@HomewithJustin | Possible Tariff Impact On Housing

Multi Generational Housing. Townhouse/Condo vs Single Family Home. Is California a good place to invest in?

Episode Transcript

Speaker 1 (00:00):
You're listening to KFI Am six forty on demand.

Speaker 2 (00:04):
Justin Worsham back again for week two to talk southern
California real estate. If you're new to the show, you
might recognize me for my regular appearances on The Gary
and Shannon Show. Recently, I do a parenting segment on
Wednesdays eleven thirty to noon with them. If you're a
longtime KFI listener and also new to the show, you
might remember me. I was the board op on the
Bill Handle Morning Show for a while, doing dumb comedy

(00:27):
bits there, and then I became a realtor and a
real estate broker, and so now they asked me to
come in and give what I think everybody should be
learning is a class in real estate.

Speaker 3 (00:38):
So great news.

Speaker 2 (00:39):
If you were here last week and you liked the
show and appreciate the show, they gave me two more weeks,
so you're truly's going to be here two to four
every Sunday through the month of April. So thank you
to the fantastic Michelle Cube and Oscar for giving me
that shot.

Speaker 3 (00:52):
Very appreciative of that. But let's get into it.

Speaker 2 (00:54):
I don't want to waste too much time talking about me,
because why should you care about me? I want to
talk about tariffs. There's all over the news today, the
pause on the tariffs, the tariffs, the trade wars. They're coming,
it's coming, it's happening now. And I already saw ABC
News was talking about what impact tariffs could have on
the housing market, and it would have to be an

(01:14):
indirect cost, because really, what tariffs are going to do
is they're going to increase the cost of good So
what we're seeing is people are not moving as frequently
as they used to, mostly because of interest rates. Right,
interest rates during the pandemic were down as low as
two percent. I know some people that got one point
eighty five percent on their home loan. Now they're hovering
around seven and a quarter ish, somewhere in that range.

(01:37):
And so because of that, people are planning to stay
in their houses longer. So we're not going to see
a lot of inventory here in southern California. It's virtually
impossible to build new houses. We're going to only be
able to build like new condo buildings maybe, but even
that can be difficult. I know that Santa Clarita has
seen some growth. They just had a bunch of houses

(01:58):
built up there and so could cause the prices to
go up. I've also flipped houses, and I know that that,
you know, affected the flip costs when I was doing that,
especially during the pandemic when we hit those heavy cycles
of inflation. There was a house that I was flipping
and we had to resheet everything underneath the floor. So
if you're not familiar, you have your flooring inside your
house that you walk on, and underneath there is like

(02:20):
a subfloor, and in most cases there's plywood sheeting that's
underneath there. If anybody's frequents home Deep or Lows or
any hardware store. A while ago, sheets of plywood were
around thirty bucks, and then during the pandemic they hit
ninety dollars. And that was because of supply chain issues.
Right nobody was working, so they weren't manufacturing the goods,
or if what was happening is goods were being held

(02:41):
off port, I guess to quarantine.

Speaker 3 (02:44):
I don't know.

Speaker 2 (02:44):
I'm not a doctor, don't know a lot about all
that stuff, but I know that it definitely raised the prices.
But honestly, it didn't really impact my rehab budgets significantly.
It's not like I saw a thirty percent jump to
match the well three hundred percent jump in plywood costs.
I didn't see that really really jump up a ton.
It was maybe an extra ten to twenty thousand dollars

(03:05):
where I did see increases, but this was after the pandemic.
This is more recently is roof replacement costs. For whatever reason,
Skyrock like I was getting roof estimates from roofers from
like twenty eighteen to about twenty twenty two ish in
the range of about fifteen to eighteen thousand dollars on average,
and the average homes that I was selling were anywhere

(03:25):
from fifteen to eighteen hundred square feet, maybe thirteen hundred
square feet on the low end, right, so somewhere around
about I'm guessing, what is that one hundred bucks of
squarefot a thousand bucks square foot anyway, Now they're like
thirty to forty thousand dollars. And the way I found
this is that I had a client who just called
a roofer that they found online and they said, hey,
I just got a roofing quote, and they said it's

(03:47):
going to be forty six thousand dollars to reroof my
sixteen hundred square foot home, and I look like an
idiot because I was like, no, you got a bad roofer.
Let me connect you with my roofer, the one I
like to refer. So call them and they got a
bid that was only like four thousand dollars less, and
I called a roofer and they said they go to
supply costs or just they're astronomical now. But so my

(04:09):
point is is that what I think happens in these situations,
and that the reason that people get so focused on
this stuff, at least in southern California, is because we
have such an affordability issue, like it's so hard, and
so people love to blame other things. This is why
I can't afford to get a house, and this is
what's going to change things, Like leading into the pandemic.

(04:32):
After we had the crash in eight, everybody was waiting
for another crash because it's supposed to happen every fourteen
to twenty years is when we're supposed to have a
reset of the pricing cycle on real estate, and we
just haven't seen it yet. And what I'm hearing is
that they're not going to They don't anticipate anything like oh,
eight a big reason why eight happened from my perspective,

(04:54):
was that banks started collecting on their mortgages and people
were just walking away from their houses, and so they
flooded the inventory with their own collateral for the loan,
which devalued that collateral and made it difficult to sell
during that time period.

Speaker 3 (05:09):
But it still took what was it, oh, eight was
a crash.

Speaker 2 (05:12):
By twenty I think it was twenty fourteen, Orange County
had reached back to pre crash prices. In twenty sixteen,
La County got back up there. So we want this reset.
We want tariffs to maybe be the thing. Or if
you're or you want to blame tariffs for the reason
why you can't buy a house, and I got to
be honest with you, like housing is just unaffordable because

(05:34):
simple supply and demand. There's not enough space to add
more houses, so we don't have enough houses for all
the people that want houses. I've heard people also they
want to blame foreign investors that they think the reason
why they're getting beat is because some foreign investor is
coming in and they're paying all cash and buying houses
up like crazy. And I have yet to see any

(05:55):
of it. The only time I've ever heard that example
is somebody saying that they think they don't know, they
think they got bought out because they don't understand why
somebody else is paying so much more for a house.
And I think what ultimately ends up happening is that
you take these anecdotal experiences and you extrapolate them out

(06:15):
to mean something much much larger, and chances are that's
not the case. The fact is is that with the
high demand for real estate in southern California, you're going
to be competitive. Like during the pandemic, I was getting
seventeen twenty offers on a property, and we had this
model where you could price a house at a dollar
and the demand would drive it up to whatever the

(06:35):
market would bear and then a little bit. And it
was crazy because you would get probably where like a
cluster of if you got twenty offers, eleven of them
would be clustered around where the price of the home
should be in your opinion, based on past data, and
then the rest of them would be outliers that would
start from that price all the way up to as
high as you were actually going to sell it for.

(06:56):
And that number would not be crazy to be two
hundred thousand dollars above your listing price and where that started. So,
I don't think and at no point during that time
where they're foreign investors trying to buy houses, and they
were more affordable then than they even are now, like
prices just keep going up. The other one that I
want to do some more research on is that they

(07:17):
blame boomers, baby boomers like that generation, saying that they're
the ones that inflated the cost of housing. And I've
looked into it and I need to do some more
digging to see, but I can't see a single reason
why a generation could have an impact on housing. I
don't see how because they're buying houses. I really think

(07:39):
that we're over complicating it. When we talk about tariffs,
when we talk about trade wars, when we talk about
cost of goods, all of that, from my perspective, is
just making it more complicated than it really needs to be.
The fact is that in Southern California, I talked about
this last week. I'll say it again, the governments of
the counties of southern California got together and they said,

(08:00):
in order to meet the demand of housing, we have
to build just under one point four million houses by
twenty twenty nine.

Speaker 3 (08:06):
That's to meet the demand.

Speaker 2 (08:07):
That would create a balanced market, right where prices wouldn't
jump up by double digit percentage points like they did
in Orange County last year. Twenty one percent appreciation in
the median house price in Orange County in twenty twenty four.
So if it was a balance market, that would be
the case. So one point four million dollars is how
many housing units the governments of southern California think we need,

(08:28):
but they can only legally build because of restrictions on
land and zoning, four hundred thousand of those units, so
a third of those units to meet the demand, and
they're still behind on that. They're still not able to
do that. And it's because here in California there's just
a lot of costs associated with building houses. There's a
lot of I mean, try getting a permit. I tried
to pull a permit in the city of Burbank. It

(08:50):
was during the pandemic in their defense, but I started
at pre pandemic and it took me twenty two months
to get a permit for a five hundred square foot
addition to my home in Burbank. Twenty two months, and
in the time that it took me to get that permit,
the cost of the construction had increased by a third
thirty percent increase in the cost of construction, so I

(09:10):
had to kind of hold off on the on the
rehab on the house because of what it costs. So
in short, don't I don't see a huge impact.

Speaker 3 (09:18):
I do.

Speaker 2 (09:18):
I'm sure there's going to be an impact, but when
people talk about impact, they want it, They're expecting big numbers,
but I don't really think it's going to be noticeable.
The things that are going to impact housing in Southern
California is either we need to have a mass exodus
of people, large numbers, like over a million people need
to be leaving Southern California in a year, or we

(09:41):
need to I think that's it actually, Or we have
to build houses, which is why I stop. It's not
gonna happen. They can't build houses. They can't build houses.
All right, when we come back, we're gonna be talking
about multi generational housing. Why is that a thing? What
does it mean? Why is it becoming more popular?

Speaker 1 (09:57):
You're listening to KFI AM six forty on demand.

Speaker 2 (10:01):
Talking Southern California real estate and now we're going to
be talking about multi generational housing. So culturally, right, there's
a lot of cultures that there's like this is just
a thing. Like I have friends that have lived with
their parents until they're well into their thirties. There's a
thing where people wait until they get married before they

(10:22):
even leave the house. And even in those cases, they
don't always leave the house. There's I know of lots
of people where they buy, like buy a larger house
so that the family can stay together and live together.
That was not my experience growing up. My experience was
my dad. When I turned eighteen, he was a lot
more harsh, just out of nowhere, and it's my birthday,

(10:43):
was halfway through my senior year, and he was just
mean to the point where I was like, screw you,
old man, I'm out of here. And I moved out
about six months after I graduated high school. And I
kind of put it together when I got into my
early twenties like most of us do, and I asked
my dad one time, I said, Hey, were you like
mean on purpose because you like you wanted me to leave?
And he was like, I didn't want you to be comfortable.

(11:04):
So in the research that I was doing for this segment.
I found that, for whatever reason, Caucasian people are not
big fans of the multi generational housing.

Speaker 3 (11:13):
But it's growing, it's growing.

Speaker 2 (11:16):
So a twenty twenty three paper found half of adults
ages eighteen to twenty nine live with their parents. That's
in twenty twenty three, and that's up from twenty five
percent in nineteen sixty So in nineteen sixty so in
eighty years we went from twenty five percent of people
that are less than thirty but still adults living with
their parents to now half. And then they also showed

(11:39):
that the house price, because this is just to make
everybody throw up, in nineteen the median house price in
nineteen sixty three, thank god, this is a national average
was eighteen thousand dollars. And then they're saying that the
present day equivalent was one hundred and eighty six thousand dollars.

Speaker 3 (11:53):
Is what that would get you?

Speaker 2 (11:54):
So what they're saying is when you account for inflation
in nineteen sixty three, with today's dollars, you would spend
one hundred eighty six thousand dollars on a house, But
the actual average house in the nation is four hundred.

Speaker 3 (12:04):
Thousand according to the Census Bureau.

Speaker 2 (12:06):
So what I saw like there was this big burst
of ADUs. If anybody doesn't know what ADU is, it's
essentially a guest house. They call them granny flats, mother
in law cottage. ADU stands for accessory dwelling unit and
that is like the zoning code for it. And it
became really popular and there's a lot of nimbiism. I

(12:28):
learned this term after being a realtor. I didn't know
what it was. That's not in my backyard. And so
there are people who live in predominantly single family neighborhoods
and they are historically not fans of ADUs because what
that means is if you can put another two bedroom
house in the backyard of your house, you've essentially maybe

(12:49):
doubled or even tripled or more the number of people
living in that area. And you would that means there's
more cars, you know what I mean. And if it's
a rental, people don't like having a rental single fan
home in their neighborhood because they want people to be
invested there. I don't know why, Like I mean, chances
are people who are renters move just as frequently or
less frequently if they're given the opportunities people who are

(13:10):
buying homes.

Speaker 3 (13:11):
Maybe I just I don't know. I don't understand why
a renter.

Speaker 2 (13:14):
I could understand maybe an Airbnb situation, but I can't
understand why you would not want to rental in your neighborhood.

Speaker 3 (13:21):
That just doesn't make sense.

Speaker 2 (13:22):
So there was a lot of people that were against
these ADUs because they thought they were going to be
rental properties. And my take on it was always the
same people who buy a house because they want to
live in a single family home, right, they don't want
to rent out the house in the backyard.

Speaker 1 (13:38):
Now.

Speaker 2 (13:39):
I did see some more, like you know, millennials on
the younger end of that generation. We're looking at it
as saying like, oh, I could convert this garage into
an ADU and then I could rent it out as
a way of offsetting the expense of the mortgage. I
did see some of that, But predominantly what's happening is
you get these people that want they want an ad

(14:00):
in their backyard because it's either a young family that's
about to start having kids and they want grandma and
grandpa to be able to come and stay in the
house whenever they come to visit, they want to have
a space for them. Because that's another thing my dad
used to always say is that I'm sure everybody's heard
this company's like fish. It starts to smell after three days, right,
so or stink, I think is the real way you're

(14:21):
supposed to say it. Because you guests don't smell, it
stinks to have them around.

Speaker 3 (14:24):
Anyway. My point is I've had it.

Speaker 2 (14:27):
I have an unpermitted guest house on the back end
of my garage in my house, and I bought it
that way. It made my house purchase a pain in
the butt, but I have it, and it's great. It's
great for when family or friends come to visit because
they have their own space. My parents would come and
they would hang out, and if they ever just wanted
a break, they would just go at My mom loves
to watch Doctor Phil, so she would just go in
the back and she would watch whatever TV show she

(14:49):
wanted to watch. And so you get the nice convenience
of the visit without everybody feeling like they're on top
of each other like they do for the holidays. But
these adu that's what I think Adu's were mostly going
to be used for. In fact, I had a lot
of clients who were getting help. I said last week
that anybody who's younger than my age of forty six

(15:10):
that I helped buy a house, they have some kind
of family help to cover the down payment because they
need some kind of an additional kick in. And it's
to the tune of a quarter to half a million
dollars is what some of these folks are getting from
their parents, and that's the only way they can afford
a house at southern California. So a lot of these
parents are saying, I will help you with this down payment,
but my money is going towards a place for me

(15:33):
to live when I retire and I can't take care
of myself anymore. And that's how you start getting into
multi generational housing. You got grandma, you got parents, and
you got kids all living in the same house. In
this case, it's usually grandparents with the parents. So parents
and the kids are living in the main house. Grandma
and grandpa are in the back house and they're staying there.
Another interesting thing I want to share with you that

(15:55):
in looking at this whole multi generational housing was that
they look back at the social Security data. Let me
find this here in my notes. So back America, sixty
five and older were once the most likely of any
age group to live in multi generational housing, with more
than half doing so in nineteen hundred. So in the
early nineteen hundreds, more than half of people who are

(16:17):
retiring age sixty five or older were living with their kids.

Speaker 3 (16:20):
So it was a very common thing.

Speaker 2 (16:22):
But after the US government introduced things like Social Security
and Medicare, that by the seventies it was nine percent.
Nine percent of those over sixty five were living with
their kids because they could afford it. It gave them
the ability to be able to afford it, and so
I just I thought that was interesting because what we're
seeing is an exact reversal of that. Is that before

(16:45):
older people couldn't afford to live off of Social Security
and pay for housing and everything that they and their
healthcare right, so they had to move in with their
kids and that was just expected. And now their kids
can't afford to buy houses, so the parents have to
kick in money and they need a place to stay.
And so I think that we're going to see more

(17:06):
of this because we have more people and we don't
have a lot of land, so we're going to see
more of this. This is I think the my Caucasian
friends are going to have to start getting this.

Speaker 3 (17:15):
This is going to become a part of our culture.

Speaker 2 (17:17):
You're going to have to get used to your parents
living in a back house, and that's going to mean
that lots of land are going to be more important.
By lots of land, what I mean is that most
of the San Fernando Valley houses are in the like
six thousand to seven thousand square foot size lot, and
that's kind of hard to build a good ADU size
on that.

Speaker 3 (17:35):
So there's probably gonna start.

Speaker 2 (17:37):
You're going to see a premium on lowst eight to
ten thousand square foot lots because people are Then then
you can have I've had one client who bought a
house with the full intent of converting the garage to
a full ADU, and they were going to build a
second ADU on that same lot in North Hollywood, and
that's where grandparents were going to be there, and then
adult son was going to live in the garage and
then the parents were going to live in the main

(17:58):
house with the rest of the family.

Speaker 1 (18:00):
You're listening to kfi AM six forty on demand.

Speaker 2 (18:04):
I'm justin Worsham here talking Southern California real estate with
you this segment. What I want to talk about is
townhomes and condos versus single family homes. When you have
an issue with affordability, like we do here at Southern California,
I get clients a lot who always want to talk about, well,
what if I did a condo, what if I did
a town home? They obviously always want townhomes more than condos.

(18:27):
Fun fact, there isn't actually a title designation for a
town home. It's something that we've kind of just adapted
as a style. They're all condos, and this means that
usually there's a development of some kind that is everybody's
all under either a common roof. I've seen a couple
of these single family developments where they're like in well
you have them big, like up in port A Ranch.

Speaker 3 (18:47):
I helped the client get a house where.

Speaker 2 (18:48):
It's like huge, just beautiful, like two three million dollar
homes and there's a guard shack and a gate and
they have an HA. But if you've got you're living
in like an apartment, but you get to own your apartment,
then that's traditionally called a condo and you would have
an HA, but there's also town homes that they have
shared walls or even separated like I said before, And

(19:10):
the homeowners association the intent of it is that they
are supposed to, I think, be more of a mediary
for the common areas, right because if you all have
in between these two units, you have common roofs. The
plumbing is feeding it, the sewage system that takes everything
away from your home that there's a part where it
leaves the walls of your house. So there's a term

(19:31):
that we use in condos called paint to paint. So
just the interior you're responsible. So a lot of the
systems that become the responsibility of the community at large.
And so they elect a board they usually hire, depending
on the size of property management company that also costs
money to help them advise them and guide them. Because
if you think about it, people who run for the

(19:51):
board on an h away are all just your neighbors.
They're not necessarily experts. They may not understand construction, they
might understand the costs of they may not even understand
what a homeowner's association does.

Speaker 3 (20:03):
They're just the people who volunteered to do it.

Speaker 2 (20:05):
I mean, stop yourself and ask would I want to
be on a homeowner's association board? No, so to get
into what's more affordable single family home or not. The
reason why I talk so much about homeowners association is
because that's the primary difference, and that's a big variable.
So a lot of times, back when I was a comic,
comics talk about when you did a college gig, you

(20:26):
would get like ten thousand dollars. But if you played
a comedy club, if you were headlining, and most comedy
clubs and you're just like you're not really a big name,
you're getting about fifteen hundred dollars, right, So there's this
big difference in what you pay. And it's because college
gigs were really tough, they were horrible, they weren't fulfilling,
where comedy gigs were easy. So a comedy club could
afford to pay you less, whereas I think the colleges

(20:47):
really have to try hard to get a comic to
go out there, so they throw a lot of money
your way. And I think it's the same thing when
you look at the difference between a single family home
and a condo or a town home. The reason a
condo or a town home is so much deeper is
because it's significantly less desirable. In most cases, you don't
get a private yard, and you have to deal with
those hoas. So those has have to have insurance that

(21:09):
you're helping to pay for. They have to you have
to trust that they're doing enough preventative maintenance to take
care of the building and the complex. I've found there's
there's these companies that what they do is they audit
the books, the finances of hoas. And this guy I
was talking to because I was trying to learn how
to read these documents. When you help somebody buy a
condo or a town home, you get the HA docs,

(21:31):
you get the rules and regulations, you get the CCNRS,
which is a different version of rules and regulations, and
then you get like the articles of organization and the
budgets and the minutes, and you have to go through
all this stuff, and every once in a while you
get one that has this really helpful kind of audit
of the of the HOA. And what he told me
was that eighty six percent of h oas in southern
California are underfunded in the reserves.

Speaker 3 (21:53):
So what does that mean?

Speaker 2 (21:54):
The reserves is money that they's supposed to be a
percentage or a chunk of every HOA payment that you
see in monthly that gets allocated for reserves, just like
if you were a city government, you want to have
a chunk of money set aside in case of an emergency.
So most recently they have this engineering requirement for balconies
that you have to have them inspected by an engineer

(22:15):
to make sure that they're sound. About I want to
say seven eight years ago, it might be closer to ten.
They had the earthquake soft retro fit that was a
thing that you had to do with your HOA. And
so like I had clients that had when they bought
a condo, they had an HOA of about three hundred
bucks a month, and like, this is great because that's
on the lower end of the average, at least in
La County. And then they got hit within a year

(22:37):
with a thirty three thousand dollars special assessment. So when
your HA your community gets hit with a bill, like
maybe it's maybe it's the fires that unfortunately happened, maybe
there's an earthquake, or maybe it's just that nobody's painted it,
or it's been twenty years and the roof hasn't been repaired,
so now we're getting leaks. Something comes up that was
not expected, not planned for, and they don't have the

(22:58):
finances for it, and they do what's called a special assessment.
As an example too, I was helping a client sell
a town home and while we were in escrow, the
insurance policy was up for renewal with the HIA, and
they had the replacement cost to rebuild the structure was
forty two million dollars and they had the insurance to

(23:18):
cover that. But when they went to renew the insurance,
because insurance has gone up so much in California, the
HIA couldn't afford it. So they had to hit everybody
with a twelve hundred dollars special assessment. So that's over
one hundred and fifty units in this development that were
each asked to pay twelve hundred dollars. And that wasn't
even for them to get the full insurance coverage. That
was for them to get half the insurance coverage. In
this instance, the property manager that the HIA had hired

(23:41):
to help kind of guide them and manage things for them,
had said, well, you don't need the full replacement costs
because the individual units their homeowners and policies that cover
paint to paint right, like I said, inside of the unit,
that will cover the reconstruction of their unit. And that
was wrong. It was absolutely wrong. And what happened now
is that lenders who look they do what's called an

(24:03):
HAA certification, so they look at certain details in the
finances of the hway and they use that to decide
if it's okay to lend money for somebody to buy
this condo. The lenders now were like, this is non conforming.
This means it doesn't fit into our cookie cutter that
we like it, that makes it look nice and pretty,
so they wouldn't do a loan. So now you have
to find somebody who's willing to do a non conforming loan,

(24:26):
which is riskier, which means that they're going to charge
a higher interest rate because they need to be compensated
for that risk. So there was a moment where it
looked like it was going to be really, really tough
for my client to sell their town home and they
had already bought a new place and we're planning to
carry the mortgage maybe a couple months. And now through
something that they had zero control over and no saying.

(24:46):
It's just like I say, eight to twelve people get
together maybe once a month if you're lucky, more often
it's three to every six months or only once a year,
and they decide the fate of your financial future. So
I think that that is not a good reason to
get a condo or town home. The only way you
buy a condoor a town home is if you can
afford it. Now, what I will tell you is that
the nice part about the rate it increases is that

(25:10):
that to me, really impacted the condo and townhome market
in southern California. We are seeing how condos and townhomes
it's not out of the ordinary for them to sit
on the market for like six seven months in a
time period where the average days on the market for
a home is around twenty eight to thirty. So the
inventory stacks up so much in that condo and townhome

(25:31):
space that that's where you could see the prices kind
of come down, and they can it can it can
help you? Like we I had clients who they're about
to close on Tuesday on their new place, but they
were looking at another place that they felt was kind
of just overpriced, and when we looked at comparable homes,
we found that in that same development. So this place
was listed for eight twenty five. My clients wanted to

(25:52):
offer closer to like seven to twenty five because we
had seen this was a two bedroom, two bath unit,
and we had seen three bedroom units in that same
complex sell for about seven fifty and so we thought
that the prices had come down. Well, she had bought
the owner that was selling it. She bought it just
two years ago for seven seventy five. So now she's
buying it at a loss. Now I looked at it,

(26:15):
I did some I look back, and the chances of
her she's not going to pay out a pocket, right,
It's not like trying to pay off your car after
it's upside down. It's not like that kind of a thing,
because she put you know, arguably ten to twenty percent down.
It's just she wouldn't get as much as she probably
would like and maybe arguably should based on when you
sell a house or buy a house. But that's that's
also why I tell people, if you know, if you're

(26:36):
not planning to move in like two years, I like
five to ten. If you're going to be in a
place five to ten years, chances are you're not going
to lose your money.

Speaker 3 (26:43):
Here's the thing. What are we going to do next?

Speaker 2 (26:45):
I want to talk about, ooh, California real estate investing?
Is it a good place to invest in California? Also,
I want to get questions. If there's something you want
me to answer on the show, hit the talkback feature. Also,
I forgot to mention last time. What I also want
to hear is if you have questions about a home loan.
Because I have a fantastic guest coming up in the
next hour, Christine Hatch with the Mortgage Group. She's a
lender I use a lot with my clients, really knows

(27:07):
her stuff, geeks out about math.

Speaker 1 (27:09):
You're listening to KFI AM six forty on demand if
you're just tuning in.

Speaker 2 (27:14):
I will be here two to four every Sunday at
least through the end of April.

Speaker 3 (27:18):
They're trying the audition. Last week was my first show.

Speaker 2 (27:21):
This one's going by faster, I feel like, but they
added two more weeks, so that means at least I'm
not burning the place down. What I want to talk
about this segment is is California a good place to
invest in real estate. I've always felt, even before I
became a realtor, I've always been biased for real estate investing.
I have a good friend who's a financial advisor. Shout

(27:42):
out to Chris Reddick at Edward Jones. He's my dude,
and we've offen joked about trying to sit down and
do the math on whether it's better to let someone
like a financial advisor like Chris handle your investments or
if it makes more sense to invest in real estate.
I like, I'm going to steal his word. His words
are phrases that he likes to say. Why not why

(28:02):
only use one toolbox on you or tool on your
tool belt, Use all the tools, use everything, do all
of the things. But what I like about real estate
investing is that I feel like if you have a
base understanding of basic arithmetic, you can figure out how
to invest in real estate. The rest is just gonna
There's tons of books out there that will teach you
like shortcuts. There's great message boards. Bigger Pockets is a

(28:24):
great resource. They have a great podcast and message board
that you could go and learn a ton about investing
in real estate. And I've learned a lot from a
lot of the people there. Here's what I'll tell you
to answer my own question is if is California a
good place to invest in real estate? Really it depends,
but in short, no, I don't think California is a

(28:44):
good place to invest in real estate. Here's why. The
cost of housing is astronomical. So the amount of money
it takes for you to be able to put down
on an investment property so that it would cash flow right, so.

Speaker 3 (28:58):
You need it. You need to be able to put
enough down. I looked into it.

Speaker 2 (29:01):
The average rent in southern California's around three thousand dollars.
The average mortgage payment is around six thousand dollars. So
you have to put so much money down so that
your mortgage payment now is three thousand dollars. So if
you took that amount of cash that you have, with
the rest of it being borrowed, so that you could
have bought that property, more than likely we're talking at

(29:23):
close to three quarters maybe half a million dollars, depending
on the property. If you took that half a million
to three quarters of a million dollars and you put
it in a state like Ohio, you could probably buy
an entire apartment building cash with that money, and it
would cash flow, it would make you money. So I
think most of the time there's these examples where people

(29:44):
they inherited home, so there's not really a cost that
I would be willing to at least hear you out
and talk about it. But like I shared last week
about a story where I had a listing appointment to
meet with some people who had inherited a house in
Tuluca Lake and they wanted to rent it out. The
rent for it would be about ten grand a month,
and I'm like, the amount of people that would be

(30:05):
interested and able to pay ten thousand dollars a month
to rent this very beautiful home in a very beautiful
area is so small that I don't really think there's
much there. Whereas if you sold this house for the
one point two value that it had just right there,
without touching it, without making any improvements, you're walking away
with about one point two million dollars cash. You set
aside some money for capital gains, and you go and

(30:26):
reinvest that somewhere. You're probably going to get a better
return on that investment elsewhere. So it becomes this game
like if you want to people like to invest in
California because it appreciates. It's going to be hard for
you to find another property that will appreciate in value
at a rate that it will in California. But to me,
I think the name of the game in real estate
investing and why people like it is cash flow. So

(30:49):
that's all about monthly profit. What are you netting from
the property. So in California, the reason why it's so hard.
As we talk, Richie found it. I paid them off
in his pop tarts today. Last week, Richie, I think
I thought it was fifteen, but maybe twelve. He confirmed it
was sixteen percent affordability in the state of California. So
what that means is that when you account for income
per the census data, and people putting about twenty percent

(31:11):
down on a house, what that payment would look like
the median house price, which is in the mid nine
hundreds right now in the state of California. Only sixteen
percent of people that live in California make enough money
to afford that. But you start looking at other states,
So let's look at our neighbor in Arizona, sixty six
percent affordability index there. The national average is seventy two percent,

(31:34):
but California is only sixteen. Fun fact, West Virginia eighty percent,
So I think that's the housing price, and then you
start looking at southern California, it's so much that it's
going to make it hard to cash flow. The first
rental property I bought was actually up the street from
where I live in Burbank, and it cost me twelve
hundred dollars a month. But I bought it because real

(31:54):
estate was appreciating so fast after the crash that I
was like, oh, this is how you invest money. And
I actually learned from some other investors, and I love
the way this guy put it. He's like, you don't
have an investment. You're running a charity where you provide
housing for a family in Burbank. Is what you are.
And that person was right, Like, again, I made money
off of it. I eventually used it when the tenants left.

(32:15):
I flipped the house and I use that to fund
my flipping business, and so I made more money out
of it. So even this is why I think real
estate investing is so great, is that even though I
made a mistake and the math I could afford, the math,
I still was able to make. I think I made
like eighty grand off of the sale of that home,
and I use that to make another quarter of a
million over the few houses that I flipped over the

(32:38):
years that follow that. Now, right now, let's go into that. Oh,
I'm so mad, I didn't even think of that. I
might actually do that. When we come back. I might
want to talk about flipping because I get so many
people that watch these shows on HGTV and they when
they find out I flip houses, they're like, I want
to flip houses too, and they think it's so great.
So before I do that, though, we'll talk flipping as

(33:00):
a real estate investment strategy in southern California when we
come back. But what I want to talk about now
is that also the legislative part of California. It is
very tenant friendly in the state of California. So a
few years ago we had AB fourteen eighty two, which
basically created a state wide rent control. It caps at
I think it's five percent plus inflation is what you

(33:23):
can cap rent with an absolute cap at ten percent.
LA County already had a ten percent cap, by the way,
because it's considered a fire hazard area ABBY, so that
was already in existence.

Speaker 3 (33:33):
Didn't really affect it.

Speaker 2 (33:34):
And I think that the rent control if you live
in like La Proper areas. Burbank doesn't have this where
I live, but in La Proper they have. It's like
two point ninety seven. It's some weird number that's below
three percent. La County actually did a survey and found
that on average, rent increases were less or we're just
about two percent, So that was less than the cap
for what the city ordinance was for rent control rent increases.

(33:58):
So you have all this legi rent control and everything
that really over regulates the industry in which you're trying
to invest. So that's gonna restrict your freedom. The latest
thing that came out was that they put a cap.
Most people are there exempt from it if you just
have like a one or two rental properties and you
didn't put them in a corporation or something like that.
But you can used to be able to charge up

(34:20):
to twice the rent and security deposit for an unfurnished house,
three times the rent on a furnished house, and they
capped it at just one month's rent because so they
couldn't do that. The other thing that they're now doing
Assembly built twenty seven forty seven requires landlords to give
the option I think they have. It's this month of
this year that you have to start offering at least
once a year to your tenants the ability to report

(34:43):
their payments for their rent as positive things for their credit.
So you have to report their rent payments as to
a credit union at least one credit reporting agency.

Speaker 3 (34:55):
I really stammered that one.

Speaker 2 (34:56):
Credit reporting agency has to find out from you if
you're are paying their rent on time, and it's supposed
to be a way that they can increase their credit score.
And they said that you can charge the tenant ten
dollars for that service. But I found the most common
service costs the landlord nineteen dollars and fifty cents a month,
and that gives them up to twenty three leases. So

(35:16):
if you just have one property, you're already in the
negative just from that alone. Okay, So, like I said,
when I come back, we're going to talk house flipping.

Speaker 1 (35:24):
KFI AM six forty on demand