All Forum Posts by: Christian Bachelder

Hey Peter, Los Angeles and SoCal in general are tough to find cash flowing properties, but they do exist. I am an agent and mortgage broker in the area. Tough to give you the best advice before taking a look at your finances. House hacking is usually strongly recommended in this forum, but there are a lot of things to consider. Feel free to reach out to me with any questions you may have along the way. Good luck!

As the others have said, this is definitely a by-the-numbers question. Hard to assess your situation without knowing the specifics behind it (equity in the property, average rent in the area, where you’re looking for a new place, etc). I am also an agent and mortgage broker in Los Angeles. Shoot me a private message if you need any help. Good Luck!

Hi Jonathan,

Always fun to brainstorm with other hungry investors. Here is my take:

1. own, or co-own a duplex, triplex, or quadplex somewhere in the San Gabriel, San Fernando, or Santa Clarita Valley (and if not that, then they'd like to at least stay in LA County). They would live in one of the units.

I have brokered a number of deals in all three of these locations and have to say, I think the best bang for the buck is definitely in the Santa Clarita Valley. This the typical "house-hacking" strategy of living in one unit for free, but keep in mind a good tenant and good market rental price of the other unit can make or break this strategy. Duplexes in all three areas are definitely priced high right now though. 

Or

2. purchase an investment property (that they won't live in). If in CA, then probably some place like Bakersfield or Fresno. If out of state, then probably TN, GA, or other affordable market.

This is a situation that I have chosen for myself and my fiance. I definitely feel it is smart to start young in building your schedule of real estate, and the areas you listed are some of the only ones left in CA that can still cash flow on a monthly basis. Even without the cash flow, breaking even means you now own a house for no monthly payments, if the rent matches the PITI + other expenses. With less income, (and not sure your experience fixing houses) I would recommend this option over the first. Capitalize on building equity by potentially linking up with a wholesaler and finding a good deal where you could refinance in the future and get your original investment back out of the property after some potential repairs. Keep in mind the holding costs though. Do not want to lose your capital, as that seems to be the point of strength here.

Some stats on their situation:

*Neither have previously owned a home 

Shouldn't be a problem with most lenders. I am a mortgage broker and most lenders will require you to take homeowners counseling course before funding. Can easily be completed within a day. The lower reported income could also qualify you for some great programs such as homeready and homepossible as well.

*She: W2 part-time; He: self-employed

W2 is fine, as long as the part time has been consistent and will remain.

Self employed can be just as easy as W2 with a good mortgage agent. How long have you been working in the same field? Does income fluctuate much? These are important questions that can change the qualification process.

*Combined income very low. Don't prequalify for anything in the area, but have excellent credit score

Credit is good, but low income is tough in CA. That is why I recommend the purchase of a less expensive unit outside of the major hubs of SoCal. Use the rental income you will gain from that unit to further qualify for the next purchase. (Rinse and repeat)

*Together they have more than $100K in savings

This is your strong point. That would lead to some great LTVs on your loans. Could come in with a large down payment, do some repairs with the remaining capital, then refinance out the equity you have built in the property, all while having new rental income. Basically, BRRRR.

*His parents are also looking to buy in the area. They are seniors with very little income other than social security. However, they have more than $500K in inheritance money, and are eligible for a reverse mortgage. Their pre-qual has them looking at properties below $800K.

Income is not as important when you have that much in the bank, as most lenders will be willing to work with them. Although, I would have to look at their finances before I can recommend they take out a reverse on a property in that price range. Just because they can qualify for something, does not mean its a good decision. i.e 2008. While things have gotten a lot stricter, bad loans still slip through the cracks.

*His parents are excited at the idea of co-purchasing a duplex, triplex, or quadplex and living in it with them (at whatever arrangement would make sense).

This is a great option to utilize. If the parents have the extra income to help out with the qualification, option 1 is definitely back on the table as a good option.

*On the wife's side, her father has had decent success in the past from buying and selling several properties in the LA area, and he is willing to partner financially (or even just give a loan) on an investment property.

Same as above, this strengthens the financials.

*The husband has some friends and contacts who have invested successfully as landlords, and who would like to partner with him on potential deals. One of them has plenty of capital, and wants to work with him on finding a property "to buy low and sell high."

Once again, strengthening the case. It definitely seems like you have great resources to take advantage of. You are smart to be asking these questions and not just jumping at the first option that comes your way. Do you research, learn from your mistakes, expect the best, but stay prepared for the worst. Not finding a tenant, finding poor tenants, troubles during rehab, and holding costs can break the backs of many people who do not plan out their financials to have room for errors. Stay patient and soak up as much information as you can before you start.

Feel free to PM me with any questions you may have. Always happy to help young and hungry investors. Good Luck!

I'd be interested in such a script. Let me know if you have any success

One more interested in an LA meetup here. I am located in the valley but commute to downtown. Simi, Hollywood, SF valley, LA are all within reach for me. Weekends are good for me but could also do later afternoons on weekdays. Very interested in being a regular at local meet ups.

I am also interested. Message me the details.

Typically those are reserved for the MLS for your area. It helps protect buyers agents. If you have a licensed realtor friend, I’m sure they’d be happy to help obtain those numbers!

Hi Tim, This is a very interesting situation that I have never heard of before. I am new to BP, so to avoid breaking any rules of the forum, feel free to pm me. I am a mortgage broker in Los Angeles and I feel there may be a much easier way to take care of the title issue with the property. Quit claim deeds, assuming the current mortgage, refinancing to pay off the current mortgage into another one, etc. The last would obviously require a title report as the lender will not lend on a house where title is in question, but there may be work arounds with your particular situation. I know a great title company that will find a way to make it work if there is one.

Hi Jonathan, I have closed a number of deals with self employed individuals in the last year and have similar points to make as the above posts. The biggest problem is fluctuating income here. Self employed/independent contracts, as I am sure you know, can make nothing one month, and blow it out of the water on a big customer the next month. This provides a bit of am obstacle in the lending world because the income is not guaranteed in the way W2/salaried individual’s income is. My biggest recommendation to you would be to start out with a smaller duplex or even a SFR and build to eventually obtaining larger multifamily’s. Even if you have to look outside of your immediate area to make that happen, that may be the best bet. The benefit here is it subtlety fixes the tax problem you are experiencing. With other investment properties (even small ones) you can deduct a lot of expenses, freeing you up to not need to deduct the same amount from your contractor earnings. This matters because there are “add back” items on real estate deductions that lenders do not count against you as a debt. The biggest one usually being depreciation. Once you build a small schedule of real estate, lenders will most likely look much more favorably on your finances (especially if you can get some cash flow positives going on here). Some lenders also very much prefer to lend to an investor that has the managerial experience. This matters a lot when considering building your SREO while qualifying for subsequent properties. The lender will use the debts from the first property against you, and the income from rental to boost your earnings. However some lenders will only allow a certain percentage of rental income (I’ve seen 75%) for relatively new rental managers. You can see how it would be very easy to get into negative cash flow in the lenders eyes after takin off 25% of your rental income, especially in LA. I’m totally open to questions. I love picking everyone’s brain I meet and helping out those I can. I am still relatively new to the industry, as well as BP, but am absolutely loving it so far.