New Philosophy for Poor Investors
I write this with zero condescension. And it’s really not complicated, either. If you’re an FHA buyer, especially, I used to promote that you buy the most expensive property you can qualify for, with as much leverage as possible, because if the rents securely cover the mortgage, your small down payment will balloon into the full value of the property in 30 years. I still like that philosophy and it has worked for clients; it’s just not entirely applicable in this market.
In today’s market, you need to buy with more foresight. The current strategy for poor investors is to find the future hotspots in L.A. and buy the gem of that neighborhood. Pretend that it’s the current hotspot and you’re getting an amazing deal on the best property around, if that makes you feel more comfortable. This means you might be investing a few thousand into your property for the first five years with no cash flow, but you’re banking on the appreciation, and, your own intuition. We’re searching for buildings with solid bones, a good lot, a great location for the neighborhood, and lots of potential.
If you’re not one of those investors with loads of cash, you have to do a little imagining. It’s not the most profound insight, but it’s opened a lot of doors that competitors aren’t yet entering.