How do people afford to buy a house here? (Los Angeles: for sale, real estate)

[goldenglory18]

Originally Posted by iama30something

Great, I'd love to do it. How do I get started when things are $900k - $1.2mill for a 2 bedroom dump off Sawtelle and Pico?

....and this is how the Poor, get poorer......

(Thanks for following through with that setup. Couldnt have worked out any better. Haha...)

[MordinSolus]

A friend of mine in his early thirties just bought a house in Silver Lake for ~$700,000 and him and his wife have a combined income of ~$100,000 iirc. I think they put down $70,000 and their mortgage is less than $2,000/month. And I know he doesn't have a great credit score or anything.

[Mr_Geek]

Originally Posted by MordinSolus

A friend of mine in his early thirties just bought a house in Silver Lake for ~$700,000 and him and his wife have a combined income of ~$100,000 iirc. I think they put down $70,000 and their mortgage is less than $2,000/month. And I know he doesn't have a great credit score or anything.

That math is way off unless they have some balloon flex rate mortgage. Mortgage only at todays rates would be at least 3k I think and that doesn't include insurance, pmi, taxes etc...

[jm1982]

OP, you are in the same boat as many people and a better 'boat' than most people.

I think the answer to the question of "how do people afford" those "million dollar dumps" off Sawtelle and Pico is that most people don't afford them. There isn't that much turnover of those properties.

Most of the people living in $1million+ neighborhoods didn't pay $1million...they bought their dumps for a fraction of the cost.
If you take a look at housing prices in the late 1990s in L.A , you'll see that prices have increased 300% or more since then. Have wages gone up 300% since then ? No.

Some ways people afford $1million homes today:
They sold a house in another very expensive city like SF or NYC and put their equity towards an L.A Property
Had family that helped them with a huge downpayment or help towards the mortgage payments
Foreign buyers buying with Cash

One issue with L.A is that it's the type of city that attracts people from all over the world, similar to NYC, San Francisco.

Of course if the only people buying houses in L.A were 'working people' the prices would be much lower.

If you do have a good downpayment saved , I'd look into using that money to invest in a market where you can actually cash flow, but also a market where there is the potential for appreciation (higher prices in the future).

If you have $100k saved up for example , you could likely buy something worth $400,000 as an investment property. Of course you'd want to have money for reserves etc , but its just an example.

$400,000 might sound like it can't buy you anything, but there are places where you can buy good sized apartment buildings for this price, or many single family homes.

If you are leveraged and the price of your property goes up , then you make much more on your money.

For example if your $100k buys you $400k worth of investment property (25% down) and the property doubles over some time and becomes worth $800k , you didn't double your money.

You made 5x your money , 500% . You would likely make more than this too because you'd have cash flow from the rents over the years and would of paid down the mortgage with those rents as well.

You could sell for $800,000 and even if you owed $300,000 on the mortgage then you have $500,000 left over.

At these prices in L.A , I feel there is a better shot of a property worth $75,000 going to $150,000 in some city that isn't world famous...versus one of those shacks you mentioned that sell for $1million going to $2million. Of course it could happen, but I feel it's less likely.

The key though is to pick your locations right and have a bit of vision.

There are also opportunities where you could improve a property and 'force appreciation' . You shouldn't be looking to buy properties at 'retail prices' .

Another option you might want to look at is buying a multifamily home with an FHA loan. You could live in one unit and rent out the others. You can get credit for the other rents too which would help you qualify and also to help pay your mortgage as well.

[jm1982]

Originally Posted by Pennychaser11

Most people don't. Most homeowners bought when housing was actually cheap in LA. Although 100K/yr is very good for your age it ain't much here in LA especially for west LA area. Being frugal is important but being smart with investment is more important it seems

Robert Kiyosaki (of "Rich Dad, Poor Dad" fame) has said that in today's world "savers are losers". While it's good to save, savings should be put into great investments. The interest in the banks for years has been ridiculous, like 1% or less.

If you keep the money in the bank then you are losing money every year because we all know cost of living goes up more than 1% per year.

The rich don't work for money, they make their money work for them. They also leverage other people's money, time and efforts,etc .

[jm1982]

Originally Posted by goldenglory18

My wife and I are in our early 30's, make just under 100k between us, (she works part time), and own a nicely appointed, new(er) 1300 sqft SFR in a upcoming AZ suburb with a mortgage of less than $900. Our entire housing budget here is less than $1300. Utilities, DirecTV, HOA....everything.

I'm having a VERY hard time finding decent housing in areas close to this job lead for under $1800 a month. And I'm not even looking at houses or even large apartments...This is the main reason why I'm still undecided on relocating to LA LA land.

No wonder the blue collars and middle class are dying off....

The middle class and poor are replaced by 'the rich' or upper middle class in L.A

There are still a lot of poor though because they can 'afford' L.A through section 8 , rent control or other social programs. A lot of the poor in L.A are also immigrants and they don't mind living with a lot of other people.

There are a ton of people in L.A that aren't immigrants that still live with their families too just because housing is so expensive , and jobs (most jobs) don't pay enough to justify it.

[Pennychaser11]

Originally Posted by jm1982

Robert Kiyosaki (of "Rich Dad, Poor Dad" fame) has said that in today's world "savers are losers". While it's good to save, savings should be put into great investments. The interest in the banks for years has been ridiculous, like 1% or less.

If you keep the money in the bank then you are losing money every year because we all know cost of living goes up more than 1% per year.

The rich don't work for money, they make their money work for them. They also leverage other people's money, time and efforts,etc .

Agree 100%. Glad I read his book many years ago. This is why I do not believe in saving especially in today's low interest environment. I feel buying a home in anticipation of price increase is a bad move financially as I believe RE prices have nowhere to go but down or stay flat for a long time.

[BRinSM]

Originally Posted by Pennychaser11

I feel buying a home in anticipation of price increase is a bad move financially as I believe RE prices have nowhere to go but down or stay flat for a long time.

I was saying the same thing to myself 4 years ago when I bought my home, but decided to go through with it for the tax benefits. Now, not only do I have the tax benefits, buy my home value is up ~20%. Obviously the market is different now, but perma-bears always miss opportunities.

[jm1982]

Originally Posted by BRinSM

I was saying the same thing to myself 4 years ago when I bought my home, but decided to go through with it for the tax benefits. Now, not only do I have the tax benefits, buy my home value is up ~20%. Obviously the market is different now, but perma-bears always miss opportunities.

I also bought 4 1/2 years ago in the valley area. Prices seem to have increased quite a bit, but of course you don't know what you will get for something until it is time to sell.

I've considered selling and investing in a market that has more potential for appreciation...or maybe even just a different part of L.A

[genjy]

My wife and I usually make about $125k-$135k combined.

We bought an older ~1300sqft home in a very safe LA County area with highly-regarded schools for about $375k at 5% back in 2010. With FHA's PMI and paying $500 extra every month towards the principle, we are paying almost exactly $3000 per month. We are getting rid of the PMI this June or so (5 years + 20% equity requirement done)... looking to refi then and get the required monthly payment down to less than $2000 if possible, so we can pay even more extra principle to get this house thing paid off faster. Even with all the thousands spent each month, we still have a surprisingly OK bank account.

This is how we afford a house.