I have not written a post about how income properties can be advantageous purchases as an owner-occupier since 2018.
I thought it would be a good idea to write a refresher about current properties on the market. It will demonstrate how someone on a budget might be able to get a better location and more for their money. Below, are two posts I quipped back in 2018 for reference:
September 2018: Your Home is a Weak Asset; Buy Income Property
March 2018: You Should Buy a South Bay Income Property (Not a Single-Family)
Newer buyers typically start their home search looking at single-unit properties (i.e., condos, townhomes, and single-family residences) and gravitate towards what they can comfortably afford.
For instance, a buyer might have a $1 million budget and look at a 2-bedroom condo in the Hermosa Valley, or a Manhattan Beach townhome on Aviation, or a wide variety of options in North Redondo.
I am urging you to consider income properties.
Not only will they allow to afford more property in better locations, but they can also end up being amazing long-term cash flow investments that become a cornerstone of your retirement portfolio.
Hermosa Beach
Sticking with a buyer on a $1 million budget, let’s explore properties that are higher in price, but ultimately affordable at the million dollar level.
- 538 Loma Drive, Hermosa Beach
- 3 bed, 2 baths, 1,130 sq. ft., 2,570 sq. ft. lot, Duplex
- Asking Price: $1,399,000
This old-school beach bungalow duplex allows for a buyer to land a Sand Section property that they control fully (unlike a condo building). Both units are currently occupied and bring in a total rent of $2,150 per month. That rental income covers about $400,000 of borrowing and property tax costs making this one feel like a $1 million purchase net-net.
The true play here is to work with the tenants to move them out. Obviously, the buyer would owner occupy one unit and fix-up the other unit, which at market rate would bring in around $2,000/mo. As a result of the work, a buyer would have a place to live, and your market-rate tenant rent makes the property feel like a million-dollar purchase thanks to the income.
Be careful, it is tough getting tenants to move in this COVID-19 environment with the courthouses closed. If you have contingency plans in the event tenants will not move, this is an awesome option but you need to be very careful. The seller has already cut their price after just two weeks on the market. There looks to be motivation!
Redondo Beach
- 1709 Grant Avenue, Redondo Beach
- 3 beds, 2 baths, 935 sq. ft., 3,859 sq. ft. lot, Duplex
- Asking Price: $1,195,000
This duplex listing may not be steps to the beach, but the larger lot and two-story structure allow for a big, big back space. As a result, a buyer has options. Perhaps convert the whole duplex to a larger single-family home and build an ADU in back? Or even better, keep the duplex and build an ADU in back to make it a triplex.
Again, at the current price, much like the Hermosa duplex above, tenants will make this one feel more like an $800,000 purchase. You can also move right in thanks to a current vacancy and keep the other tenant, and your $1 million budget works just fine here.
Build an ADU today or down the road, whenever you are financially comfortable or the ROI pencils to motivate you.
Manhattan Beach
- 522 Rosecrans Avenue, Manhattan Beach
- 3 beds, 2 baths, 1,092 sq. ft., 3,006 sq. ft.
- Asking Price: $1,599,000
Lastly, a coveted Manhattan Beach duplex with an easy commute, quick walk to the beach, and steps to North Manhattan Beach/El Porto eateries.
Per the listing, there is a current $2,500/mo tenant in the 2-bedroom unit. That services about half a million of debt and property taxes. It doesn’t take much negotiating from $1.599 million to make this one feel like a $1 million purchase. There is likely even more upside in rent with nice repairs.
Move into the 1-bedroom vacant unit and enjoy fast commute off Rosecrans and fun walks to the beach and restaurants…all for what feels like a million bucks.
Conclusion
Think outside the box with your budget.
Remember, income properties are unique where lenders will factor in rents which help you afford more than your single-unit budget. This can yield positive results allowing one to purchase a higher price in a better location, all while enjoy the steady returns of income producing property.
Long term, one can choose to keep the property because the cash flow will be greater than a small condo rental. It is an amazing retirement strategy to go along with a traditional investment portfolio.
In 30 years, you might look back and wish you bought 10 of them.
Cheers.