Hey everyone - just wanted to introduce myself to the community and put my thoughts out there for feedback/input. I've been in LA for the past 7 years (UCLA & work) and my background is in finance. I've been consuming a massive amount of content the past few weeks (1-2 BP podcasts a day, books, BP blogs & forums) and am close to executing on purchases. I look forward to networking with the community and contributing value to everyone however I can!
I apologize in advance for the lengthier post and early thanks to everyone who reads through it. In a perfect world, my investment strategies are as follows:
1) Using FHA 3.5% or conventional 5%, house-hack MFHs in Los Angeles and get as close to breakeven as possible from rental income with a maximum monthly "loss" of $500. As an example, I've no problem paying $1,500 monthly if I'm house-hacking but if I move out and market rent is $1,000, I assume the $500 "loss". After doing a very comprehensive search through various LA neighborhoods for both turnkey & fixer-uppers, going from Inglewood/Hawthorne to NoHo to East LA (Boyle Heights, Lincoln Heights, etc.), I've realized it's incredibly difficult to find qualified investments. Some additional detail / other thoughts:
- Low down payment as I'm looking to invest out-of-state for cash flow with the leftover capital. Buying in LA because I want to be building equity, not paying rent.
- Fear of market reversal. I realize the way to protect yourself is to have more equity in the property, but it doesn't make sense to me to have 20% down in LA when I can take that and get multiple properties out of state. In this case, I'd do strategy 2.
- Primary residence. Live in it 2 or more years for the tax breaks. This is less important. I imagine the worst case scenario which is that market crashes and doesn't recover within the 5-year lookback, there's no appreciation, hence no sale and no gain anyways.
- If I do successfully buy in LA, it will likely be a long-term buy-and-hold as I'm very bullish on the 10-15 year horizon.
- Unsure how hard it is to get approved for these low down payments. Have not spoken to lenders/mortgage brokers yet.
- Question: If FHA is 3.5% down, upfront MIP is 1.75% for a total of 5.25%, why would anyone ever take this over a conventional 5%?
2) Continue renting in LA for $1,000-$1,500 monthly and invest out of state. I've not yet done the math to determine which strategy would save me more money, but the big cons of this are
- No primary residence, therefore slightly higher interest rates, 20 - 25% down (but depending on the market, this may very well be equivalent to 3.5 - 5% down in LA).
- Depends on the quality of tenant screening, but it's probably safer to assume that they won't take as great care of the property as I would.
- Probably need a property manager, professional or tenant.
Either strategy seems to net me the same cost around $1,500 monthly, but I'm biased towards Los Angeles as I can rent to friends which solves a lot of the tenant/landlord issues.
I'm not looking for anyone to give me all the answers but would appreciate any insight, food for thought, and constructive criticism.
Separate questions:
- Should I make the effort to view every property before I make an offer? I expect to be making many offers as I understand the pipeline is a funnel. @Brandon Turner mentions in his podcasts that he makes offers before viewing properties because of the sheer volume of offers that he makes. I realize he's a vetted professional and agents know that he'll buy fast for the right investments so they don't mind viewing first on his behalf. Are agents usually willing to view properties on behalf of their clients if they're first-time buyers?
Big thanks if you've read this far. My immediate next steps are to continue gaining knowledge and network with lenders & agents to explain my investment goals. I look forward to meeting and seeing everyone around!
