Newbie from LA / Pasadena

[Nemo Patel]

Hello BP Community!

I am a newbie with zero experience.  I work full time, but I want to become involved in real estate "on the side" to gain passive cash flow.  I have been slowly reading through the guides on the BP website to gather background information.  

I am interested in buying a cash flow positive SFH or Duplex rental property to get started. Unfortunately, the only two markets that I have actually lived in both have significant barriers to entry.  The Los Angeles market (specifically San Gabriel Valley) is very expensive.  Chicago (Cook and DuPage) has been getting crushed with property taxes due to poor government management.  

I am open to any advice or resources that people may have as I start my journey.  Thanks in advance!

[Jackson Wu]

If cash flow is your goal, you will have to abandon the Los Angeles and Orange County markets. Cap rates have become so depressed that you will bleed out every month. Most of the big speculative money that is buying at these 3.5-4 caps are waiting for the rents to increase over the next few years.  Which sounds crazy because rents are already insane in Socal. But the idea is that once minimum wage reaches $15.00 an hour people will have more disposable income for rent.

A downside of investing in socal(SGV specifically) is that you need a lot of cash to play. All the deals you see on the market are purchased all cash. So even if you are going to go in an BRRR, you better have 700k ready to go in the SGV.

The biggest downside of investing here is that the competition is high. There are so many flippers and private equity firms that compete in this area because the returns can be high. This makes it a tough market to learn in.

Flippers and private equity firms love operating here because, when you have money, knowledge, and experience, your money can go very far in Socal.  

Look at it this way.(very conceptual) If it costs $200 per sq ft to build in Los Angeles and the properties sell for about $500.00 a sq ft. You make $300 per sq ft you build. Meanwhile in the B/C markets, it might cost $175 to build, but you can only sell a property for $200 a sq ft. So you can only make $25.00 per square foot.

Thats why the experienced money flocks to the major markets. This is a great opportunity for them, but makes it harder for you to break into the market.

My advice is the same for all newbies. Educate yourself and find a mentor. Consume as many books, blogs, forums, podcasts as you can.  And find a mentor, someone who is doing the specific thing you want to do and either buy into one of their deals or do a joint venture with them. 

Lets say you ignore the entire first part of my post and you want to play in SGV. You will be swimming with sharks. So I would recommend, do not go alone, find a shark that wants to swim together. 

Oh also, another thing I don't like about being a newbie in socal. The books aren't written for the socal market. They are written for B/C markets with higher cap rates on rentals. So it is a little bit tougher to learn from books meant for a national audience. Have you been to the FIBI meeting in Pasadena?