Worth investing in CA with eviction ban possibly extending?

Question

I'm currently looking for house hack investment in SoCal. I ran across this article today and it def scared me. CA may consider an eviction ban through 2021. CA investors, what are your thoughts? https://www.nbcbayarea.com/inv...

Derrick Dill · Answer

It's just a bill, there are tons of them being introduced everyday. Some highlights from your article:-create a rental assistance program to provide financial relief to small landlords-according to AB3088, are permitted to resume in February for those tenants who fail to pay at least 25% of their owed rent dating back to September.Screen properly, do your due diligence, won't be a problem. I house hacked my first property in 2016 in LA county, bought for 440k, It's 660k now. You can wait out the pandemic, and the moratorium, and wait for recession, there's always going to be reasons not to buy. But, the greatest investment I made was buying. I lived for cheap and saved up, bought a property the next year, then took out a HELOC and bought another 2. 4 years later I have 6 properties under my belt. It all started with the house-hack in California. I've moved out and the property cash flows now, has appreciated 50%

Taylor L. · Answer

I don't know why CA would be considered a compelling place to invest at this point. It seems like eviction bans will go on indefinitely there. Many other parts of the country that is not the case. Plus, California has one of the highest unemployment rates of the country, which Ken McElroy has discussed on his Youtube channel quite a bit recently.With all of the other options in the country, why bother? The money is just as green elsewhere, with much less worry about what the state government is going to declare for the next year plus.

Fernan Nava · Answer

If you guys think that democrat controlled states are going to give up voluntarily the control they have over our property, you have another thing coming. My suspicion is they will postponed evictions again and again and very likely come up with other tenant protections to the detriment of investors and if we do nothing they might decide everyone has a right to a house just like everyone has a right to have health insurance.

Michael Smith · Answer

@Su Pak, I can't speak for California, but we have the same eviction bans in place up in Oregon and haven't had any issues with our properties. If you're worried about evictions try and stick with rentals on the higher end of the market, and you'll be blown away with the quality of applicants you receive.

Will Barnard · Answer

A lot of people trash CA such as the comment "I don't know why CA would be considered a compelling place to invest". It is true our state government policies are horrible from a landlord's perspective (or anyone else with common sense) and property values are high making it difficult to find cash flow here. But if you look at almost any 10 year+ chart in CA residential RE growth, you will see very large returns to investors, mostly from appreciation. Argue all you want that you can't eat appreciation, but you can when you capture it through cash out refi, trade, sale, etc. and over time, it turns out to be a cash flow king if held long enough. If you intend to house hack, you have already mitigated some risk to the COVID crisis as a landlord and screening your tenants is another mitigation factor. The tenant must prove that they can't pay rent due to loss from the pandemic and it must be delivered in writing to the landlord to be valid. You can listen to the scare tactics of the media who do so to make more money and keep you from making it or you can get out there, do your research, build your team and invest. Be a doer, not a naysayer.To all the naysayers of CA RE investments, you are correct, don't invest in CA!

Stephanie Trevizo · Answer

Hi there, we have 15 doors in Los Angeles all small multi-family, 12 of which are under RSO (Rent Control). We actually closed on 4 units at the beginning of the lockdown. All of our tenants have paid rent to date, no missed payments. One of our tenants applied for city assistance and received it, but still paid his rent up to the day the city gave me a check. Personally, we've increased our reserves just in case, but we've done our best to select good tenants when we can. That being said, a few do have extra occupants, but we'll address that at the end of all this I suppose. I am still considering investing out of state, I know I would like to live in Los Angeles long term so I feel like there are a few of my properties I would keep long term to live in and I would sell off the others that have good equity. I think it depends on your long term goals.

Carlos Ptriawan · Answer

If you are afraid of an eviction ban, rent to section 8, gov pays the rental. There's many areas where the return is still good: 7-9 %. The only caveat is you shall manage it yourself.

Bonnie Low · Answer

You're already insulating yourself from the impacts of an eviction ban because you said you're planning to buy a place to house hack, so only part of your mortgage is at risk. That's a pretty fair mitigation strategy. As for the eviction ban, who knows? But even in the bill your article references, it says a tenant eviction ban is only part of the strategy. They also are calling for assistance for small landlords (which the VAST majority of us are), and mortgage forbearance. So even if the eviction ban is extended, it's likely there will be financial assistance for small landlords in one form or another anyway. And, really, California does not need more homelessness. Talk about affecting your rental portfolio...some areas of the state already look like refugee camps and mass evictions will make that far, far worse. It's a temporary situation that will resolve itself and investing is for the long haul. So if you plan to invest in CA, I wouldn't let this dissuade you. That's not an argument in favor of investing here, rather just an observation that this should not be the thing that changes your mind because lots of other states are doing the same and we're likely to see similar measures at the federal level as well. The broader the relief for tenants, the more likely there are to be similar measures put in place for landlords.

Hengky Lim · Answer

We have a few properties in LA county with tenants that are renting above 2.6k/month. During these eviction ban, only one of my tenants is moving out end of this year but that is by her choice due to job relocation after she briefly lost her job. We got another potential tenant signed on a new lease with higher rent to replace her. We also has a house hack with few rental rooms that filled throughout 2020. Having said all these, I still prefer to invest in the state that more landlord friendly, such as Nevada, Texas, Florida. For us, they have less barrier to entry, at least from price point. Moreover those states have regulations that not just favor tenants.My thought: from investor POV, eviction ban is always bad if you have bad tenants.Take away point: Whether you house hack with room rental, duplex or fourplex, proper screening will be your most important key during this uncertainty.Hope this help!!

Carlos Ptriawan · Answer

I don't know why CA would be considered a compelling place to invest at this point. <----Taylor, people invest in CA because the rate of appreciation is faster 50% than nationwide appreciation. Especially in the most expensive area like Silicon Valley, the rate of appreciation is even faster than the rent growth. It's a unique situation where many times the rent can only pay the mortgage only. What's funny is it's still affordable at 33% affordability index; not the most expensive nationwide.However, if people are buying the right investment, they can still buy a property with 8-9% cap, albeit much more difficult but the return is super awesome. You have cash flow and appreciation.--There're lot of mispricing and skew in every market that's where the competitive advantage is--