Real Estate Investing In SoCal

[Dion Burke]

Hello BiggerPockets community!!! I'm new to real estate investing and I am currently in the learning phase. I currently live in the SoCal area. My original plan was to eventually invest into small multi-family properties and live in one unit and rent the rest out. But after doing some research I realized the housing market in SoCal is extremely high and I'm not sure if I would see any cashflow or even come close to living rent free if purchasing a small multi-family property. What does the BP community suggest? Should I look into investing into a large single family home and rent out the rooms instead? Or should I look for a different real estate investing strategy completely? Any suggestions, advise or information from this wonderful community will be greatly appreciated. Thank you!

[Jon Schwartz]

@Dion Burke, I'm a real estate agent in Los Angeles, and I specialize in house hacking -- that's the term for what you're describing. I'm also a house hacker myself; I own a duplex, live in one unit, and rent the other unit.

House hacking in Socal is definitely not a cashflow play. It's basically impossible to cashflow while living in your house hack. You might come close to breaking even if you buy a really inexpensive five-bedroom condo and rent out every room... but that's a maybe.

That doesn't mean house hacking here isn't a great play, though! House hacking does manage to pull down your cost of living quite a bit. For example, my overall monthly cost to live in this duplex is about half of what my tenant pays. Plus, I'm benefiting from all the principal paydown and appreciation gains. In fact, my principal paydown each month is about what I pay in housing cost. So I still have a housing cost, but it's money that'll eventually come back to me when I sell or refinance.

If you're assessing house hacking vs other investment options, I think a lot of it has to do with your current cost of housing. If you're getting away with crazy low rent, you might be better served keeping your current housing and investing out-of-state for cashflow or in a syndication. However, if you're paying anywhere close to market rent for your housing, then house hacking is probably a solid move.

Your income also matters. If you make a decent living, house hacking in Socal is great; it doesn't produce much cashflow, but it really supercharges your net worth growth. However, if you're looking to real estate for income today, you're better off investing out-of-state.

I hope this helps! Feel free to post any more questions, and I'll be happy to answer. I also made a spreadsheet for analyzing house hacks; let me know if you'd like it!

Best,

Jon