LA/OC/IE SFR strategies seem to be very limited

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LA/OC/IE SFR strategies seem to be very limited

Curtis Chen
Title Representative · Brea, CA · Member since 2011 · 6 posts · 6 votes

Hi Everyone, 

Just wondering what people are doing with SFR property here in the hot spots. Los Angeles and Orange Counties, and the IE West of the 15 freeway. I'm targeting off market vacant homes in the established areas, first one was in Garden Grove that I was actually able to get close to 70% ARV that I wholesaled off to a flipper. I'm currently working on one in the IE west of the 15 freeway which I want to try something on my own. I feel like I have sufficient funds @100k and a network of private money lenders ready but since nothing can cash flow around these areas, is the only strategy flipping? I'm more attracted to rental property for cash flow.


I might move my growing family in to this next one and just work on paying down a conventional loan until it can cash flow in to a rental prop but that is going to take time. I'm trying to work out the numbers but it seems like without a substantial down payment, cash flow is impossible thus eliminating any type of rental/brrrr strategy. I'd be happy if it can break even and I just sit on the appreciation since these are in highly desirable areas but would like to hear if people are doing things differently?


I understand cash flow properties are better found outside of CA and I will be digging in to those in the future, even possibly outside of the country in expat communities (one of my partners is a digital nomad that lives abroad is familiar with areas in Thailand, Colombia, Indonesia etc). My sources will only help me dig up off market vacants in the hot spots so that's why my finds will always be in these established areas, but again, looks like I would be stuck with wholesaling them off or doing the flip myself?

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Mike Flora
Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
7y

I have been putting together seller finance deals with off market free and clear owners. Run all your numbers with the seller to make these work for you. You can usually offer more to get the deal done compared to flip/rehab prices and the benefits/cash flow comes on the terms. The sellers usually want to cash out so make your note short and sweet for them. Lots to take into consideration on these though with your goals, what your looking for, how much money you have etc etc etc. I have been playing the pay down as fast as possible so I have been putting together high principal deals but my refinance in 4-5 years is really nice and I have a ton of equity once I pay off the note. Looking for 20% discount on the purchase with minimal repairs or tenant problems and then adjust that number accordingly for a bigger discount as needed. The big hurdle is talking someone who wants to cash out into carrying paper for 4-5 years, but your purchase price will almost always be higher than your competition! So it can get the deal done sometimes. Example of one deal I did below....

Purchase price $292,000.00

ARV 2 years ago $355,000.00

Current ARV $400,000.00

$25,000.00 down payment

$14,000.00 total put into property so far since purchase

1 year 8 months left on note, deal is a 4 year note

Rents for $1950 a month right now

Payment breakdown: $1,100.00 comes off principal every month with 1% interest on the remaining balance due. Loan is not amortized. Current payment due is $1,298.16 to seller which drops almost a dollar every payment.

Loan balance at the end of 4 years will be $214,700.00

Property could be worth $424,000.00 at the end of 4 years

LOTS OF OPTIONS AT THE END OF THIS!

This was my first one so I could have asked for more principal and I do ask for more principal now especially since market is sketchy in California right now. I like the safety of being able to exit at the end of 4-5 years and the refinance option to cash out of just refinance for cash flow. Just an idea for you guys.

@Matthew Tavormina @Curtis Chen @Guillaume D.

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  • Matthew Tavormina
    Redondo Beach, CA · Member since 2019 · 6 posts · 2 votes
    7y

    @Curtis Chen I am brand new to this but have formed the same conclusions as you.  As much as I would like to invest close by, I am not interested/prepared to flip and instead want to focus on cash flowing rentals, so I've pretty much resigned myself to learning about out of state.  Will be curious to hear from others in CA.

    1Reply
  • Phil Collett
    Rental Property Investor · Rancho Cucamonga, CA · Member since 2017 · 39 posts · 16 votes
    7y

    Same boat, so I started getting out of state properties after going to REI meetings for awhile and not seeing how to cash flow here in southern Cali at the top of the market. I bought my place after the last financial meltdown, so I have plenty of equity to cash flow my house as a rental and I thought about it last year, or an equity split with a friend to get him into being a home owner; but then you have to look at Cash on Equity instead of just cash on cash returns as I have heard David Greene talk about before (just looked it up to make sure and it is in his book http://biggerpockets.com/longdistancebook).

    I found a facebook video of David talking about the long distance thing, which you have probably heard on the podcasts (probably won't be able to post the link to fb: https://www.facebook.com/BiggerPockets/videos/newest-biggerpockets-author-david-greene-talking-long-distance-real-estate-inves/10155417628854833/)

    0Reply
  • Mike LambertPro Member
    Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Curtis Chen

    I live in Montreal and, even though valuations here are no where near as in CA, I realized a long time ago that investing overseas in places like Mexico, the Dominican Republic, Costa Rica, Panama, Colombia, Brazil, Spain or Portugal and that's what I'm doing. You're on the right track with that I think.

    0Reply
  • Guillaume D.
    Real Estate Investor & Marketing Specialist · Montreal, QC · Member since 2013 · 182 posts · 367 votes
    7y

    Hey guys. I think that's typical of any major market. Here in Montreal (Canada), every investor I know says it's way too expensive and impossible to cash flow (because rents in Montreal are very low compared to everywhere else in the country and price of income properties are high). However, many investors like myself still find ways to buy multiple great deals. The key is always to find off-market deals with a lot of potential for increased NOI (net operating income). To find this kind of deals, you have to invest heavily in lead generation techniques such as direct mail, Google and FB ads, cold calling, and so on, which a lot of people are not willing to do. What techniques are you guys using to try and find great deals?

    0Reply
  • Curtis Chen
    OP
    Title Representative · Brea, CA · Member since 2011 · 6 posts · 6 votes
    7y

    That's exactly what I'm doing, targeting off market deals but cash flowing in my area is impossible, ex. $699,000 home renting for $3200 here. Its tough enough convincing the owners to sell but to sell below 50% of of market regardless of the condition in order to cash flow is not likely.

    I'll be moving my small family in to this rehab I'm trying to get but it looks like it will be all flipping/wholesaling moving forward in my area.

    0Reply
  • Matthew Tavormina
    Redondo Beach, CA · Member since 2019 · 6 posts · 2 votes
    7y

    @Guillaume D. Thanks for the insight. To answer you on what techniques I am using, nothing at the moment. I have only been preparing to being REI for a couple months and still have a lot to learn. I admittedly had not thought too much of ideas you mention though and it gives me something to think about. I don't know that it will change my eventual decision on avoiding SoCal, but definitely will keep an open mind to the advice of experienced folks like yourself.

    0Reply
  • Mike Flora
    Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
    7y

    I have been putting together seller finance deals with off market free and clear owners. Run all your numbers with the seller to make these work for you. You can usually offer more to get the deal done compared to flip/rehab prices and the benefits/cash flow comes on the terms. The sellers usually want to cash out so make your note short and sweet for them. Lots to take into consideration on these though with your goals, what your looking for, how much money you have etc etc etc. I have been playing the pay down as fast as possible so I have been putting together high principal deals but my refinance in 4-5 years is really nice and I have a ton of equity once I pay off the note. Looking for 20% discount on the purchase with minimal repairs or tenant problems and then adjust that number accordingly for a bigger discount as needed. The big hurdle is talking someone who wants to cash out into carrying paper for 4-5 years, but your purchase price will almost always be higher than your competition! So it can get the deal done sometimes. Example of one deal I did below....

    Purchase price $292,000.00

    ARV 2 years ago $355,000.00

    Current ARV $400,000.00

    $25,000.00 down payment

    $14,000.00 total put into property so far since purchase

    1 year 8 months left on note, deal is a 4 year note

    Rents for $1950 a month right now

    Payment breakdown: $1,100.00 comes off principal every month with 1% interest on the remaining balance due. Loan is not amortized. Current payment due is $1,298.16 to seller which drops almost a dollar every payment.

    Loan balance at the end of 4 years will be $214,700.00

    Property could be worth $424,000.00 at the end of 4 years

    LOTS OF OPTIONS AT THE END OF THIS!

    This was my first one so I could have asked for more principal and I do ask for more principal now especially since market is sketchy in California right now. I like the safety of being able to exit at the end of 4-5 years and the refinance option to cash out of just refinance for cash flow. Just an idea for you guys.

    @Matthew Tavormina @Curtis Chen @Guillaume D.

    1Reply
  • Curtis Chen
    OP
    Title Representative · Brea, CA · Member since 2011 · 6 posts · 6 votes
    7y

    Awesome good info, thanks @Mike Flora

    0Reply
  • Guillaume D.
    Real Estate Investor & Marketing Specialist · Montreal, QC · Member since 2013 · 182 posts · 367 votes
    7y

    @Curtis Chen I get what you are saying for SFR, and it's also almost impossible to cash flow on an SFR in most major markets. This is why you should consider investing in larger rental properties which inevitably provide better cash flow. Hope this helps!

    0Reply
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