palmdale lancaster los angeles

[Alex J.]

Hello all

I know this msg board has infinity wisdom but if i dig up the old posts on my question the answers might be different given the market has moved.

Ive been mulling over the idea of buying some rentals in the palmdale lancaster area

the thing i am having reservation about is the following:   1)  i am not sure if cap rates north of 8 or 9 exist there, i was really trying to find some 10 caps so that the risk of vacancy or damage to property by tenants get covered.... DO 10 CAPS exist in this market anymore? Am i being too too optimistic in thinking that they should?

2)  I know that the key to good tenants is screening screening screening and I actually have rentals in South LA etc so i am aware of the C markets but for those that are investors in the area...do you see a lot of damage in your rentals after the tenants move out? I have heard a lot of horror stories

My objective is to find some lower price point cash flowing rentals as I feel the LA market has matured and peaked quite significantly... my idea is that if i lose 10% on a 300k property mark to market (unrealized and potentially cover the note if i have to in a worse case scenario ) its not as bad as losing 10% on a 1,000,000 property mark to market (and potentially realized due to an inability to stay solvent if it remains unrented longer than i have reserve)

any feedback would be appreciated sorry if this post is in the wrong category

[David Faulkner]

Originally posted by @Alex J.:

any palmdale lancaster los angeles county investors have any insight to this?

 Yes, I have direct experience buy and hold real estate investing in Palmdale, Lancaster, and other part of Los Angeles county for the last 15 years. I agree with @Account Closed.

With regard to the OPs original question and plan, I would say there are some majorly flawed logic that I will illustrate with actual examples of properties I've owned. First, the thought that he will save himself from a downturn because it cash flows and because 10% of $300k is less than 10% of $1M does NOT jive with my experience. I owned property in class A Glendale CA and class C Lancaster CA. In 2006 at the top of the market, my Glendale CA property was worth $750k ... I know because I had it appraised as part of a refinance (no cash out, luckily). In 2012 at the bottom of the market it was worth $550k ... I know because I had it appraised as part of a refinance (cash out this time to reinvest, luckily). So, peak to trough $200k drop, but I did not sell then and that drop went away and then some. Now for Lancaster ... I purchased a property there for $96,500 in 2010, its market value I would estimate was around $140 at the time. That same house at the peak in 2006 was around $340k. So, they both dropped $200k ... but Lancaster drop was a wee bit higher on a percentage basis. If you go back to other recessions you will see similar volatility in the class A vs class C markets. Of course, this can be a good thing if you use this volatility as your friend as I did, but I'd bet that buy and hold in Lancaster today the volatility will not be your friend in the short to mid term, and doubt very much that cash flow would save you from such volatility, since it can be equally volatile as most tenants up there are 1 missed paycheck away from missing rent.

Now, as to profitability, I have made good money in both Lancaster and Glendale ... the rent to purchase price is much lower in Glendale than Lancaster, and yet the Glendale home has been much more profitable and infinitely fewer management headaches for me than the Lancaster property. Having said that, as you can tell from the above, there were difficult times along the way, and the thing that let me avoid the loss and capitalize on the volatility was the fact that I could afford to hold ... so, whatever an investor does, they should make sure they are on a solid financial foundation with their investment, and this goes well beyond just having cash flow ... if Lancaster CA is what you can reasonably afford, then look there, but do it because that is all you can afford rather than trying to convince yourself that it is less risky or more profitable, because that has not been my personal experience. IMO, you want to buy and hold in the AV after a crash ... feel free to flip there in the meantime if you are disciplined about your margins and timeline.

So, there you go Alex J, an investor with 15 years of direct experience in the exact markets you are referring to ...