate myself so I can be ready. My goal is to have 6 multi units in 5 year span. Any help or tips you can give me would be very greatly appreciated

Sergio Avina · Answer

Manolo, Eric, Syed, Brendon: Thank you for your feedback! My apology for the late reply. You all provided beneficial advise, which I greatly appreciate.  I'm between two properties - made offers on both.  One is a SFR, the second is a MFR. The goal for the SFR is to build another unit in the back (15,000 sq ft lot), which is permitted, according to local code. The MFR is not in my local neighborhood, yet only 30-45 mins away (depending on traffic) and walking distance to a university (USULA), and near Downtown LA. Still doing due diligence on both.

Brendon: appreciate the advise. I agree that good deals exist in our local area -- just need to look.  Matter of fact, i recently found a duplex near Rosehills, which i'm also exploring. Let me know if you ever look for local partners.

Humbly... thank you, all !

Brendon Woirhaye · Answer

You can find cash flowing older properties in Whittier, but you need to look.   Local allows you to self manage (and potentially self maintain) which you cant easily do out of state.  My models are in the 70-80% ltv range for the primary loan.

80% of my properties are in Whittier and I havent ventured out of state so my perspective is biased.

Pre-Qualified by Lender in Los Angeles $800k. How to Start REI ??

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