Los Angeles - Any tips on house hacking here?

Question

Hi! I’m new to the area. Anyone have any advice on house hacking in LA? Should I buy now or wait?

Jon Schwartz · Answer

@Nicole Corla, I’d like to push you a little on your feeling that you can’t afford a duplex. I’ve found that duplexes don’t cost much more than the single-family homes around the corner. That’s certainly the case in my neighborhood!

My duplex is a 3/2 on either side. It took about four weeks to find a great tenant, a professional couple who love the neighborhood. Since they moved in at the beginning of the year, it’s been 100% occupancy and 100% rent collection. In April, I proactively let them know that we could work out a reduced rent if the need arose due to COVID, but fortunately, they’ve remained employed.

Anyway, back to you! Boyle Height, you say? I’m going to take a look at 3/1’s and small duplexes and see what the prices look like....

Kevin Walsh · Answer

Find an underutilized property, something with enormous square footage and garages. California allows creating a JADU (junior accessory dwelling unit) up to 500sf carved out of the existing house and a separate ADU up to 1200sf that can be a garage conversion. So any single family home can legally be turned into a triplex anywhere in California, even R-1 zones. If zoned multifamily, even better.

As for when to buy, I'd say if you can find a great project that you can make work today, do it. Give yourself plenty of cushion so you can withstand issues that come up. It seems there is an inevitable buyer's market in the future due to all the unemployment but there's lots of uncertainty there. Foreclosure moratoriums can be extended or brought back if they do expire and as other options become less attractive, more wealth may get parked in RE and keep prices up.

Jonathan Taylor · Answer

@Nicole Corla All good points here but a few thoughts on ADU/JADUs. First, fannie and freddie are NOT buying loans that have  2-4 units with ADUs. Meaning if you want to buy a 2-4 unit with and existing ADU, it cannot be sold on the secondary market, which limits the loans available to you.

Second, Look in NACA program for LA house hack. Would be a good option for a first time buyer.

Jonathan Taylor · Answer

@Clarence Johnson it was a surprise and I spoke to Freddie directly but was not able to get the WHY behind it. It is simply not a loan fannie/freddie will buy. If anyone has any other info, please fill me in, but its a very odd line to draw in the sand without much backing.

The good news is that we live in LA and any property with more income producing units will sell, its just a matter what financing the buyer can get since it is limited now.

Im building legalizing an ADU on my triplex right now so Ill be in this boat but I wont need to refi anytime soon so hoping these guidelines change a few years down the road.

Twana Rasoul · Answer

@Nicole Corla purchase duplex with fha loan. You can get  approved for a higher loan amount vs SFR since rental income from second unit can be counted towards your income. Even if you can’t swing this, getting started is better than not, so buy what you can afford.

Jon Schwartz · Answer

Nicole, welcome to LA! Your accounting background is really going to help in your real estate investment pursuits.

I second the post about ADUs and JADUs. You should definitely do some research if you're not familiar with the ADU ordinances in LA.

Another great option is to buy a duplex, triplex, or fourplex with an FHA loan. You can get into the property with a 3.5% or 5% down payment. In contrast to buying a SFR and building an ADU, there's no construction (or construction budget!) up front. You also won't have to deal with roommates! I'm married with a kid, so I'm househacking a duplex with 3/2's on each side, but I wish I had bought a fourplex of 1/1's when I was single!

As far as when, there's no reason not to jump on a great deal now if you plan to hold for 4+ years, but also, there's no reason to be in a rush. The real-estate lags the broader economy; for example, the Great Recession started in 2008, but the real estate prices didn't bottom until 2011. We're definitely entering a protracted recession. I don't think the real estate market is going to collapse, but I do expect it to soften over the next 12-24 months. If you see something perfect now, you'll be fine -- but if you don't find it now, you'll still be in a great position in a year.

Where are you looking to buy?

Clarence Johnson · Answer

@Jonathan Taylor thanks for the info, that why I love this board, so much value exchanged.  I'm sure they will change the guidline, just a matter of when.  You probably know, but loans are not even counting the potential rent from ADUs for financing, like they do for duplexes.  They have catching up to do.  Congrats on the project, we should start a construction support group, I have a few projects going on and its like juggling cats lol.

Clarence Johnson · Answer

@Jonathan Taylor wow, I knew an ADU/JADU combo was not sellable on the secondary mkt but not a duplex with an ADU.  Do you know what guideline references this, I'm literally building an ADU in my duplex right now lol.  Thanks

Clarence Johnson · Answer

@Nicole Corla FHA duplex is the way to go, I agree with the posters above, just because no one has mentioned it does not means its not possible.  If you mention it to your current lender they should be able to use mkt rents for the area you want to provide a duplex approval in addition to an SFR approval, the duplex approval factors in mkt rent so it will always be more.  Dont be intimidated by the price, look at cashflow in a 30 year run.

Jonathan Taylor · Answer

@Antonio A. Nice attitude. Be aware NACA is great but takes a good amount of work to get it done but sets you up to get more properties. Read up, take the home buyers workshop and reach out if you have questions.

Los Angeles - Any tips on house hacking here?

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