Rent and Invest or Buy and Wait on Opportunity?

Question

I am currently living in Southern California renting at $2850 and currently have $110k saved up. Also some important information is that my rent has been locked(I have been on this rent price for the past 2 years) I am assuming that the landlord will keep us at this price since she told us that we are month to month after the first year. I also asked neighbors that have been there longer(3-4 years) and they still have the same rent. I also have an excess of $1000 a month after all expenses and paid.

I guess what I am asking is should I stay and rent and look for a investment property or buy a property for me and my family. Townhomes/condos are all pretty expensive in the area that I am looking (where I currently live) because there are good school around my area. I can't buy a single family home in this area as I am priced out. If I do buy a house I'll probably be close to house poor with no extra money and probably won't have an opportunity to invest in real estate for a while since most of my money would be tied to my house/townhome/condo. The houses in this area has appreciated pretty well over the past couple years. Only fear is that I also feel that if I don't buy a townhome/condo now I miss out on the opportunity to live in this area if I ever plan to buy a property.

I have been looking at the market outside of California to look at investment properties. I was looking for properties that were around 100k, that way I can buy it cash and refi with the bank with 20% down and keep the rest of my down payment as a safety net.

Any thoughts?

Melvin Martinez · Answer

Thanks for sharing. I have a friend from work who invest in both Ohio (originally where he is from) and California. He tells me that he buys property mainly in Ohio because of the price and the fact that it is a landlord friendly state. On the flip side he tells me that his California properties have done not so bad but have appreciated like crazy. His annualized ROI is also higher in Ohio which makes it a safer option for him.

Allan C. · Answer

First off, you don't want to buy $100k properties - that is not a recipe for success. Buying cash also doesn't get you as much of a discount as you think, so you should be buying on a levered basis to get the best quality asset you can afford.

You're asking a hard question as there isn't a clear answer in current market environment. A few years ago I would have suggested you buy instead of rent, but today I honestly can't say with confidence. I've seen prices in LA market move down considerably in last 12 months, and certain cities it looks attractive to buy. I buy MF properties in 626 so I'm familiar with your area, and I think SFH are still a bit overvalued. That being said, you'll likely also face some higher demand from those displaced by Eaton fires, so that will put upward pressure on prices for a bit.

I've owned a few condos in the past so they aren't horrible purchases, but they're not the best. I'd prefer to buy SFH instead of condo, but you'll need to be ready to put some sweat equity into the SFH.

if I had to give you an answer today, I would advise you keep renting and put your cash into a mix of securities and bonds to compound your saving. Wait another 12 months and hopefully market will be a little more clear. You can win big, but also lose big when betting in a volatile market. You give up some upside when sitting out a bit, but you save yourself for another battle down the line.

seems like you can make things work by investing in local markets, so don't chase the paper dreams of long distance markets just yet.

Jimmy Lieu · Answer

Hi Melvin! You should look into Columbus Ohio - you can still find deals here from 120-180k, which would get you a much better bang for your buck than investing in California. The macroeconomics are on fire here - population growth, job growth, and companies moving and developing here. For example Intel headquarters, Google, FB, Amazon, Nationwide, Microsoft, LG, Honda, (recently Anduril announced another 4k jobs to Columbus). Additionally, the price point is still cheap enough to find the 1% rule and positive cash flow and there's amazing appreciation potential. Lastly, the price point is still very cheap here in the sense that you can still find investment deals from 120-180k for a sfh and 200-250k for a duplex! Happy to connect and answer any questions you have!

Kerlous Tadres · Answer

With $110k you have 5 downpayments if you invest in Ohio. You can stretch your money a lot further and have a diverse portfolio with the cash that you have

Melvin Martinez · Answer

I agree leases are almost viewed as an asset since we're basically a protected class. I have recently been looking at the numbers that Redfin/Zillow/CA Realtor puts out and home prices are starting to slow down and in some markets staying stagnant or dropping.

Maybe staying here another year wouldn't be as bad of an idea. My biggest thing is, how would I know when to jump into the market. I wouldn't want to get too comfortable and just keep renting and not put my money into the RE market.

Richard Evanns · Answer

Hey man

I am an agent/investor here in LA and also an investor in other markets. IT is a hard question, do i buy in my real expensive market, or do i rent here and invest in a better market (and by "better" i mean better for traditional investing)

I would say this: The traditional idea that I am "missing out" if I don't own a primary residence in my chosen market to live in, is not necessarily a true notion.

I know a guy, a friend of mine who actually told me about BP back in the day. We started out kind of at the same time, and made similar money, both self employed attorneys with successful firms, but not huge money guys by any means.

He looked at the LA/So Cal area, and said "none of this makes sense, you cant cash flow here so I am not investing here"

and i said "I believe in so cal real estate, i will invest here, live here, and play the long game"

So I started house hacking here in LA, and doing the more traditional deal.

he rented in a place that he liked to live (by the beach, where nobody can afford to buy) and started buying stuff in Chicago, where he is from.

He still rents here- but 10 years later, he owns 400 doors in chicago and could retire if he wanted to (but isn't). I am still working, and even though I have done quite well, dont get me wrong- I cannot retire.

---

Now he and myself are different people, he is an absolute machine, and maybe a stronger /more dedicated investor than i am. So take it all with a grain of salt.

But the point is, there is no rule that says I have to have my primary somewhere, and that I have to worry about being "priced out" -

(a) who cares, if you have successful incestments elsewhere, its all ego that cares about renting vs buying in my hometown; and

(b) My buddy, if he wanted to, could sell one of his apt buildings in Chicago and buy whatever he wants over here- but he still doesn't. He rents a high end house for 12k a month or something like that.

just food for thought.

Ben Fernandez · Answer

@Melvin Martinez Good. You're aware of historic performances and the metrics best used for evaluation purposes. That is great feedback.

You could certainly risk little-to-no cash flow for what would be unrealized gains in the form of potential appreciation (if you choose). You could also use data sets in the same manor to purchase elsewhere where you either gain moderate cash flow and moderate appreciation or high cash flow and little-to-no appreciation.

- Emerging markets could grant you both.

Thats the decision that'll be based upon your comfort zone. I wish you well in your quest.

Ben Fernandez · Answer

It depends on the performance of the investment compared to the performance of the personal residence.

If the investment property doesn't add to your monthly earnings, and doesn't appreciate equally to what your personal residence would, it's not worth the investment. Being that you mentioned that the personal residence would appreciate well, the favor lies with buying the personal residence.

Generally, it's better to buy the investment property first, if you buy what will perform. This way, you're adding to your income and when you buy the personal residence, you're more stable than before (if considering an equivalent purchase price as before and not increasing your affordability due to the extra income).

You are exactly right in pursuing other markets for your investment property. Feel free to connect for more insight on asset class and choosing the right type of investment suitable for your targeted performance. I'm a licensed PA realtor and have plenty of opportunities that could be of Interest to you in your price margin/targeted performance.

Austin Wolff · Answer

I now live in Los Angeles. After giving up a $1,600/month lease I had for 4 years in Studio City, I moved twice and now similar apartments go for $2,800/month in the same area. As a renter in Los Angeles, I almost view leases as an asset since we're basically a protected class here. If you plan on staying in LA and aren't moving elsewhere, I'd follow the advice others are giving and continue saving money for the next 12 months. I really really don't think home prices are going up relative to historical averages in the next 12 months (in other words, I think real inflation-adjusted growth will be stagnant in the next 12 months). Keep your lease. And keep saving.

If you didn't live in a coastal CA city I might have different advice. But as someone who was in an almost identical situation, I feel qualified to give this advice.

Melvin Martinez · Answer

Well SoCal Properties has appreciated well between 6-8% in the short term and +100% over a decade, which I believe is better than the national average. I mean this is just previous data no one can say that it will continue. For all we know the market can shift and SoCal properties could slow down. It truly comes down to analyzing many properties to compare possible appreciation and cap rates between these properties.

Part of the reason why I wanted to purchase a investment property is because I want to increase my income and not increase my affordability.

Rent and Invest or Buy and Wait on Opportunity?

Most Popular Reply