Best ROI investment strategy with 150K

[Paul Wolfson]

I’m from Los Angeles in the earlier stages of real estate investing.

Curious to hear what strategies have worked for investors with families, in terms of cash-flow, with around $150,000 or under in cash to invest.

Open to hearing all strategies, including:

• out of state
• house hacking
• traditional investing

Which brought you the best returns on investment?

Thanks!

[Brian Kemp]

I'm also in LA, early stage investor, and in the 5 zeros club. However, I did do a deal here this year that made sense for me. It's not the kind of thing that would land me in a podcast but I'm happy with it and perhaps it will be helpful to you as well. 

Here are my learnings about buying in LA:

- Finding a property: I used the MLS and worked with an amazing agent. I only looked in neighborhoods that I knew pretty well and in places I would want to live. I drove to every place I thought was even a little interesting and scheduled walk throughs with my agent after driving the neighborhood.

- Analyzing in LA: this was hard because the vast majority of content on BP is not specific to LA. The main difference I have found is that the 1%-2% rule is pretty hard to find unless you have all cash and get pretty lucky with the seller's situation. So I focused on house hacking in a neighborhood I wanted to live in and sub-market appreciation. My goal was to cash flow any amount in a property I lived in. Not a very impressive goal in 90% of markets. But in LA that represents $2000-$3000 a month that I am not paying in rent (plus any cashflow). I can't scale that strategy but it is a great base of operations for me and significantly lowers my dependency on needing to be an amazing real estate investor to pay my bills. Sub-market appreciation: (this isn't investing, it's speculating) I found an area in between 2 other areas that have appreciated a ton in the last few years. I figured it's a solid bet that this area will follow suit. Since I had driven up and down every block I narrowed in on a neighborhood that I believed had some potential. I included this imaginary appreciation in my numbers when analyzing each deal. 

- Getting your offer accepted: I'm not a professional investor and I'm not a typical first time home buyer. But (because of BP) I know the numbers both groups are looking at when analyzing a deal and that helped me know what to look for and what to offer. I looked for houses that first time buyers would be scared of and made offers 10-20% higher than what an all cash investors/flippers would ask. This meant my real offers got real responses. Each response I learned a lot and adjusted my strategy.

- how to break analysis paralysis: The internet is an amazing and powerful tool but eventually I had to log off and get my hands dirty. (Walk neighborhoods, make real offers, order inspections, etc) Since no one in my family does this and my friends aren't there yet either, I was pretty scared to make a mistake. Tim Ferris has a Tedtalk about Fear Setting (like goal setting) that was really helpful. The key for me was to realize that the consequences of my worst fears were really rooted in pride and not in financial ruin. I was worried I would make a deal that wasn't as sexy as the other investors in the room and Brandon would never ask me to be on his podcast. Guess what? 100% chance of those fears happening! But I figured the worst case scenario was that I would tie up my limited capital, have $0 rent in LA and in 30 years own a home out right in LA. If that was the worst (realistic) case scenario I could live with it. All that to say, to break the paralysis I had to know my numbers, know my fears, and get my hands dirty. 

-The result: Personally, I think telling other people the numbers behind a deal I made is like telling them about a dream I had last night. It's interesting (to me) but pretty irrelevant to everyone else trying to find their own deal. That being said, I bought a run down duplex with a detached garage on a conventional loan. I fixed up and moved into one unit, have a below market tenant in the other, and I'm turning the garage into an ADU that I will move into soon. Once I move into the garage the front 2 units will cash flow and I will never have to pay rent to anyone ever again! The house has appreciated about 10% in 10 months and maybe more once the ADU gets finalized. Not a home run but I'm stoked be at least be on the field and playing the game! My second property will be an entirely different deal since I can't house hack again. If anyone has any advice for me or wants to grab coffee and collaborate, let me know, I'm available!