Starting in Los Angeles - FHA?

[Nick Moreno]

Hi everyone,

Happy to be apart of the community! My name is Nick and I have been living in Los Angeles for about four years now. I have been looking at multi-family properties the last few weeks. I'd really like to get everyone's opinion on my approach here. I'd like to take out an FHA and find a 3 or 4 plex in the LA area. After looking at different properties across Los Angeles, cash flow isn't jumping out at me with expenses and insurance taken into consideration. It looks like, for most places, I would barely be breaking even.. If that. With the current pandemic, I wouldn't be comfortable renting to anyone but section 8. My question to the community is, does this make sense? I haven't looked much into investing in different states but from what I've read here.. That's how many people have gotten their start. Thanks a ton!

[Jon Schwartz]

Originally posted by @Nick Moreno:

Hi everyone,

Happy to be apart of the community! My name is Nick and I have been living in Los Angeles for about four years now. I have been looking at multi-family properties the last few weeks. I'd really like to get everyone's opinion on my approach here. I'd like to take out an FHA and find a 3 or 4 plex in the LA area. After looking at different properties across Los Angeles, cash flow isn't jumping out at me with expenses and insurance taken into consideration. It looks like, for most places, I would barely be breaking even.. If that. With the current pandemic, I wouldn't be comfortable renting to anyone but section 8. My question to the community is, does this make sense? I haven't looked much into investing in different states but from what I've read here.. That's how many people have gotten their start. Thanks a ton!

Nick,

You'll get lots of different opinions here on BP, but I'm a strong proponent of househacking a multifamily property. I'm househacking a duplex just outside Hollywood now. Here're my two cents:

Househacking is a really solid move because it lowers your cost of living while allowing you to build equity in a high-appreciation market: Los Angeles. In the long run, I think you're better served by saving for a down payment on a househack than putting those savings into out-of-state properties. The out-of-state properties will produce cashflow, but they won't appreciate as well as a solid asset here in LA.

The only caveat is: if you need cashflow now, invest for cashflow now. But if you have a job outside of real estate, invest for longterm equity growth now, then trade into cashflowing assets when you've accumulated some wealth.

As far as the numbers go, you won't find a cashflowing househack in LA, so don't expect to! The best you can do is find a househack that significantly lowers your cost of living while you live in the househack, then cashflows after you move out. The duplex I'm househacking fits that criteria.

If you can find a househack that breaks even while you live in it, that's gold! You might not be considering all the expenses, though -- like your tenant's water bill, occasional maintenance, etc. I made a spreadsheet to analyze househacking a property; I'm happy to share it with you.

You may be kneecapping yourself by only looking for duplexes with Section 8 tenants -- or vacant duplexes so that you can rent to a new Section 8 tenant. Don't forget that you have a due diligence period (called the "inspection period" with residential housing) during which you can investigate what's going on with the current tenants. You might find a property with a tenant who has a stable job at a hospital, for example. Section 8 is a smart move, but you shouldn't preclude yourself from considering anything else just yet.

Whereabouts in LA are you looking?

Best,

Jon