House Hack Multi-Family in LA or NJ?

Question

I'm looking to make my first real estate investment using an FHA loan, and wondering whether Los Angeles or New Jersey (Central) would be a better investment. I will be eventually locating to Los Angeles but have concerns about investing there first given high taxes, high insurance (wildfires), and housing legislation. Does it make sense to start in NJ first (where i currently am) or in LA where the rental market is strong?

Also - Looking to connect with agents in both locations.

Thanks!

Jon Schwartz · Answer

Shawn,My vote's for LA, though I wouldn't fault you for choosing Central NJ. Lemme clear up some misconceptions and share some opinions that might help you decide:Income taxes in California are high, but property taxes in California are low. CA investors are shocked when they buy buildings in TX and see how high the property taxes are! In Los Angeles, the property tax rate is 1.27%, and thanks to state law, the amount of tax you pay can't increase more than 2%/year. You should check with your local county in NJ as to A) the rate of property taxes and B) how often and in what manner property taxes are reassessed. I'm 90% sure you'll end up ahead in LA.Also, when you move to LA, your income from your NJ property will be taxes as CA income. Unfortunately, you won't be able to escape CA income taxes once you move here regardless of where your property is.Insurance in LA isn't more expensive; in fact, it's less expensive. Wildfires happen outside of LA, so I don't think we're paying more insurance inside LA as a result of CA's wildfires. Also, because so much of the price of buildings in LA is the land, the insurance, which only covers buildings, is relatively smaller. For example, I lived in a $1M home with an $800/yr insurance bill. Why? Because the home had an estimated rebuilt cost of only $300K. The land it sat on was the lionshare of the value!Housing legislation is a b*tch, and that might be the reason to invest in NJ. We have pretty strict rent control, but it actually doesn't apply to single-family homes, and there are loopholes to take advantage of if you're househacking a multifamily. What's the rent-control climate in NJ? If you want to talk specifics of LA, I'm happy to chat more about that!The big plus for LA, I think, is the appreciation here. I don't know exactly where in Central NJ you'd be looking to invest, but there's almost always a handful of submarkets in LA that are really exploding. A well-position purchase here could grow in value significantly over time.Good luck!Best,Jon

Shawn Blake · Answer

@Shawn Blake right deal *

Andy Eakes · Answer

Hey @Shawn Blake sounds like a great strategy in whichever market you choose to go with. I have some friends in LA who are currently house hacking and they are having great success. You may or may not know this but with an FHA loan, the property must be owner occupied for a year so deciding to house hack in LA is going to extend the beginning of your investing journey if you're okay with that.I am not too sure of the market in New Jersey, but I still feel that a property in LA is a better long term investment in terms of appreciation and desirability. Even with mass exodus in CA's major cities lately, people will always prefer LA winters over New Jersey ones. It's just the way it goes. I doubt anyone will give you a straight up "Go this way" answer because it all depends on your ultimate goals, ability to finance a deal, ability to even find a good deal, and many other factors. The market is red hot in CA so patience has proven to be my greatest asset in acquiring my deals. Good luck!

Shawn Blake · Answer

@Hengky Lim appreciate your candor Hengky! Finding the right is key. Any areas maybe outside the LA area you recommend? San Diego?

Hengky Lim · Answer

I am not familiar with NJ market but I have house hack since 2015 in Los Angeles County, from 300k to over 1m house price range. The property price here can be very high that house hacking may not even make sense on some property over certain price point.You are right Shawn:1. High taxes, many have HoA + Mello Ross on top of usual property tax.2. High insurance, and it keeps increasing every year.3. Regulations that favor tenants over landlord.I do not know when you are moving to LA but I started my house hack on my first property where I was very close to my full time job. No speculation, basically just got the house that I can afford with my job, then house hack my way out of it. And yeah you going to need a great agent who have your best interest in mind. He/she can help you get the property that you can afford and make sense to house hack.

Jon Schwartz · Answer

Shawn, have a made a decision? Are you think west coast or east cost?Best,Jon

Matthew Mazur · Answer

@Shawn Blake I am a commercial broker in Downtown LA. This is a phenomenal market and is going to have the best long-term appreciation. There are some pitfalls to residential leasing because of recent legislation - but the right screening and PM team can help you avoid this. DM me if you'd like to share more about your requirement.

Michael Berger · Answer

Hi @Shawn Blake,I hope you are making good progress looking for your first investment opportunity!? Me and my wife are new on BiggerPockets.I just wanted to offer you my help here in the LA Metro Area if you need an Agent that has your best interest. I am a Realtor/Investor/Rehabber and I have clients from all over LA.I know the Area very well and specialize in helping clients with their relocation process, either moving to or leaving LA! Me and my family live in the Valencia, Santa Clarita area which is a suburb Area north of LA near Magic Mountain park. Schools are rated 10 here and we remodeled a town home that we want to rent out at a later point.We got it for a great deal and rehabbed it. Love to connect with people on this platform and help wherever I can,finding good deals together in CA or other states.We are looking to invest in Foreclosures, Auctions and Bank REO's as they pop up more now as well and maybe even partner up with other investors if it all makes sense! Feel free to reach out! Thanks Michael

Shawn Blake · Answer

@Shawn Blake Greatly appreciate all the information being shared. Sounds like CA is attractive for appreciation, but a good house hack opportunity likely harder to find. Also sounds like I might find better deals outside the immediate LA area. Rent control seems to be another huge issue as I imagine a lot of du/tr-plexes on the market might be grandfathered in with this rent benefit. This might be a shot in the dark, but is anyone familiar with NACA? I’m considering obtaining a mortgage through them due to their “no money down” benefit. I’d have less equity in the beginning but can benefit from paying little to nothing in rent (in CA!) / keeping my reserves high. Currently weighing benefits of this option vs FHA/203b loans. Still need a trustworthy agent who’s investment savvy. Thank you allShawn

Dan H. · Answer

You are not missing something. It is less expensive to buy a property with an ADU than to buy a property then add the ADU. If the property is in someway unique, then you may not be able to find one with the ADU. For most properties, the better financial move is to buy a property with an existing ADU.