House Hacking in Los Angeles County

[Angela Arriaga]

Hello fellow real estate investors,

Our journey began with the desire to secure property for my fiancé and me, marking the next steps in our future. As low-income owners with a keen entrepreneurial spirit, we balance W2 jobs with side hustles, such as selling custom t-shirts or baked goods. Discovering the concept of house hacking ignited a passion within me, prompting deep dives into podcasts and books on the subject.

Currently in the NACA process since June 2023, I anticipate viewing properties by March. My focus lies on purchasing a multifamily unit in Los Angeles County. Despite diligently analyzing Zillow and MLS properties, viable options seem limited. While aiming for profitability and cash flow may seem ambitious to some, it remains my primary objective.

I welcome any tips, opinions, and insights from experienced investors.

Warm regards, Angela Arriaga.

[Nicholas L.]

@Angela Arriaga

sounds like a good plan to me.  just remember that positive cash flow isn't actually the goal of a house hack.  if your mortgage payment net of rent is equal to or less than what it would be renting, it's a better choice.

say you could A. rent for $2000, or B. have a $3000 mortgage and collect $1200 in rent.  B is better.  Way better.  You're building equity and learning investing and saving $200 a month.

[Angela Arriaga]

Thanks @Nicholas L.

Right, thank you. I'll also be adding value to the property to maximize rent. I have no idea how much it would cost to pull carpet out, install flooring or any remodeling. I heard it's a good start to look at how much the cost of materials are and call local workers on how much they charge for labor. I see you're a flipper, how do you estimate these costs?

[Nicholas L.]

@Angela Arriaga with actual estimates.  going to a flooring store and getting a quote, or sending my handyman some photos and asking for a quote, or going to Lowes and totaling up the materials.

but don't worry about making a rental HGTV quality.  just make sure it's safe, clean and in line with other rentals in the area.

[Margarita Artiushenko]

Hi Angela!

Hope your search is going well!
May I ask how did you get access to MLS listings?

Thank you

[Rick Albert]

Hello Angela,

Welcome to the BP community! I'm a 2x house hacking investor here in Los Angeles and have worked with many house hacking clients.

1. Your goal is to cash flow positive? If so, unfortunately right now in this market that isn't possible. Here is what I tell everyone: If the property cash flows at 3.5% down, why wouldn't an investor putting 20% down buy it? I'm not being negative, I'm being realistic. Appreciation plays a big part in this. 

2. There are four ways to make money in real estate: 1. Cash Flow 2. Appreciation 3. Loan Buy Down 4. Tax Benefits. Even though it doesn't cash flow today, are you factoring in the other three?

3. Get creative. On our second house hack, after building the ADU, my wife and I moved into the studio ADU and rented out the main house. We refinanced twice before moving into the main house. We probably could cash flow if we rented rooms and after raising rents on our ADU tenants, but choosing not to.

4. From The House Hacking Strategy, published by BP (and I'm a case study in the book), Craig talks about the profitability to comfortability scale. The more uncomfortable you are, the more potential cash flow. This is important as you understand where you want to be. I have a client who is renting each bedroom and the ADU. I have another client where his family live in one unit and rents out the other on a month to month basis.

[Angela Arriaga]

Hi Margarita, I have access to the MLS through an agent, but you can also find some of these properties on Zillow, Realtor, Redfin, etc.

Hey Rick, thank you. 

Yes, you are being 100% realistic. I have accepted that there will be no cashflow on my first purchase. My goal has shifted and I'm looking for a prime location that will build equity and allow me to charge top dollar for my renovated units. I'd like to pay the minimum every month.

I just finished reading Craig Curelop's book, amazing what he has done in the last couple years. His method is not for me as I will be house hacking with my fiancé, and we look forward to our privacy. I love that he added these case studies because there are so many different scenarios to house hack and they're all inspiring. 

[Jon Schwartz]

Quote from @Angela Arriaga:

Yes, you are being 100% realistic. I have accepted that there will be no cashflow on my first purchase. My goal has shifted and I'm looking for a prime location that will build equity and allow me to charge top dollar for my renovated units. I'd like to pay the minimum every month.

 Angela, 100% this! In my opinion, house hacking in LA is all about choosing the right submarket. The question is: which neighborhood (without creating an absurd commute) is going to appreciate more than its neighbors in the decade to come? This will lead to appreciate gains and rent gains while you own.

Right now, there are promising pockets all over the city. I *love* the northern part of Inglewood, but there are also NELA pockets like Cypress Park and El Sereno that offer a tone of value.

And all of these pockets, almost entirely, are in NACA-qualified tracts. Honestly, the NACA program is such an amazing hack for savvy buyers in diverse mega-markets like LA.

Also, NACA's really good about counting rental income toward your own income when you purchase. You should absolutely target a fourplex.

Good luck!

Best,

Jon

[Dan Heuschele]

Quote from @Nicholas L.:

@Angela Arriaga

sounds like a good plan to me.  just remember that positive cash flow isn't actually the goal of a house hack.  if your mortgage payment net of rent is equal to or less than what it would be renting, it's a better choice.

say you could A. rent for $2000, or B. have a $3000 mortgage and collect $1200 in rent.  B is better.  Way better.  You're building equity and learning investing and saving $200 a month.

 I virtually always agree with your perspective but when you rent there is no maintenance/cap ex, vacancy, PM, and the various misc.  

if unit A rents for $1.2k but piti is $3k, you are covering $1.8k of piti, $400/unit maintenance/cap ex, 5% vacancy, 8-10% PM, various misc costs (umbrella policy, bookkeeping, office supplies, etc).  Renting is initially financially better in this situation.  However, rents increase.  Most mortgages are fixed rate.  Properties appreciate.  With time, the house hack has the potential to produce significant wealth.  

[Erik B.]

My wife and I actually pulled this off here in Los Angeles County.  We purchased a 4 unit property that was extremely outdated and moved into one of the units.  We did a ton of work ourselves to make it livable and rent ready while living in it. We're actually looking as we speak for our next multi-fam to do this again. 

It's challenging and will test your patience but it's worth it.  Some of the best parts about this strategy is that we pay less living here then living in a single family home (rents increase every year) and when do decide to move out the place will cash flow and we've been here for 2 years.  

When you do find a place you're interested in make sure to really understand who the current tenants are and what the rent control laws are for the city/county. Know how much you can anticipate raising the rents to each year as you're probably going to find listings that have rents that are way under market.   You don't want to get into a situation where you move in and one unit has a nightmare tenant in it.  Highly recommend Los Angeles County over City of Los Angeles. 

Hope this helps!

[Nicholas L.]

@Dan Heuschele

definitely, great point.  will add it to my template response for why house hacking is better, why it works in expensive markets, and how the goal is not to 'cash flow.'

[Wale Lawal]

@Angela Arriaga

Hello and congratulations on embarking on your real estate journey! House hacking is a fantastic strategy, and it's great to see your enthusiasm and dedication to making it work for you in Los Angeles County. Here are some tips and insights to help you along the way:

Make connections in internet forums, local real estate investor groups, and networking events. Developing connections with seasoned Los Angeles area investors might yield insightful information and possible leads.

Collaborate with a real estate representative who specializes in multifamily buildings, particularly those for investment. They can guide you through the market, point out possible purchases, and offer insightful counsel.

While you're in the NACA process, keep looking at different funding choices. Investigate conventional finance, FHA loans, and other programs that can be in line with your objectives.

Through networking, word-of-mouth, or direct communication with property owners, take into consideration investigating off-market options. The greatest offers aren't always visible on open marketplaces.

Keep up with the latest developments in the Los Angeles County real estate market. Making educated judgments will be aided by your knowledge of the rental demand, property valuations, and market circumstances.

Analyze properties thoroughly, accounting for future appreciation, costs, and possible rental revenue. Benchmarks such as the cap rate and the 1% rule are helpful resources.

Remember, every real estate market is unique, and strategies that work in one area may not be as effective in another. Adapt your approach based on the local conditions and keep refining your investment strategy as you gain experience. Best of luck with your property search and your journey into real estate investing! If you have specific questions or need further guidance, feel free to ask.

[Michael Simpson]

Quote from @Erik B.:

My wife and I actually pulled this off here in Los Angeles County.  We purchased a 4 unit property that was extremely outdated and moved into one of the units.  We did a ton of work ourselves to make it livable and rent ready while living in it. We're actually looking as we speak for our next multi-fam to do this again. 

It's challenging and will test your patience but it's worth it.  Some of the best parts about this strategy is that we pay less living here then living in a single family home (rents increase every year) and when do decide to move out the place will cash flow and we've been here for 2 years.  

When you do find a place you're interested in make sure to really understand who the current tenants are and what the rent control laws are for the city/county. Know how much you can anticipate raising the rents to each year as you're probably going to find listings that have rents that are way under market.   You don't want to get into a situation where you move in and one unit has a nightmare tenant in it.  Highly recommend Los Angeles County over City of Los Angeles. 

Hope this helps!

Hello Erik did you use the NACA program to get the 4-plex? What part of LA County? I am actively placing offers in LA County but the price points/interest rates are so high right now I wonder if this is a smart time to buy? It took only 2 years for you to break even? I'm running numbers and it will take 4-5 years.