House hacking – Highland Park case study

What if I told you that there was a fairly easy, low risk, high-reward way to break into real estate investing?

What if I told you that you could buy a rental property with as little as 3.5% down, reap sizable tax benefits, lower your monthly rent expenses and do this with far less risk than your peers investing traditionally in rentals with 25% down?

It is called “house hacking”.

You may not have heard of this specific term before, but you’re probably familiar with the practice. House hacking is when you buy a multifamily property, live in one unit and rent out the other units. House hacking can be a great way to start buying rental properties because you can buy with low-money down owner occupant loans and still collect rent right away.

Different Ways to House Hack

  • Buy a multi-unit property and live in one of the units that isn‚Äôt rented
  • Rent out a room in your single-family house
  • Rent out your main home and live in the guesthouse
  • Rent out all the rooms in your home and live on the couch or in the garage
  • Rent out your place via Airbnb or HomeAway
  • Buy a fixer, improve it and sell it 2 years later avoiding capital gains tax

Due to high cost of living in Los Angeles I always recommend to my clients, who don’t own any properties yet, to buy a duplex. It’s the easiest,and in my opinion, the smartest way to break into real estate investing.

Here’s how the math works:

Address: North Figueroa St, Los Angeles 90042

3 bedrooms + 2 bathrooms = 1266 SF (building total)

Escrow closing date: September 2017

Original listing price: $679K (Apr 2017)

Purchase price” $450K

The smaller unit (1 bedroom + 1 bath) is renovated and rented at $1075/month

The 2 bedroom unit needs a lot of work and is currently rented out at $1019/month. Current tenant lived on the property for 20 years.

Zillow Zestimate: $722K (as of Nov 2017) Do you still believe Zillow value estimates? ūüėČ

In theory this duplex could be purchased with 3.5% down payment as a FHA mortgage, but unfortunately due to debt to income ratios (DTI), this wasn’t possible in this case. At the end my client had to come up with $61K cash to close on this purchase. There was additional cost of $15K that had to be dedicated to relocation costs for one of the tenants. Both units are currently occupied and in order to move in, buyer of the property needs to evict for owner occupancy. Rent control in Los Angeles is brutal thing to new property owners / accidental landlords.

Tenants of the 2 bedroom unit received 60 days eviction notice. After they vacate, the new property owner will be able to move in.  Total monthly payment of principal, interest, property tax and hazard insurance is about $2400/month. Considering that the tenants of the smaller unit will move out next year with the end of their lease, new property owner will be able to rent this unit out through AirBnB. Potential monthly income from vacation rental in this hot spot area is anywhere from $2400 to $3000. Which means this new happy homeowner will not only live rent free, but actually can make a small monthly profit.

Happy house hacking everyone!

Where to invest in Los Angeles

There’s no doubt parts of South LA and Northeast Los Angeles are on buyers’ minds. Prices continue to go up and frankly it’s probably the last chance to get in, before it becomes ridiculous. Personally I love North East neighborhoods and it makes me happy to see Mount Washington to go up another 10% year-to-year. Glassell Park is super popular these days among the flippers. Properties usually come back on the market with up to $200K hike in asking price.

Where to invest? Look at the latest heat map from The MLS published Aug 5th, 2017. A few years ago Playa Del Rey and Beverly Hills were in blue. Today they are leading sellers markets with over 40% average price increases year-to-year.

Personally I decided to stick to Northeast LA, Eagle Rock, Atwater Village but also expending my search for next property to Hollywood Hills and Echo Park. Are you interested in flipping in these areas and looking to partner up, call me.

08_05_2017_LA_Times_Article

 

 

Cash flowing duplex in El Sereno

Just come on the market. Offered at $380.000.

4369 O Neill St Los Angeles, CA 90032

This is one of these properties that you may not necessarily be thrilled to move into but will bring you big bucks in a near future. In my opinion El Sereno is next (2015-2016) hot spot. I’ve been watching it for 3 years now and the appreciation you see here greatly surpasses any other areas of this kind. Mark my words. El Sereno will be the new Mount Washington or Highland Park.


90032 homes for sale

4369 O Neill St¬†El Sereno homes for sale¬† ¬† ¬†4369 O’Neill Street is a duplex, 6 beds + 2 baths. Great tenant in place (section 8) paying top market rents. One unit renovated, perfect for owner occupant or as another rental.

If you’d go for FHA loan, your mortgage payment would be around $2500 monthly.

Investor deal with 20% down would have a monthly payment under $2000.

Potential income here is $3500+ and I don’t see a reason why El Sereno wouldn’t have two digit appreciation next year.

Contact me if you’d like to see this or similar properties for sale in Los Angeles.

When will you find the perfect house?

On¬†average house hunters visit 10 homes before finding their perfect match. For about 51 percent of buyers, it’ll take up to six months of searching before they find the home they’d like to purchase. These are national averages based on 2500 respondents.

In California, and particularly in Los Angeles, things move a little faster. For a serious buyer the average time frame is approx 2 months. It is very hard to say how many houses a buyer will see. Usually it only takes 3-4 showings for my buyer to make a decision on making an offer.

In national perspective 52 percent buyers believe they’ll find their dream home in their price range. However, 48 percent say that is impossible, and the majority of buyers realize they may have to settle for something less than perfect. With Los Angeles real estate being less than affordable, I’d say not more than quarter of buyers gets (almost) exactly what they want.

Home buyers surveyed describe a range of mixed feelings when house hunting. Here are their top six emotions:

  • Excited: 44% (all home buyers); 47% (first-time buyers)
  • Hopeful: 33% (all home buyers); 43% (first-time buyers)
  • Cautious: 32% (all home buyers); 26% (first-time buyers)
  • Optimistic: 28% (all home buyers); 26% (first-time buyers)
  • Happy: 26% (all home buyers); 37% (first-time buyers)
  • Anxious: 25% (all home buyers); 31% (first-time buyers)

They say their top concerns in the home-buying process are:

  • They’ll find something wrong with the house after they move in: 79%
  • Housing prices will drop after they purchase: 69%
  • Not being able to afford the mortgage: 61%

Some of the stress in the home-buying process can be relieved by getting pre-approved for a mortgage, the survey found. Ninety-eight percent of first-time home buyers say they believe the pre-approval process would take the worry of financing out of shopping for a home. However, only 13 percent of first-time buyers surveyed say they’re currently pre-approved for a mortgage.

I don’t know about the other markets but in LA real estate market, without pre-approval letter from a lender your offer will go nowhere. Getting pre-approved not only lets you know exactly how much house can you afford but makes your offer look serious. In today’s sellers’ market, if buyer finds “good deal” he/she will lose out as he/she won’t be able to get pre-approved in time. Just to give you an example… 2 months ago I saw a great deal in Silver Lake under $600K. There received multiple offers within the same day the property hit the market and over 20 offers after a week. Another one… Echo Park duplex at $575K… 4 offers the first week the property became available for sale.

If you’re serious about buying a property, let’s get you pre-approved for a loan today. It doesn’t cost you anything but a few minutes to gather documents. If you’re worried about lender running a credit check (as you should be), get a free credit report here¬†www.annualcreditreport.com and have it handy¬†for your lender. This way you’ll avoid a “ding” to your FICO score.

Call me today and let’s get you ready to start looking for your dream home!

Investing in California Real Estate

Are you looking for experienced partner for your next deal?

Are you interested in distressed Los Angeles properties, foreclosures, short sales and bank owned homes?

Are you searching for buy-and-hold real estate opportunities in Southern California?

Or maybe you’d like to get into fix and flip business?

real estate investments

real estate investments

I work with a couple of different teams on different deals. Let me know what exactly you’re looking for and we’ll get you started with your investment.


¬†Current projects…..

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Listing price is a joke.

California real estate market in 2014 (and most probably in 2015) is a seller’s market. ¬†Los Angeles and desirable areas of Orange County have very low inventory. Sellers feeling so sure that their property will sell often lower the listing price to create a bidding war.

Let me show you what property just came out on the market in Silver Lake yesterday…

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