What's Working in Los Angeles?

Question

Hello Everyone!Fairly new to the BP community and excited to get involved.I currently live in Los Angeles, near the LAX area, working as an engineer in Aerospace. I have prioritized savings and want to take the next step in securing my first rental property. I was hoping to find a house hack while living here in LA but that doesn't seem reasonable when trying to stay within 10 miles of work.I've been looking around and can't seem to find properties in the area that would have good cash flow and ROI. This is likely because the barriers to enter are too high for me currently but this leads me to the question of, what's currently working for investors out here?Are there any new investors living in LA that have been successful without being already quite wealthy?Thanks to everyone for the help.Tim

Peter D'Auteuil · Answer

Hi @Tim O., welcome! Cash flow is definitely difficult to get in LA with values being high and rent control limiting income. However this is an appreciation market, and if you buy in the path of progress (not A+ neighborhood properties), you can make better returns than most anywhere in the long run. We do lots of deals in Long Beach, South Bay and LA that allow first time investors to house hack to either cover their payments or limit their out of pocket monthly expense. Single family is extremely impacted and competitive in LA, however I see plenty of opportunity in the multifamily space. My company is constantly doing MFH deals here - they are out there if you know what to look for. House-hacking a 2-4 unit could be a good opportunity for you to get started. I assume you are in the Hawthorne, El Segundo or LB areas based on being in aerospace. There are great pockets to invest in around those areas. We do not see low-hanging fruit here in LA and in coastal markets, but savvy investors with the right team are creating great deals all the time in LA even today. I'm closing on my first 4-unit this week where we plan on building 2 ADU's and will end up with 6 units with residential financing. Other people passed on this deal, and I ended up buying it for well under it's appraised value. Good deals can be created, not always found.

Nabil Suleiman · Answer

@Tim O.Hey Tim, Ali and Peter are both right. The most difficult thing for newer investors is settling on the choice you want to make about where to put your money and "invest". I put that in quotes because there is no right answer to what you decide to do, you just have to figure out your comfort/risk levels, decide on whether or not out of state cash flow beats out house backing (reducing your total rent rate/ paying down principal/ possible appreciation). Each has their pro's and con's and I always tell people to join as many real estate meet ups as possible, and just be a fly on the wall taking in all the information. Same with Podcasts, reading, and exploring your options. Once you feel like you know which way to go though, the most important part is taking action. A large percentage of people just say its not possible for them and never take that step, where as it is possible for everyone, its just figuring out the best path forward.

Ali Boone · Answer

Welcome Tim! I used to be an Aerospace Engineer as well :) Left it in 2012. And I live in Venice Beach, so pretty close to you.The last property I bought was a duplex here in Venice, but it was expensive, negative cash flow.. the whole thing. Other than that one, I've always bought out-of-state for rentals. A lot of SoCal folks do that-- easier entry prices, positive cash flow, etc. There is no cash flow here, and the ROI is really tough-- you'll be dependent on appreciation potential for profit. So you're not just not seeing the deals... they aren't here. And even worse now with the inventory shortage everywhere, LA is no exception.For househacking, the big thing you want to consider is the numbers (if you're talking about LA). You want to make sure you know exactly how you plan to profit because you're going to be pretty highly negative cash flow for a while. Here's general househacking considerations-https://www.biggerpockets.com/...Hope that helps!

Nabil Suleiman · Answer

@Tim O. I use to have one monthly before covid, but the big ones are still pretty active. For investors by investors has multiple chapters, LAREI is a big one. I know Bigger Pockets has meetings advertised as does meetup's website. Most are virtual still which is great because you can stay home and still get incredible information for free. Just dont buy into any programs if those are advertised. Self educate first, and if you find an addiction and decide theres a class that relates to that, then go for it.

Charles Cooper · Answer

@Tim ORourkeTim,Look into San Pedro. It’s one of the top investment areas in the south Los Angeles area. Lots of development going on here. I would be happy to help.

Peter D'Auteuil · Answer

@Tim O. - It's key to live close to work in LA, much better quality of life. Commuting can be brutal! Generally the areas a few miles inland, bordering the beach cities will have more opportunities. Take a look at areas just outside the highly desired and already appreciated areas - pockets in the path of progress. Not knowing your price range, some cities that might work would be Hawthorne, Torrance, parts of Englewood, Westchester potentially, and possibly Culver City although that might be pushing the commute. @Nabil Suleiman is totally right, everyone's situation is different and understanding that matters to you is important. If you are not in LA long term, perhaps renting and investing OOS could be a good call. There is a high barrier to entry in coastal California, but if you don't actually need the cash flow to live on right now, you'll be rewarded in more equity gains than the cash flow you'd get out of state in most cases. It doesn't need to be a home run deal, you just need to participate in the market. When looking for a 2-4 unit to house hack, I'd look at my rent amount that you're paying now or the max rent you can reasonably afford, and use that as the target net payment I'd want to carry after collecting rental income from the other units. (Mortgage payment) - Rental income from other units = your rent. Payment will depend on how much you can put down, but that's a decent guideline for affordability. @Brian Gerlach I plan on adding the investment to my profile this week, but happy to chat about it or be a resource to you if I can. Shoot me a message.

Brian G. · Answer

@Peter D'Auteuil I would like to hear more about that 4 unit deal. One day we want to house hack a multi unit property, need a creative solution to add value. We currently live in Burbank where it’s very, very expensive. Maybe we can hop on a call. Curious to see what I can learn.

Allen Wu · Answer

@Tim O.It’s tough in LA. Probably have negative cash flow and huge play on equity. I have a solid broker and property manager for TX and FL if you need referral. Many Californians do that, they buy here or rent, then invest out of state.

Tim ORourke · Answer

@Nabil Suleiman - Much appreciate the comment Nabil! What you've said definitely makes sense. I am actively listening to podcasts and reading books. Do you know of any real estate meet ups in this area? I would definitely desire to attend to network and learn. Thanks for the great recommendations. As you said, definitely don't want to get analysis paralysis and never take the step.

Tim ORourke · Answer

@Ali Boone - Thank you so much for taking the time to comment with your experience and wisdom. This is great to know and reassures me that I am not thinking incorrectly. Thank you very much for the link as this information is helpful. @Peter D'Auteuil - I appreciate the comment and for sharing what you know. I live in the El Segundo and hope to stay near by to limit any sort of commute to work. Don't have any desire to be stuck in traffic all day. What areas near El Segundo do you recommend? I've definitely looked around but can't seem to find anything I can afford and would want to live in. Very cool to know that good and great deals can be created. I am very excited for the day that I can be confident in my knowledge to make those types of moves. Insane that you got a 4 unit under appraised value.