Leaving California for "sunnier" skies!
Savannah, GA · Member since 2015 · 11 posts · 4 votes
Hey everybody,
For the last dozen years I've been working in eCommerce in Los Angeles, but am finally scratching the itch to get into real estate. I have sold my home and plan to use the profit I made as capital to build and grow my small empire in a smaller market with much lower acquisition costs. I'm here to learn everything I can to decide which place is right for me.
The best part of that William Yu story in the LA Times is the chart of 'real' home prices.
Notice that somebody buying in 1997 effectively paid the same price as somebody buying in 1980. Similarly, somebody buying in 2012 paid the same price as somebody buying in 1989, a full 23 years later! And for anybody that bought during the 2005-2007 time frame, they will still be selling for break even until sometime in the early 2030's, accounting for inflation. That's a long hold time to break even!
I think this illustrates perfectly that appreciation in LA/OC is not a slam dunk. You can own a property for 20+ years and still not see any REAL appreciation at the end of it.
Buy wisely folks.
I thought I'd chime in with a little real world insight here. I'm currently in escrow on some apartments I'm selling in Los Angeles (due to close in about 2 weeks). I purchased the property in 2005 and am under contract at a 56% gain over my original purchase price. This is in a fantastic location in Venice, so it's a red hot market there. The property went on the market in March. It was priced reasonably and rents are right at market rate. It took a while to get an offer, and then fell out of escrow twice on two different development deals after the developers couldn't make it pencil out. Now it's been under contract since early August with a buy and hold investor and I'm really happy with this deal. I definitely feel like I'm selling at the top of the market, at least in the multi-family investment market. Single family may continue to appreciate but I expect it to level off. Much of the appreciation has been driven by developers but from what I understand the city is starting to limit that, and as mentioned the deals don't pencil out for the SFH developers like they were a couple of years ago. (at least on the westside). So I think 38% appreciation over the next 4 years sounds really optimistic. But lord know I've been wrong before.
@George Fitz I am with ya. Now that 38% is not me but UCLA and that is their take. Here is the thing if the SFH goes up 38%, what are newly built apts going to rent for? I have not checked historically but I won't be surprised if the rents fall in lock step especially on the westside. If the multis rents are up 38% the value would have to follow...or no?
@Matt R. Normally I'd say yes, but rent control definitely comes into play here. I was fortunate that I was able to keep my rents up on the building I'm selling with pretty consistent 2-3 year tenant turnover. The other thing to watch is what happens with Airbnb style rentals. I hear the city is looking at them closely. Most of the westside landlords I know have converted at least some of their units to vacation rental, and so if the city comes in and changes the rules (ala what Santa Monica just did) I'd imagine that would affect income and appreciation.
@Wendell De Guzmanoutstanding info - what online source/s do you pull that data from for each of your five evaluation points?
The best part of that William Yu story in the LA Times is the chart of 'real' home prices.
Notice that somebody buying in 1997 effectively paid the same price as somebody buying in 1980. Similarly, somebody buying in 2012 paid the same price as somebody buying in 1989, a full 23 years later! And for anybody that bought during the 2005-2007 time frame, they will still be selling for break even until sometime in the early 2030's, accounting for inflation. That's a long hold time to break even!
I think this illustrates perfectly that appreciation in LA/OC is not a slam dunk. You can own a property for 20+ years and still not see any REAL appreciation at the end of it.
Buy wisely folks.
The best part of that William Yu story in the LA Times is the chart of 'real' home prices.
Notice that somebody buying in 1997 effectively paid the same price as somebody buying in 1980. Similarly, somebody buying in 2012 paid the same price as somebody buying in 1989, a full 23 years later! And for anybody that bought during the 2005-2007 time frame, they will still be selling for break even until sometime in the early 2030's, accounting for inflation. That's a long hold time to break even!
I think this illustrates perfectly that appreciation in LA/OC is not a slam dunk. You can own a property for 20+ years and still not see any REAL appreciation at the end of it.
Buy wisely folks.
I don't buy the "cycles" doctrine. I do buy that there's a real cap on real estate prices--people's income. People's income, age of housing inventory, land constraints and rental vacancy rates are really the only things that I've found to have any correlation with housing prices. And in the LA-area, real income has been pretty stagnant, and most of the price increase has been the cheap cheap interest rates.
But that's just my fin. analysis.
@Brent Seehusen I guess there are many examples of everything along the way. Some areas are up 300% in value and rents since 1989 not accounting for inflation. So actual location is always the biggest factor with these historical averages probably. Venice was a shiat hole in 89 for example. Santa Monica in part was no picnic either. Both of those areas busted inflation since 89 no matter how you slice it.
One can examine the price history of the region, particularly in Los Angeles. The record covers all the transaction from 1975 to the present, and the data has been adjusted for inflation. Some short term fluctuations are also found in the data including the 4 major housing price cycles.
A more comprehensive report has been published in Builder On Line Newsletter. It summarizes the report written by economist William Yu in his column in L.A Times.Yu found out that based on records the current trend of home pricing is consistent with the historical norms.
According to Yu, if one uses history as a guide, the cycle of housing prices in Los Angeles always lasts on average of about 12 years. The first 7 years is usually spent in the bull market, having at least 65% real price appreciation, then the remaining 5 years is spent in the bear market.
At present, Yu said that L.A is on its 3rd year in its housing recovery which started in 2012. So far, the market has 27% appreciation. Following the cycle, there are still 4 more years before the turning point. Within that span of 4 years, homebuyers expect 38% more price growth.
@Brent Seehusen@Wendell De Guzman
thoughts?
I bought my house in Sherman Oaks, 91423 in March 2012 and sold in June 2015; making about 38%. Los Angeles is a place that does nothing but appreciate over time, even with those short stretches with a down market. But good luck finding a decent school for your kids that won't cost you a fortune in property taxes or tuition.
Hey everybody,
For the last dozen years I've been working in eCommerce in Los Angeles, but am finally scratching the itch to get into real estate. I have sold my home and plan to use the profit I made as capital to build and grow my small empire in a smaller market with much lower acquisition costs. I'm here to learn everything I can to decide which place is right for me.
Hey Russell: Aside from your use of the term "empire" you don't say whether you are more interested in flipping or holding. I think that would have quite some bearing on where you plan to go. Also, having lived in a cold climate for a number of years, I personally wouldn't want to do rehabs again in a place where snow and ice will determine my work schedule. Look forward to hearing more about your plans!
I am definitely worried about the short building seasons in the midwest, and that does factor into my decision. But I was thinking I would treat my assets differently based on current conditions. I'm starting small with SFR and duplexes. If prices were on the rise, then I would flip. If not, then I would hold and find renters. Maybe this is an overly optimistic approach to thinking about it, but I am still in the early stages of planning it all out. I would prefer to find a market that I want to live in and adjust my money-making strategy based on what makes the most sense at the time rather than pick a strategy first and move to the market that best suited it at the time.
Am I being naive to think this way?
@Russell Strazzella Nice, yeah navigating the public schools especially at the high school level can be tricky. LA does have open enrollment so there are some options not usually advertised. There are pockets of greatness with large areas of crap. Sherman Oaks Enrichment Center grades 4-12 is one maybe. Woodland Hills, Granada Hills have some good public ones too. Notre Dame in SO seemed reasonable at 12kish perhaps. A bargain compared to the 50k other privates....Micheal Jacksons kids goto those. The magnets are big too but overall it can be an extra challenge. S.O. and Studio city are pretty good pre High School as is still. I can understand taking the money and running either way. I mean someone probably just paid you 100k a year to live in Sherman Oaks for 36 months:) not too shabby...
One can examine the price history of the region, particularly in Los Angeles. The record covers all the transaction from 1975 to the present, and the data has been adjusted for inflation. Some short term fluctuations are also found in the data including the 4 major housing price cycles.
A more comprehensive report has been published in Builder On Line Newsletter. It summarizes the report written by economist William Yu in his column in L.A Times.Yu found out that based on records the current trend of home pricing is consistent with the historical norms.
According to Yu, if one uses history as a guide, the cycle of housing prices in Los Angeles always lasts on average of about 12 years. The first 7 years is usually spent in the bull market, having at least 65% real price appreciation, then the remaining 5 years is spent in the bear market.
At present, Yu said that L.A is on its 3rd year in its housing recovery which started in 2012. So far, the market has 27% appreciation. Following the cycle, there are still 4 more years before the turning point. Within that span of 4 years, homebuyers expect 38% more price growth.
@Brent Seehusen@Wendell De Guzman@Russell Strazzella
thoughts?
Matt, I don't know - I am not an expert in the CA market so I can't say. These economists' predictions have to be taken with a grain of salt. A lot of them didn't see the 2007-08 crash coming. Economists are generally good at spotting trends based on historical data and extrapolating a cycle. That's why in my 5-point analysis, I included JOB GROWTH and NEW FORECLOSURE FILINGS. These 2, to me are LEADING INDICATORS. If jobs are growing, more people are coming in and can afford to buy more homes putting pressure on price to go upwards. If new foreclosure filings are increasing, that could be a bad sign in terms of prices.
The best part of that William Yu story in the LA Times is the chart of 'real' home prices.
Notice that somebody buying in 1997 effectively paid the same price as somebody buying in 1980. Similarly, somebody buying in 2012 paid the same price as somebody buying in 1989, a full 23 years later! And for anybody that bought during the 2005-2007 time frame, they will still be selling for break even until sometime in the early 2030's, accounting for inflation. That's a long hold time to break even!
I think this illustrates perfectly that appreciation in LA/OC is not a slam dunk. You can own a property for 20+ years and still not see any REAL appreciation at the end of it.
Buy wisely folks.
I don't buy the "cycles" doctrine. I do buy that there's a real cap on real estate prices--people's income. People's income, age of housing inventory, land constraints and rental vacancy rates are really the only things that I've found to have any correlation with housing prices. And in the LA-area, real income has been pretty stagnant, and most of the price increase has been the cheap cheap interest rates.
But that's just my fin. analysis.
I agree in a way. This is why I included JOB GROWTH in my 5-point analysis (volume of sales, supply or inventory level, new foreclosure filings, job growth and Long Term Case Schiller Index). People can't buy houses if there are no jobs. Hence, if you're right, LA-area appreciation is not fundamentally sound and hence, price is poised to go down. (but having said that, what if there's a lot of foreign money chasing real estate in LA - won't that push price up?)
I disagree in a way that there are no market cycles. It has been proven again and again that the price of real estate (as any other commodity) goes up and goes down. What causes market cycles is market inefficiencies and the human emotions of GREED and FEAR....not just job growth.
@Wendell De Guzmanoutstanding info - what online source/s do you pull that data from for each of your five evaluation points?
Hi Joe. It's not just one website - I pulled it from different sources. Honestly, I forgot now where I got them. Some of them are compiling the data from the MLS, some are from Department of Labor, etc.
As I get new data at the end of 2015, I will let you know the sources of these data.
@Wendell De Guzman right on. Professor Yu is not just some random dude though...he/Ucla have predicted previous turns pre GFC and all that they were spot on. I would say he has a handle on SoCal and LA especially. He uses the same fundamentals and indicators as Schiller does...just applied locally in this case.
Hey everybody,
For the last dozen years I've been working in eCommerce in Los Angeles, but am finally scratching the itch to get into real estate. I have sold my home and plan to use the profit I made as capital to build and grow my small empire in a smaller market with much lower acquisition costs. I'm here to learn everything I can to decide which place is right for me.
Hey Russell: Aside from your use of the term "empire" you don't say whether you are more interested in flipping or holding. I think that would have quite some bearing on where you plan to go. Also, having lived in a cold climate for a number of years, I personally wouldn't want to do rehabs again in a place where snow and ice will determine my work schedule. Look forward to hearing more about your plans!
I am definitely worried about the short building seasons in the midwest, and that does factor into my decision. But I was thinking I would treat my assets differently based on current conditions. I'm starting small with SFR and duplexes. If prices were on the rise, then I would flip. If not, then I would hold and find renters. Maybe this is an overly optimistic approach to thinking about it, but I am still in the early stages of planning it all out. I would prefer to find a market that I want to live in and adjust my money-making strategy based on what makes the most sense at the time rather than pick a strategy first and move to the market that best suited it at the time.
Am I being naive to think this way?
I certainly don't think it's naive to look at the re market from all different angles, as you are doing and I think you're on the right track to start with SFR's and duplexes. A smaller cash outlay at the beginning is always a good idea for someone new to the business. I've made my biggest profits from SFR's, both flipping and holding, but I'm not otherwise employed and do all my own work so I have about as much control over things as is possible in this field. You'll know soon enough if you enjoy being a landlord; after almost 40 years as one, I am just now wrapping up work on my last rental in order to sell it and intend to just flip one at a time from now on. You're considerably younger than I am so of course your goals are different. My advice is always to learn as much as possible about what it takes to rehab property and just take it from there; even if you don't intend to do any or all of the work yourself, it will help you out immensely when dealing with contractors and when assessing properties you may want to buy. It's so easy now that we have the Internet to check out MLS all over the country and when I do so, I also use Google Street View to check out the neighborhoods. If you haven't tried that yet, you may find that's a very useful resource...and kind of fun too, for me at least. Best of luck and I hope this has been helpful.
Hey everybody,
For the last dozen years I've been working in eCommerce in Los Angeles, but am finally scratching the itch to get into real estate. I have sold my home and plan to use the profit I made as capital to build and grow my small empire in a smaller market with much lower acquisition costs. I'm here to learn everything I can to decide which place is right for me.
Hey Russell: Aside from your use of the term "empire" you don't say whether you are more interested in flipping or holding. I think that would have quite some bearing on where you plan to go. Also, having lived in a cold climate for a number of years, I personally wouldn't want to do rehabs again in a place where snow and ice will determine my work schedule. Look forward to hearing more about your plans!
I am definitely worried about the short building seasons in the midwest, and that does factor into my decision. But I was thinking I would treat my assets differently based on current conditions. I'm starting small with SFR and duplexes. If prices were on the rise, then I would flip. If not, then I would hold and find renters. Maybe this is an overly optimistic approach to thinking about it, but I am still in the early stages of planning it all out. I would prefer to find a market that I want to live in and adjust my money-making strategy based on what makes the most sense at the time rather than pick a strategy first and move to the market that best suited it at the time.
Am I being naive to think this way?
I certainly don't think it's naive to look at the re market from all different angles, as you are doing and I think you're on the right track to start with SFR's and duplexes. A smaller cash outlay at the beginning is always a good idea for someone new to the business. I've made my biggest profits from SFR's, both flipping and holding, but I'm not otherwise employed and do all my own work so I have about as much control over things as is possible in this field. You'll know soon enough if you enjoy being a landlord; after almost 40 years as one, I am just now wrapping up work on my last rental in order to sell it and intend to just flip one at a time from now on. You're considerably younger than I am so of course your goals are different. My advice is always to learn as much as possible about what it takes to rehab property and just take it from there; even if you don't intend to do any or all of the work yourself, it will help you out immensely when dealing with contractors and when assessing properties you may want to buy. It's so easy now that we have the Internet to check out MLS all over the country and when I do so, I also use Google Street View to check out the neighborhoods. If you haven't tried that yet, you may find that's a very useful resource...and kind of fun too, for me at least. Best of luck and I hope this has been helpful.
Thanks for the input. It's good to hear that I'm picking a good starting point. And yes, I plan on doing the work myself. My father was in construction for most of his life, and I spent almost every other weekend from the age of 10 to 17 making trips with him from our house to Home Depot; learning how to do almost everything except foundation work (we lived on a slab).
I am eager to get the ball rolling but plan to draw out a very clear vision before executing anything. If I had to pick ONE strategy, I think buy-and-hold is a little more in line with my goals. Ultimately, I want a lot of small tributaries feeding a large river... and, in that metaphor, those small tributaries are rental properties.
Hey Russell! So are you planning to move to whatever said market you decide on? You know you can still invest anywhere you want while still living in LA, right?
Yeah, I know I can stay here but there are two reasons I'm not. 1) Since I'm starting with a modest amount of cash, I will need to reduce operating costs by doing all the re-hab/maintenance myself. And 2) The bloom is off the rose, and I no longer wish to stay in Los Angeles. I don't feel I'm getting my money's worth in this city, and I don't want to continue to spend more of it trying to raise a family here.
Hey everybody,
For the last dozen years I've been working in eCommerce in Los Angeles, but am finally scratching the itch to get into real estate. I have sold my home and plan to use the profit I made as capital to build and grow my small empire in a smaller market with much lower acquisition costs. I'm here to learn everything I can to decide which place is right for me.
Hey Russell: Aside from your use of the term "empire" you don't say whether you are more interested in flipping or holding. I think that would have quite some bearing on where you plan to go. Also, having lived in a cold climate for a number of years, I personally wouldn't want to do rehabs again in a place where snow and ice will determine my work schedule. Look forward to hearing more about your plans!
I am definitely worried about the short building seasons in the midwest, and that does factor into my decision. But I was thinking I would treat my assets differently based on current conditions. I'm starting small with SFR and duplexes. If prices were on the rise, then I would flip. If not, then I would hold and find renters. Maybe this is an overly optimistic approach to thinking about it, but I am still in the early stages of planning it all out. I would prefer to find a market that I want to live in and adjust my money-making strategy based on what makes the most sense at the time rather than pick a strategy first and move to the market that best suited it at the time.
Am I being naive to think this way?
I certainly don't think it's naive to look at the re market from all different angles, as you are doing and I think you're on the right track to start with SFR's and duplexes. A smaller cash outlay at the beginning is always a good idea for someone new to the business. I've made my biggest profits from SFR's, both flipping and holding, but I'm not otherwise employed and do all my own work so I have about as much control over things as is possible in this field. You'll know soon enough if you enjoy being a landlord; after almost 40 years as one, I am just now wrapping up work on my last rental in order to sell it and intend to just flip one at a time from now on. You're considerably younger than I am so of course your goals are different. My advice is always to learn as much as possible about what it takes to rehab property and just take it from there; even if you don't intend to do any or all of the work yourself, it will help you out immensely when dealing with contractors and when assessing properties you may want to buy. It's so easy now that we have the Internet to check out MLS all over the country and when I do so, I also use Google Street View to check out the neighborhoods. If you haven't tried that yet, you may find that's a very useful resource...and kind of fun too, for me at least. Best of luck and I hope this has been helpful.
Thanks for the input. It's good to hear that I'm picking a good starting point. And yes, I plan on doing the work myself. My father was in construction for most of his life, and I spent almost every other weekend from the age of 10 to 17 making trips with him from our house to Home Depot; learning how to do almost everything except foundation work (we lived on a slab).
I am eager to get the ball rolling but plan to draw out a very clear vision before executing anything. If I had to pick ONE strategy, I think buy-and-hold is a little more in line with my goals. Ultimately, I want a lot of small tributaries feeding a large river... and, in that metaphor, those small tributaries are rental properties.
Hey Russell: Good to know you learned so much from schlepping around with your Dad; maybe you didn't exactly love it at the time but I'm sure you're reaping the rewards now! I hope your river turns into the Mighty Mississippi and that all your tributaries pay their rent on time; if they don't, there are tons of people here on BP to advise you on how to get them running again... Regards from a little ways east.
I agree in a way. This is why I included JOB GROWTH in my 5-point analysis (volume of sales, supply or inventory level, new foreclosure filings, job growth and Long Term Case Schiller Index). People can't buy houses if there are no jobs. Hence, if you're right, LA-area appreciation is not fundamentally sound and hence, price is poised to go down. (but having said that, what if there's a lot of foreign money chasing real estate in LA - won't that push price up?)
I disagree in a way that there are no market cycles. It has been proven again and again that the price of real estate (as any other commodity) goes up and goes down. What causes market cycles is market inefficiencies and the human emotions of GREED and FEAR....not just job growth.
To clarify, I don't believe there are 5-year or 7-year cycles, I don't know that anyone could make an argument against there not being up & downswings in the market, in that sense of a cycle.
And FYI, what I've found is that employment rate doesn't matter as much as median income, b/c the difference from McDonald's jobs & tech jobs is huge, and reflective in price. As to foreign buyers coming into the market, the reason they come is for safe-haven investments, and are just as likely to bail in case of a downturn (which would be based on the underlying economics) as any other investor
To clarify, I don't believe there are 5-year or 7-year cycles, I don't know that anyone could make an argument against there not being up & downswings in the market, in that sense of a cycle.
And FYI, what I've found is that employment rate doesn't matter as much as median income, b/c the difference from McDonald's jobs & tech jobs is huge, and reflective in price. As to foreign buyers coming into the market, the reason they come is for safe-haven investments, and are just as likely to bail in case of a downturn (which would be based on the underlying economics) as any other investor
Good point on employment rate being less important than median income. That is something I need to look into in combination with job growth. As for foreign investors - I guess what I was trying to say is on a short term basis they can push the price up but as you said, if the underlying economics are not good, in the end the fundamentals dictate the price/value of real estate. It's analogous to what Warren Buffett said about stock prices. Prices can change daily and can be overvalued or undervalued at a point in time but over the long term, fundamentals dictate the real value.
Thanks for your inputs in this discussion. Awesome!