House Hacking in Long Beach

[Kurtis Foster]

Hi Everyone,

Pretty new to to RE investing and brand new to Bigger Pockets. Been reading a lot on here and Reddit and I'm trying to dial in my strategy for my next property. I've been looking into various areas and property types around LA and I'm starting to focusing in on duplex's in Downtown Long Beach. I'm curious if anyone else has their eye on Long Beach, as it seems like there is appreciation potential and not terrible rent to purchase price ratio (at least by LA standards).

My overall plan:

Just did a cash-out refi on a SFR in San Pedro that I bought a year and a half ago. Refinanced from 3.875% to 2.875%, kept 20% equity in and pulled out 40k. Was able to keep the same monthly payment with the decrease in interest rate and pulling out the 40k appreciation. I'd like to use the cash and possibly additional savings to buy a duplex in Downtown Long Beach likely in the 700k range - live in one unit, rent the other unit out. Seems like it will be a little bit cash flow negative, but that's the price you pay for SoCal real estate and potential appreciation I guess.

Anyone have their eye on Long Beach for house hacking? Downtown LB seems like a pretty good value to me. Significant improvement in recent years and relatively affordable for the quality of life I think.

Any tips for a newbie? Does it seem like I'm on the right track here?

Thanks!

Kurtis

[Jon Schwartz]

Originally posted by @Kurtis Foster:

Hi Everyone,

Pretty new to to RE investing and brand new to Bigger Pockets. Been reading a lot on here and Reddit and I'm trying to dial in my strategy for my next property. I've been looking into various areas and property types around LA and I'm starting to focusing in on duplex's in Downtown Long Beach. I'm curious if anyone else has their eye on Long Beach, as it seems like there is appreciation p

otential and not terrible rent to purchase price ratio (at least by LA standards).

My overall plan:

Just did a cash-out refi on a SFR in San Pedro that I bought a year and a half ago. Refinanced from 3.875% to 2.875%, kept 20% equity in and pulled out 40k. Was able to keep the same monthly payment with the decrease in interest rate and pulling out the 40k appreciation. I'd like to use the cash and possibly additional savings to buy a duplex in Downtown Long Beach likely in the 700k range - live in one unit, rent the other unit out. Seems like it will be a little bit cash flow negative, but that's the price you pay for SoCal real estate and potential appreciation I guess.

Anyone have their eye on Long Beach for house hacking? Downtown LB seems like a pretty good value to me. Significant improvement in recent years and relatively affordable for the quality of life I think.

Any tips for a newbie? Does it seem like I'm on the right track here?

Thanks!

Kurtis

Kurtis,

I'm a house hacker up near Hollywood and an investor throughout LA. In fact, my most recent investment was in a new-construction development catty-corner to Poly High in LB.

You're definitely on the right track! House hacks in the LA area don't cashflow while you live in them. I only know of one house hacker who's cashflow positive, and that's because he added an ADU to a triplex.

But with renting and owning traditionally so expensive in our market, just reducing your living expenses by hundreds or a thousand dollars a month is fantastic. I live in a large duplex (our unit is a 3/3, the rented unit is a 3/2) in an expensive area; my tenants pay $4975 to rent the smaller unit, and I pay less than that for my share of the monthly costs (mortgage, taxes, insurance, expenses). Plus, I have $2100 coming back to me every month in the form of principal paydown. So I'm not cashflowing, but I'm living in a neighborhood I love for a fraction of what all my neighbors pay (and the difference is going toward buying more real estate!).

Also, Long Beach is a great market. Tons of development downtown, and LB is one of the more landlord-friendly cities in our area. The rent control laws are much more lax in LB than they are just across the harbor in San Pedro, which is part of LA City.

And you're right about finding the right mix of price and quality -- though I'd say it's more about the right mix of price and personal comfort. Some of the rougher areas of Long Beach are actually the most quickly appreciating. Here's a map I created from Census data showing median incomes and median income growth over the last five years:

The colors represent current median income, and the size of the arrows represents growth over the preceding five years.

As you can see, some of the lower-income areas just north and south of the 1 also have the largest arrows. These are poor areas, but they're getting less poor faster than the wealthy areas are getting wealthier. These are good spots to buy -- and good spots to house hack if you feel comfortable doing so.

Here's one more map that supports the map above:

This map shows household formation over the last five years. A "household" is a group of people living together; it could be a family or two roommates or a single person. As landlords, we rent to households. So we want to buy where more households are forming.

As you can see, as many people are moving into the area just north of the 1 as are moving into downtown and coastal LB.

Last thing: the underwriting for a house hack can be tough with BP's calculators because there's no checkbox for "I'm going to live here for a few years." I made a spreadsheet when I house hacked last year to figure out the numbers, and I'm happy to share it.

All the best,

Jon