All Forum Posts by: Jeremy Pelle

I’ll tell you what I DID, and then what I’d do. 

I lived in LA under similar circumstances. Traditional investment properties were way too expensive. So, I purchases 4 buildings (18 units) in Eastern PA. I knew the area because I grew up in PA. I found a local property manager. The cap rates were amazing. I was set! WRONG! I learned several things:

-Owning remotely is difficult. My property manager Was ripping me off and there no other managers to be found in that area. (I switched to a tenant as the manager).

-Cap rates in low income look amazing, but are tough to achieve. Vacancy and damage is high.

-I will forever avoid shared utilities, but I’ll spare you the ugly details. Let’s just say 85 degrees, open windows, and shorts - in the winter.

Now for what I WOULD do:

-My biggest hurdle to owning my first property was the 20% down payment. I passed on $200-250k bungalows in West LA because I didn’t have the deposit (right out of college.) Plus, that was an insane price - a mansion where I came from. Those same bungalows were worth just over $1M at the peak of the ‘08 boom and $1.4M as of last year. Talk about a missed opportunity.

-If I had to do it again, knowing what I know now, I would have bought a duplex (wait for the market to crash for the best pricing) and used FHA (3.5% down) financing. Live in one unit. The rent on the second unit will pay your mortgage (or most of it). Eventually, you can move on, and keep that as a solid rental, or cash out and purchase other investments, or start an empire in a less expensive city.

Good luck and happy investing!

As an agent and 2x house hacker in Los Angeles, there are a three of questions to think about:

1. What do you qualify for? FHA has a lot of fees and you can do 3% down on a conventional loan if you are a first time home buyer.
2. How long do you plan on living there?
3. What are your financial goals?

If I were in your position, I would house hack.  Interest rates are really low and even if there is a downturn in the market, it's a paper loss.  The experts are expecting a V shape recovery as far as the economy is concerned.  Therefore, there are two routes I personally would consider:

Buying no less than a 3 bedroom condo.  I have a hunch as home rental prices go up, 3 bedroom condos are going to become popular for tenants as it will be the alternative.  Ideally one that needs work to increase the value since remodeling condos is cheap.  Once finished, I would rent out the other two rooms as a house hack.

If you go the multifamily route, get familiar with the rent control laws. I would go house with ADU or build out the ADU. The ADU would not be subject to LA rent control but the main house would be. However, you then have flexibility whether it is living in the ADU and rent out the main house (which is what I am doing) or rent out the ADU and live in the main house with roommates. In the beginning your expenses wouldn't be that low since you will have to finance the ADU construction but that is short lived because once it is paid off, you are in good shape. My investor clients make the most money off of their SFR with ADU properties.

In both scenarios, it just depends on what you would qualify for. I'm happy to discuss your options. I just helped a house hacker in Los Angeles by buying a house with ADU. If all goes as planned, he will be paying the same as he was in his one bedroom apartment and when he moves out it will be cash flow positive.

Best,

Rick

@Jeremy Pelle Wowwwww so much hate for the LA market in this thread. I honestly believe LA unfairly gets a bad rap. Yes, it's an expensive market (obviously) but the appreciation is unrivaled and there are deals to be found. I second what others have been saying - the best move would be to house hack an SFR and rent by the room putting <5% down and look for properties with ADU potential so you can add value (househacking + BRRR) if not now, then down the line. I closed on such a property putting 5% down at the end of march and in spite of covid got all of the rooms filled and currently paying only a couple hundred towards the mortgage. When I move out and rent out the room I live in I will be cash flowing $700. When the ADUs are built, I will be cash flowing $2,600+.....so I wouldn't pay too much mind to the people telling you to get out of LA.

I also don't believe that rents are going to decline significantly.  LA's housing shortage is no secret (slight population decline has been reported lately but it's still the most populous county in the entire country), which is exactly why the new ADU laws were passed. Low supply + high demand does not equal rents going down. Add to that homeowners who will become renters in 2021 when they can't pay (and can no longer defer) their mortgage payments...I think the LA rental market is doing just fine and will continue to do what it has been doing for years.

I would however pay attention to the people warning you about dealing with non paying tenants...if you decide to go the MFR route, I would only buy a vacant property. Don't inherit any tenants.

Good luck!!

@Jeremy Pelle Good Question! Living in an expensive area of California myself, I think I would BRRRR an out of state property. Possibly a duplex.

Id use that as a down payment in Temecula, CA- close by

If I found myself in LA and had enough cash, Id buy a plane ticket somewhere else😂

That would be a decent down payment for a modest home in the desert or mountains to use as a vacation rental.  Beware though, lots of Angelenos have the same idea right now!