Southern California Real Estate Rentals

[Pete Perez]

Hello All,

 I had a question regarding rentals in southern california, primarily the inland empire. I am just starting out in real estate and read a few books and decided that I'd like to start out in Buy & Hold investing. I met with an agent whom was recommended to me by a close friend. He suggested purchasing a duplex and living in it short term while renting out one of the units. He showed me several listings that cash flow just over $1000 monthly. I am meeting with a lender to see what I can get approved for. 

My question is regarding my exit strategy. Ultimately I'd like to rent this property entirely. So the agent suggested living in the property until I get married (currently engaged and date set in Nov 2016), then purchase the 2nd home under my wife's name so that we can qualify for an additional FHA loan. That home would be our primary residence. Does this sound like a viable strategy? This was my first ever meeting with an agent, so what he said makes sense in theory, but my lack of experience makes me a little worried.

Any insight or guidance is much appreciated. Thank you, Bigger Pockets Community.

[Aaron Mazzrillo]

Originally posted by @Pete Perez:

Hello All,

 I had a question regarding rentals in southern california, primarily the inland empire. I am just starting out in real estate and read a few books and decided that I'd like to start out in Buy & Hold investing. I met with an agent whom was recommended to me by a close friend. He suggested purchasing a duplex and living in it short term while renting out one of the units. He showed me several listings that cash flow just over $1000 monthly. I am meeting with a lender to see what I can get approved for. 

My question is regarding my exit strategy. Ultimately I'd like to rent this property entirely. So the agent suggested living in the property until I get married (currently engaged and date set in Nov 2016), then purchase the 2nd home under my wife's name so that we can qualify for an additional FHA loan. That home would be our primary residence. Does this sound like a viable strategy? This was my first ever meeting with an agent, so what he said makes sense in theory, but my lack of experience makes me a little worried.

Any insight or guidance is much appreciated. Thank you, Bigger Pockets Community.

 Be careful listening to real estate agents and getting investment advice. We're talking about someone who wants to be in real estate in order to earn highly taxable income (commission). That is not a smart strategy. I've been investing in the IE for 10+ years. $1,000 cash flow per month at these prices? Maybe if you put 50% down. 

You might consider finding a new agent. Sounds like this one has only his/her commission check in mind. Once you press hard and make 3 copies on that loan and escrow closes, there's no going back. You'll be on the hook for that property for many years - especially with a 3.5% down FHA loan. You do realize the day you close escrow, you're officially underwater right? As in, you're upside down on your loan. You have zero equity. You're only option to sell over the next 2 years (IF we see any appreciation) is a short sale or subject to to a shark like me. It costs about 10% to sell a property so you'll be writing a check for that 6.5% if you decide you don't like the way that property fits.

Ask your agent how many rentals he/she owns. If the answer is less than 3, you're taking advice from someone with about as much knowledge as landlording as you have.