Rental Property Information (Los Angeles, San Diego: real estate market, rental homes, HOA)

[CAtransplant]

We (myself, wife and 2 little kids) are thinking of going back to CA, either to San Diego or Los Angeles area where we have lived for almost 18 years. I am interested in buying a townhome and rent it out in order to use current low interest rates and then, in a few years, to move to it when we are ready and economic conditions improve in CA.
Some of our friends advise us not to do it citing issues with bad tenants, and CA law protecting those in case they do not pay. I am sure majority of tenants are great but under current economic conditions in CA, if they cannot afford rent what is the maximum time they can stay before evicted?
Thank you!

[altoidboy]

Unless you are a VERY experienced property manager I would not advise this for multiple reasons:

1) The rent/buy prices in L.A. are still vastly not comparable -- it is MUCH cheaper to rent than buy. What this means is, unless you have a sizable downpayment, you probably won't be able to buy for an amount that you could have the rent cover your mortgage.

2) If you do have a sizable downpayment, I would suggest investing in LA real estate is one of the worst things you can do. The real estate market has dropped significantly from its peak, but many people believe it has a lot further to fall, particularly if our economy stays in the toilet, and not counting the possibility of the Big One (earthquake).

3) Finding good tenants is difficult in LA where so much of the city is broke, and evicting bad ones is nearly impossible. You will be in limbo for several months if you get a very stubborn bad tenant. The one exception I would grant is if you get an upscale place and rent to upscale tenants, with enough of a downpayment to prove that they are responsible people. (But still...my warnings remain in place.)

NOT WORTH IT. Save your cash if you have it. Better days are ahead.

[ferretkona]

Also home loans for investments have a much greater interest rate. You would not be a resident of this home and not eligible for the lower interest available. In perjuring yourself you will likely get in trouble even lose the loan.

Rental properties take decades to make a profit, actually only when paid off or sold. You will not likely get the monthly rent anywhere near as much as the mortgage. Not to mention the HOA dues. Many associations have rules on rentals and even addition fees related to such.

I would look into duplexes. None of the HOA nonsense . You get a home to live in with a built on rental. You can not get a FHA loan on a duplex and will need a larger down payment.

[Cubancoffee]

On the other hand, my family and I just bought a house we couldn't have afforded two years ago that is much bigger and newer than the place we are renting now and our monthly payment will be more than $100 a month lower. Indeed, if we were to rent our new house it would more than cover our PITI. Maybe we're chumps but at least we'll no longer be paying our landlord's mortgage for him.

Rental homes are a gold mine if you have a good tax preparer. And if you could somehow live in your new house for a couple of months before you turn it into a rental you would qualify for a regular mortgage.

Regarding good/bad tenants: There are landlording books specific to California. Educate yourself, join landlord associations and screen your applicants vigorously on the front end and you'll have fewer headaches on the back end. Nolo Press has good info on California landlord-tenant law. Good luck.

[ferretkona]

Originally Posted by Cubancoffee

On the other hand, my family and I just bought a house we couldn't have afforded two years ago that is much bigger and newer than the place we are renting now and our monthly payment will be more than $100 a month lower. Indeed, if we were to rent our new house it would more than cover our PITI. Maybe we're chumps but at least we'll no longer be paying our landlord's mortgagefor him.,,,.

But you are still paying rent, right?