Always Invest Outside of Los Angeles as a Newbie?

[Serj Kalfayan]

It seems that most of the time when I'm reading about new investors in Los Angeles, they are doing deals outside of the area. I understand it's very expensive to do deals in LA, but are there any other reasons aside from cost? Is this a good rule to follow as a new investor in LA - or should you just follow your connections/leads/opportunities and see what works whether it's in the area or not.

[Moses Kagan]

With all due respect to the other investors on this site, I think investing far from your home, particularly as a newbie, is insane.

The key advantage that any starting person has over everyone else, particularly big money private equity firms, is local area knowledge. For example, I bet you could tell me which parts of North Hollywood read "Arts District" even if they're not exactly in it (and therefore command higher rents than outsiders would expect).

By going out of state, you're throwing away your most valuable advantage over everyone else.

Separately: The yields in LA are lower, but the risk is a lot lower, too. Here, any habitable unit priced reasonably will rent almost instantly, even when times are bad economically. In many other markets, particularly the cheaper markets in the interior of the country, when the economy gets bad, you end up with vacant units.

Hope this helps!