New member living/working in Los Angeles

[Shane Phillips]

Hey all,

I've been reading up on buy-and-hold, first-time real estate investment for a few months now, and have made my way through a bunch of Bigger Pockets podcast episodes, so I felt like it was time to introduce myself on the forums, too.

My name's Shane and I'm originally from the Northwest, have been here in Los Angeles for 3 years now, and I'm looking to buy my first property ever. Given my limited capacity for a down payment and moderate income, buying a 2-4 unit property with an FHA loan and living in one of the units looks like by far the best path forward for me. Long-term I'd hope to grow a buy-and-hold portfolio, but I'm very focused on this first purchase for right now.

Since I work downtown, don't own a car (and don't want to), and spend most of my time in Central LA, I'm looking really closely at areas around downtown: lower-cost areas with decently affordable 2-4 unit buildings (in the $400,000 to $800,000 range) like Pico-Union, areas around USC, and even up around Hollywood/Koreatown when the rare good deal shows up there.

I've been looking around on Redfin a bunch, but have seen little to nothing that satisfies Josh and Brandon's "Two Percent Rule" (or even 1% rule). Based on properties I've seen, I'm wondering if this is realistic in the LA market. For example, if I see a 4-unit building selling for $700,000, there's no way it's bringing in $7,000 in rent every month. Even $5,000 a month would be unusual for a property selling at that price, from what I've seen. (I'm also very familiar with rent stabilization laws since I work in housing policy for my career, so I'm aware of how that offsets a lot of upside potential, at least in the short term.)

Is this "Sub-1% Rule" just something you need to accept as a buyer/investor in LA? It still seems like I could roughly break even on some of these properties, taking into account mortgage, property taxes, PMI, expenses, vacancies, etc., and I'd certainly benefit from the relevant tax incentives and would be earning equity, which is great—but is that enough? I ultimately want to buy something and live in it, and I want to stay in LA, so while being a good investment on its own merits is important, what seems to matter most is that it be better than renting.

I'm sure that this has been asked/answered elsewhere on the site so I'll be digging in to see what I can find, but it's the most burning question on my mind the last few days, so I figured I'd package it in with my introduction as well.

Cheers, and looking forward to getting to know many of you over the coming weeks/months!

Shane

[Kiersten Vance]

Hello @Shane Phillips Welcome to BP! I am an investor and Real Estate Agent here in Southern California. In regards to your question about the 2% rule, I would definitely say that is about impossible to find here in the LA area right now. I have seen some properties come close to the 1% however. I think that would be a reasonable goal to aim for. If you are looking for a place to own and have the rents cover the expenses, you may be able to get away with even a little less than 1%. Also try looking into value add options. If you can buy a distressed property with poor rents and fix it up a little and bring in better rents, you may get closer to your 1%. Best of luck!!