Speaker 1: You're listening to KFI Am six forty on demand.
Speaker 2: Justin Worsham back again for week two to talk southern
Speaker 2: California real estate. If you're new to the show, you
Speaker 2: might recognize me for my regular appearances on The Gary
Speaker 2: and Shannon Show. Recently, I do a parenting segment on
Speaker 2: Wednesdays eleven thirty to noon with them. If you're a
Speaker 2: longtime KFI listener and also new to the show, you
Speaker 2: might remember me. I was the board op on the
Speaker 2: Bill Handle Morning Show for a while, doing dumb comedy
Speaker 2: bits there, and then I became a realtor and a
Speaker 2: real estate broker, and so now they asked me to
Speaker 2: come in and give what I think everybody should be
Speaker 2: learning is a class in real estate.
Speaker 3: So great news.
Speaker 2: If you were here last week and you liked the
Speaker 2: show and appreciate the show, they gave me two more weeks,
Speaker 2: so you're truly's going to be here two to four
Speaker 2: every Sunday through the month of April. So thank you
Speaker 2: to the fantastic Michelle Cube and Oscar for giving me
Speaker 2: that shot.
Speaker 3: Very appreciative of that. But let's get into it.
Speaker 2: I don't want to waste too much time talking about me,
Speaker 2: because why should you care about me? I want to
Speaker 2: talk about tariffs. There's all over the news today, the
Speaker 2: pause on the tariffs, the tariffs, the trade wars. They're coming,
Speaker 2: it's coming, it's happening now. And I already saw ABC
Speaker 2: News was talking about what impact tariffs could have on
Speaker 2: the housing market, and it would have to be an
Speaker 2: indirect cost, because really, what tariffs are going to do
Speaker 2: is they're going to increase the cost of good So
Speaker 2: what we're seeing is people are not moving as frequently
Speaker 2: as they used to, mostly because of interest rates. Right,
Speaker 2: interest rates during the pandemic were down as low as
Speaker 2: two percent. I know some people that got one point
Speaker 2: eighty five percent on their home loan. Now they're hovering
Speaker 2: around seven and a quarter ish, somewhere in that range.
Speaker 2: And so because of that, people are planning to stay
Speaker 2: in their houses longer. So we're not going to see
Speaker 2: a lot of inventory here in southern California. It's virtually
Speaker 2: impossible to build new houses. We're going to only be
Speaker 2: able to build like new condo buildings maybe, but even
Speaker 2: that can be difficult. I know that Santa Clarita has
Speaker 2: seen some growth. They just had a bunch of houses
Speaker 2: built up there and so could cause the prices to
Speaker 2: go up. I've also flipped houses, and I know that that,
Speaker 2: you know, affected the flip costs when I was doing that,
Speaker 2: especially during the pandemic when we hit those heavy cycles
Speaker 2: of inflation. There was a house that I was flipping
Speaker 2: and we had to resheet everything underneath the floor. So
Speaker 2: if you're not familiar, you have your flooring inside your
Speaker 2: house that you walk on, and underneath there is like
Speaker 2: a subfloor, and in most cases there's plywood sheeting that's
Speaker 2: underneath there. If anybody's frequents home Deep or Lows or
Speaker 2: any hardware store. A while ago, sheets of plywood were
Speaker 2: around thirty bucks, and then during the pandemic they hit
Speaker 2: ninety dollars. And that was because of supply chain issues.
Speaker 2: Right nobody was working, so they weren't manufacturing the goods,
Speaker 2: or if what was happening is goods were being held
Speaker 2: off port, I guess to quarantine.
Speaker 3: I don't know.
Speaker 2: I'm not a doctor, don't know a lot about all
Speaker 2: that stuff, but I know that it definitely raised the prices.
Speaker 2: But honestly, it didn't really impact my rehab budgets significantly.
Speaker 2: It's not like I saw a thirty percent jump to
Speaker 2: match the well three hundred percent jump in plywood costs.
Speaker 2: I didn't see that really really jump up a ton.
Speaker 2: It was maybe an extra ten to twenty thousand dollars
Speaker 2: where I did see increases, but this was after the pandemic.
Speaker 2: This is more recently is roof replacement costs. For whatever reason,
Speaker 2: Skyrock like I was getting roof estimates from roofers from
Speaker 2: like twenty eighteen to about twenty twenty two ish in
Speaker 2: the range of about fifteen to eighteen thousand dollars on average,
Speaker 2: and the average homes that I was selling were anywhere
Speaker 2: from fifteen to eighteen hundred square feet, maybe thirteen hundred
Speaker 2: square feet on the low end, right, so somewhere around
Speaker 2: about I'm guessing, what is that one hundred bucks of
Speaker 2: squarefot a thousand bucks square foot anyway, Now they're like
Speaker 2: thirty to forty thousand dollars. And the way I found
Speaker 2: this is that I had a client who just called
Speaker 2: a roofer that they found online and they said, hey,
Speaker 2: I just got a roofing quote, and they said it's
Speaker 2: going to be forty six thousand dollars to reroof my
Speaker 2: sixteen hundred square foot home, and I look like an
Speaker 2: idiot because I was like, no, you got a bad roofer.
Speaker 2: Let me connect you with my roofer, the one I
Speaker 2: like to refer. So call them and they got a
Speaker 2: bid that was only like four thousand dollars less, and
Speaker 2: I called a roofer and they said they go to
Speaker 2: supply costs or just they're astronomical now. But so my
Speaker 2: point is is that what I think happens in these situations,
Speaker 2: and that the reason that people get so focused on
Speaker 2: this stuff, at least in southern California, is because we
Speaker 2: have such an affordability issue, like it's so hard, and
Speaker 2: so people love to blame other things. This is why
Speaker 2: I can't afford to get a house, and this is
Speaker 2: what's going to change things, Like leading into the pandemic.
Speaker 2: After we had the crash in eight, everybody was waiting
Speaker 2: for another crash because it's supposed to happen every fourteen
Speaker 2: to twenty years is when we're supposed to have a
Speaker 2: reset of the pricing cycle on real estate, and we
Speaker 2: just haven't seen it yet. And what I'm hearing is
Speaker 2: that they're not going to They don't anticipate anything like oh,
Speaker 2: eight a big reason why eight happened from my perspective,
Speaker 2: was that banks started collecting on their mortgages and people
Speaker 2: were just walking away from their houses, and so they
Speaker 2: flooded the inventory with their own collateral for the loan,
Speaker 2: which devalued that collateral and made it difficult to sell
Speaker 2: during that time period.
Speaker 3: But it still took what was it, oh, eight was
Speaker 3: a crash.
Speaker 2: By twenty I think it was twenty fourteen, Orange County
Speaker 2: had reached back to pre crash prices. In twenty sixteen,
Speaker 2: La County got back up there. So we want this reset.
Speaker 2: We want tariffs to maybe be the thing. Or if
Speaker 2: you're or you want to blame tariffs for the reason
Speaker 2: why you can't buy a house, and I got to
Speaker 2: be honest with you, like housing is just unaffordable because
Speaker 2: simple supply and demand. There's not enough space to add
Speaker 2: more houses, so we don't have enough houses for all
Speaker 2: the people that want houses. I've heard people also they
Speaker 2: want to blame foreign investors that they think the reason
Speaker 2: why they're getting beat is because some foreign investor is
Speaker 2: coming in and they're paying all cash and buying houses
Speaker 2: up like crazy. And I have yet to see any
Speaker 2: of it. The only time I've ever heard that example
Speaker 2: is somebody saying that they think they don't know, they
Speaker 2: think they got bought out because they don't understand why
Speaker 2: somebody else is paying so much more for a house.
Speaker 2: And I think what ultimately ends up happening is that
Speaker 2: you take these anecdotal experiences and you extrapolate them out
Speaker 2: to mean something much much larger, and chances are that's
Speaker 2: not the case. The fact is is that with the
Speaker 2: high demand for real estate in southern California, you're going
Speaker 2: to be competitive. Like during the pandemic, I was getting
Speaker 2: seventeen twenty offers on a property, and we had this
Speaker 2: model where you could price a house at a dollar
Speaker 2: and the demand would drive it up to whatever the
Speaker 2: market would bear and then a little bit. And it
Speaker 2: was crazy because you would get probably where like a
Speaker 2: cluster of if you got twenty offers, eleven of them
Speaker 2: would be clustered around where the price of the home
Speaker 2: should be in your opinion, based on past data, and
Speaker 2: then the rest of them would be outliers that would
Speaker 2: start from that price all the way up to as
Speaker 2: high as you were actually going to sell it for.
Speaker 2: And that number would not be crazy to be two
Speaker 2: hundred thousand dollars above your listing price and where that started. So,
Speaker 2: I don't think and at no point during that time
Speaker 2: where they're foreign investors trying to buy houses, and they
Speaker 2: were more affordable then than they even are now, like
Speaker 2: prices just keep going up. The other one that I
Speaker 2: want to do some more research on is that they
Speaker 2: blame boomers, baby boomers like that generation, saying that they're
Speaker 2: the ones that inflated the cost of housing. And I've
Speaker 2: looked into it and I need to do some more
Speaker 2: digging to see, but I can't see a single reason
Speaker 2: why a generation could have an impact on housing. I
Speaker 2: don't see how because they're buying houses. I really think
Speaker 2: that we're over complicating it. When we talk about tariffs,
Speaker 2: when we talk about trade wars, when we talk about
Speaker 2: cost of goods, all of that, from my perspective, is
Speaker 2: just making it more complicated than it really needs to be.
Speaker 2: The fact is that in Southern California, I talked about
Speaker 2: this last week. I'll say it again, the governments of
Speaker 2: the counties of southern California got together and they said,
Speaker 2: in order to meet the demand of housing, we have
Speaker 2: to build just under one point four million houses by
Speaker 2: twenty twenty nine.
Speaker 3: That's to meet the demand.
Speaker 2: That would create a balanced market, right where prices wouldn't
Speaker 2: jump up by double digit percentage points like they did
Speaker 2: in Orange County last year. Twenty one percent appreciation in
Speaker 2: the median house price in Orange County in twenty twenty four.
Speaker 2: So if it was a balance market, that would be
Speaker 2: the case. So one point four million dollars is how
Speaker 2: many housing units the governments of southern California think we need,
Speaker 2: but they can only legally build because of restrictions on
Speaker 2: land and zoning, four hundred thousand of those units, so
Speaker 2: a third of those units to meet the demand, and
Speaker 2: they're still behind on that. They're still not able to
Speaker 2: do that. And it's because here in California there's just
Speaker 2: a lot of costs associated with building houses. There's a
Speaker 2: lot of I mean, try getting a permit. I tried
Speaker 2: to pull a permit in the city of Burbank. It
Speaker 2: was during the pandemic in their defense, but I started
Speaker 2: at pre pandemic and it took me twenty two months
Speaker 2: to get a permit for a five hundred square foot
Speaker 2: addition to my home in Burbank. Twenty two months, and
Speaker 2: in the time that it took me to get that permit,
Speaker 2: the cost of the construction had increased by a third
Speaker 2: thirty percent increase in the cost of construction, so I
Speaker 2: had to kind of hold off on the on the
Speaker 2: rehab on the house because of what it costs. So
Speaker 2: in short, don't I don't see a huge impact.
Speaker 3: I do.
Speaker 2: I'm sure there's going to be an impact, but when
Speaker 2: people talk about impact, they want it, They're expecting big numbers,
Speaker 2: but I don't really think it's going to be noticeable.
Speaker 2: The things that are going to impact housing in Southern
Speaker 2: California is either we need to have a mass exodus
Speaker 2: of people, large numbers, like over a million people need
Speaker 2: to be leaving Southern California in a year, or we
Speaker 2: need to I think that's it actually, Or we have
Speaker 2: to build houses, which is why I stop. It's not
Speaker 2: gonna happen. They can't build houses. They can't build houses.
Speaker 2: All right, when we come back, we're gonna be talking
Speaker 2: about multi generational housing. Why is that a thing? What
Speaker 2: does it mean? Why is it becoming more popular?
Speaker 1: You're listening to KFI AM six forty on demand.
Speaker 2: Talking Southern California real estate and now we're going to
Speaker 2: be talking about multi generational housing. So culturally, right, there's
Speaker 2: a lot of cultures that there's like this is just
Speaker 2: a thing. Like I have friends that have lived with
Speaker 2: their parents until they're well into their thirties. There's a
Speaker 2: thing where people wait until they get married before they
Speaker 2: even leave the house. And even in those cases, they
Speaker 2: don't always leave the house. There's I know of lots
Speaker 2: of people where they buy, like buy a larger house
Speaker 2: so that the family can stay together and live together.
Speaker 2: That was not my experience growing up. My experience was
Speaker 2: my dad. When I turned eighteen, he was a lot
Speaker 2: more harsh, just out of nowhere, and it's my birthday,
Speaker 2: was halfway through my senior year, and he was just
Speaker 2: mean to the point where I was like, screw you,
Speaker 2: old man, I'm out of here. And I moved out
Speaker 2: about six months after I graduated high school. And I
Speaker 2: kind of put it together when I got into my
Speaker 2: early twenties like most of us do, and I asked
Speaker 2: my dad one time, I said, Hey, were you like
Speaker 2: mean on purpose because you like you wanted me to leave?
Speaker 2: And he was like, I didn't want you to be comfortable.
Speaker 2: So in the research that I was doing for this segment.
Speaker 2: I found that, for whatever reason, Caucasian people are not
Speaker 2: big fans of the multi generational housing.
Speaker 3: But it's growing, it's growing.
Speaker 2: So a twenty twenty three paper found half of adults
Speaker 2: ages eighteen to twenty nine live with their parents. That's
Speaker 2: in twenty twenty three, and that's up from twenty five
Speaker 2: percent in nineteen sixty So in nineteen sixty so in
Speaker 2: eighty years we went from twenty five percent of people
Speaker 2: that are less than thirty but still adults living with
Speaker 2: their parents to now half. And then they also showed
Speaker 2: that the house price, because this is just to make
Speaker 2: everybody throw up, in nineteen the median house price in
Speaker 2: nineteen sixty three, thank god, this is a national average
Speaker 2: was eighteen thousand dollars. And then they're saying that the
Speaker 2: present day equivalent was one hundred and eighty six thousand dollars.
Speaker 3: Is what that would get you?
Speaker 2: So what they're saying is when you account for inflation
Speaker 2: in nineteen sixty three, with today's dollars, you would spend
Speaker 2: one hundred eighty six thousand dollars on a house, But
Speaker 2: the actual average house in the nation is four hundred.
Speaker 3: Thousand according to the Census Bureau.
Speaker 2: So what I saw like there was this big burst
Speaker 2: of ADUs. If anybody doesn't know what ADU is, it's
Speaker 2: essentially a guest house. They call them granny flats, mother
Speaker 2: in law cottage. ADU stands for accessory dwelling unit and
Speaker 2: that is like the zoning code for it. And it
Speaker 2: became really popular and there's a lot of nimbiism. I
Speaker 2: learned this term after being a realtor. I didn't know
Speaker 2: what it was. That's not in my backyard. And so
Speaker 2: there are people who live in predominantly single family neighborhoods
Speaker 2: and they are historically not fans of ADUs because what
Speaker 2: that means is if you can put another two bedroom
Speaker 2: house in the backyard of your house, you've essentially maybe
Speaker 2: doubled or even tripled or more the number of people
Speaker 2: living in that area. And you would that means there's
Speaker 2: more cars, you know what I mean. And if it's
Speaker 2: a rental, people don't like having a rental single fan
Speaker 2: home in their neighborhood because they want people to be
Speaker 2: invested there. I don't know why, Like I mean, chances
Speaker 2: are people who are renters move just as frequently or
Speaker 2: less frequently if they're given the opportunities people who are
Speaker 2: buying homes.
Speaker 3: Maybe I just I don't know. I don't understand why
Speaker 3: a renter.
Speaker 2: I could understand maybe an Airbnb situation, but I can't
Speaker 2: understand why you would not want to rental in your neighborhood.
Speaker 3: That just doesn't make sense.
Speaker 2: So there was a lot of people that were against
Speaker 2: these ADUs because they thought they were going to be
Speaker 2: rental properties. And my take on it was always the
Speaker 2: same people who buy a house because they want to
Speaker 2: live in a single family home, right, they don't want
Speaker 2: to rent out the house in the backyard.
Speaker 1: Now.
Speaker 2: I did see some more, like you know, millennials on
Speaker 2: the younger end of that generation. We're looking at it
Speaker 2: as saying like, oh, I could convert this garage into
Speaker 2: an ADU and then I could rent it out as
Speaker 2: a way of offsetting the expense of the mortgage. I
Speaker 2: did see some of that, But predominantly what's happening is
Speaker 2: you get these people that want they want an ad
Speaker 2: in their backyard because it's either a young family that's
Speaker 2: about to start having kids and they want grandma and
Speaker 2: grandpa to be able to come and stay in the
Speaker 2: house whenever they come to visit, they want to have
Speaker 2: a space for them. Because that's another thing my dad
Speaker 2: used to always say is that I'm sure everybody's heard
Speaker 2: this company's like fish. It starts to smell after three days, right,
Speaker 2: so or stink, I think is the real way you're
Speaker 2: supposed to say it. Because you guests don't smell, it
Speaker 2: stinks to have them around.
Speaker 3: Anyway. My point is I've had it.
Speaker 2: I have an unpermitted guest house on the back end
Speaker 2: of my garage in my house, and I bought it
Speaker 2: that way. It made my house purchase a pain in
Speaker 2: the butt, but I have it, and it's great. It's
Speaker 2: great for when family or friends come to visit because
Speaker 2: they have their own space. My parents would come and
Speaker 2: they would hang out, and if they ever just wanted
Speaker 2: a break, they would just go at My mom loves
Speaker 2: to watch Doctor Phil, so she would just go in
Speaker 2: the back and she would watch whatever TV show she
Speaker 2: wanted to watch. And so you get the nice convenience
Speaker 2: of the visit without everybody feeling like they're on top
Speaker 2: of each other like they do for the holidays. But
Speaker 2: these adu that's what I think Adu's were mostly going
Speaker 2: to be used for. In fact, I had a lot
Speaker 2: of clients who were getting help. I said last week
Speaker 2: that anybody who's younger than my age of forty six
Speaker 2: that I helped buy a house, they have some kind
Speaker 2: of family help to cover the down payment because they
Speaker 2: need some kind of an additional kick in. And it's
Speaker 2: to the tune of a quarter to half a million
Speaker 2: dollars is what some of these folks are getting from
Speaker 2: their parents, and that's the only way they can afford
Speaker 2: a house at southern California. So a lot of these
Speaker 2: parents are saying, I will help you with this down payment,
Speaker 2: but my money is going towards a place for me
Speaker 2: to live when I retire and I can't take care
Speaker 2: of myself anymore. And that's how you start getting into
Speaker 2: multi generational housing. You got grandma, you got parents, and
Speaker 2: you got kids all living in the same house. In
Speaker 2: this case, it's usually grandparents with the parents. So parents
Speaker 2: and the kids are living in the main house. Grandma
Speaker 2: and grandpa are in the back house and they're staying there.
Speaker 2: Another interesting thing I want to share with you that
Speaker 2: in looking at this whole multi generational housing was that
Speaker 2: they look back at the social Security data. Let me
Speaker 2: find this here in my notes. So back America, sixty
Speaker 2: five and older were once the most likely of any
Speaker 2: age group to live in multi generational housing, with more
Speaker 2: than half doing so in nineteen hundred. So in the
Speaker 2: early nineteen hundreds, more than half of people who are
Speaker 2: retiring age sixty five or older were living with their kids.
Speaker 3: So it was a very common thing.
Speaker 2: But after the US government introduced things like Social Security
Speaker 2: and Medicare, that by the seventies it was nine percent.
Speaker 2: Nine percent of those over sixty five were living with
Speaker 2: their kids because they could afford it. It gave them
Speaker 2: the ability to be able to afford it, and so
Speaker 2: I just I thought that was interesting because what we're
Speaker 2: seeing is an exact reversal of that. Is that before
Speaker 2: older people couldn't afford to live off of Social Security
Speaker 2: and pay for housing and everything that they and their
Speaker 2: healthcare right, so they had to move in with their
Speaker 2: kids and that was just expected. And now their kids
Speaker 2: can't afford to buy houses, so the parents have to
Speaker 2: kick in money and they need a place to stay.
Speaker 2: And so I think that we're going to see more
Speaker 2: of this because we have more people and we don't
Speaker 2: have a lot of land, so we're going to see
Speaker 2: more of this. This is I think the my Caucasian
Speaker 2: friends are going to have to start getting this.
Speaker 3: This is going to become a part of our culture.
Speaker 2: You're going to have to get used to your parents
Speaker 2: living in a back house, and that's going to mean
Speaker 2: that lots of land are going to be more important.
Speaker 2: By lots of land, what I mean is that most
Speaker 2: of the San Fernando Valley houses are in the like
Speaker 2: six thousand to seven thousand square foot size lot, and
Speaker 2: that's kind of hard to build a good ADU size
Speaker 2: on that.
Speaker 3: So there's probably gonna start.
Speaker 2: You're going to see a premium on lowst eight to
Speaker 2: ten thousand square foot lots because people are Then then
Speaker 2: you can have I've had one client who bought a
Speaker 2: house with the full intent of converting the garage to
Speaker 2: a full ADU, and they were going to build a
Speaker 2: second ADU on that same lot in North Hollywood, and
Speaker 2: that's where grandparents were going to be there, and then
Speaker 2: adult son was going to live in the garage and
Speaker 2: then the parents were going to live in the main
Speaker 2: house with the rest of the family.
Speaker 1: You're listening to kfi AM six forty on demand.
Speaker 2: I'm justin Worsham here talking Southern California real estate with
Speaker 2: you this segment. What I want to talk about is
Speaker 2: townhomes and condos versus single family homes. When you have
Speaker 2: an issue with affordability, like we do here at Southern California,
Speaker 2: I get clients a lot who always want to talk about, well,
Speaker 2: what if I did a condo, what if I did
Speaker 2: a town home? They obviously always want townhomes more than condos.
Speaker 2: Fun fact, there isn't actually a title designation for a
Speaker 2: town home. It's something that we've kind of just adapted
Speaker 2: as a style. They're all condos, and this means that
Speaker 2: usually there's a development of some kind that is everybody's
Speaker 2: all under either a common roof. I've seen a couple
Speaker 2: of these single family developments where they're like in well
Speaker 2: you have them big, like up in port A Ranch.
Speaker 3: I helped the client get a house where.
Speaker 2: It's like huge, just beautiful, like two three million dollar
Speaker 2: homes and there's a guard shack and a gate and
Speaker 2: they have an HA. But if you've got you're living
Speaker 2: in like an apartment, but you get to own your apartment,
Speaker 2: then that's traditionally called a condo and you would have
Speaker 2: an HA, but there's also town homes that they have
Speaker 2: shared walls or even separated like I said before, And
Speaker 2: the homeowners association the intent of it is that they
Speaker 2: are supposed to, I think, be more of a mediary
Speaker 2: for the common areas, right because if you all have
Speaker 2: in between these two units, you have common roofs. The
Speaker 2: plumbing is feeding it, the sewage system that takes everything
Speaker 2: away from your home that there's a part where it
Speaker 2: leaves the walls of your house. So there's a term
Speaker 2: that we use in condos called paint to paint. So
Speaker 2: just the interior you're responsible. So a lot of the
Speaker 2: systems that become the responsibility of the community at large.
Speaker 2: And so they elect a board they usually hire, depending
Speaker 2: on the size of property management company that also costs
Speaker 2: money to help them advise them and guide them. Because
Speaker 2: if you think about it, people who run for the
Speaker 2: board on an h away are all just your neighbors.
Speaker 2: They're not necessarily experts. They may not understand construction, they
Speaker 2: might understand the costs of they may not even understand
Speaker 2: what a homeowner's association does.
Speaker 3: They're just the people who volunteered to do it.
Speaker 2: I mean, stop yourself and ask would I want to
Speaker 2: be on a homeowner's association board? No, so to get
Speaker 2: into what's more affordable single family home or not. The
Speaker 2: reason why I talk so much about homeowners association is
Speaker 2: because that's the primary difference, and that's a big variable.
Speaker 2: So a lot of times, back when I was a comic,
Speaker 2: comics talk about when you did a college gig, you
Speaker 2: would get like ten thousand dollars. But if you played
Speaker 2: a comedy club, if you were headlining, and most comedy
Speaker 2: clubs and you're just like you're not really a big name,
Speaker 2: you're getting about fifteen hundred dollars, right, So there's this
Speaker 2: big difference in what you pay. And it's because college
Speaker 2: gigs were really tough, they were horrible, they weren't fulfilling,
Speaker 2: where comedy gigs were easy. So a comedy club could
Speaker 2: afford to pay you less, whereas I think the colleges
Speaker 2: really have to try hard to get a comic to
Speaker 2: go out there, so they throw a lot of money
Speaker 2: your way. And I think it's the same thing when
Speaker 2: you look at the difference between a single family home
Speaker 2: and a condo or a town home. The reason a
Speaker 2: condo or a town home is so much deeper is
Speaker 2: because it's significantly less desirable. In most cases, you don't
Speaker 2: get a private yard, and you have to deal with
Speaker 2: those hoas. So those has have to have insurance that
Speaker 2: you're helping to pay for. They have to you have
Speaker 2: to trust that they're doing enough preventative maintenance to take
Speaker 2: care of the building and the complex. I've found there's
Speaker 2: there's these companies that what they do is they audit
Speaker 2: the books, the finances of hoas. And this guy I
Speaker 2: was talking to because I was trying to learn how
Speaker 2: to read these documents. When you help somebody buy a
Speaker 2: condo or a town home, you get the HA docs,
Speaker 2: you get the rules and regulations, you get the CCNRS,
Speaker 2: which is a different version of rules and regulations, and
Speaker 2: then you get like the articles of organization and the
Speaker 2: budgets and the minutes, and you have to go through
Speaker 2: all this stuff, and every once in a while you
Speaker 2: get one that has this really helpful kind of audit
Speaker 2: of the of the HOA. And what he told me
Speaker 2: was that eighty six percent of h oas in southern
Speaker 2: California are underfunded in the reserves.
Speaker 3: So what does that mean?
Speaker 2: The reserves is money that they's supposed to be a
Speaker 2: percentage or a chunk of every HOA payment that you
Speaker 2: see in monthly that gets allocated for reserves, just like
Speaker 2: if you were a city government, you want to have
Speaker 2: a chunk of money set aside in case of an emergency.
Speaker 2: So most recently they have this engineering requirement for balconies
Speaker 2: that you have to have them inspected by an engineer
Speaker 2: to make sure that they're sound. About I want to
Speaker 2: say seven eight years ago, it might be closer to ten.
Speaker 2: They had the earthquake soft retro fit that was a
Speaker 2: thing that you had to do with your HOA. And
Speaker 2: so like I had clients that had when they bought
Speaker 2: a condo, they had an HOA of about three hundred
Speaker 2: bucks a month, and like, this is great because that's
Speaker 2: on the lower end of the average, at least in
Speaker 2: La County. And then they got hit within a year
Speaker 2: with a thirty three thousand dollars special assessment. So when
Speaker 2: your HA your community gets hit with a bill, like
Speaker 2: maybe it's maybe it's the fires that unfortunately happened, maybe
Speaker 2: there's an earthquake, or maybe it's just that nobody's painted it,
Speaker 2: or it's been twenty years and the roof hasn't been repaired,
Speaker 2: so now we're getting leaks. Something comes up that was
Speaker 2: not expected, not planned for, and they don't have the
Speaker 2: finances for it, and they do what's called a special assessment.
Speaker 2: As an example too, I was helping a client sell
Speaker 2: a town home and while we were in escrow, the
Speaker 2: insurance policy was up for renewal with the HIA, and
Speaker 2: they had the replacement cost to rebuild the structure was
Speaker 2: forty two million dollars and they had the insurance to
Speaker 2: cover that. But when they went to renew the insurance,
Speaker 2: because insurance has gone up so much in California, the
Speaker 2: HIA couldn't afford it. So they had to hit everybody
Speaker 2: with a twelve hundred dollars special assessment. So that's over
Speaker 2: one hundred and fifty units in this development that were
Speaker 2: each asked to pay twelve hundred dollars. And that wasn't
Speaker 2: even for them to get the full insurance coverage. That
Speaker 2: was for them to get half the insurance coverage. In
Speaker 2: this instance, the property manager that the HIA had hired
Speaker 2: to help kind of guide them and manage things for them,
Speaker 2: had said, well, you don't need the full replacement costs
Speaker 2: because the individual units their homeowners and policies that cover
Speaker 2: paint to paint right, like I said, inside of the unit,
Speaker 2: that will cover the reconstruction of their unit. And that
Speaker 2: was wrong. It was absolutely wrong. And what happened now
Speaker 2: is that lenders who look they do what's called an
Speaker 2: HAA certification, so they look at certain details in the
Speaker 2: finances of the hway and they use that to decide
Speaker 2: if it's okay to lend money for somebody to buy
Speaker 2: this condo. The lenders now were like, this is non conforming.
Speaker 2: This means it doesn't fit into our cookie cutter that
Speaker 2: we like it, that makes it look nice and pretty,
Speaker 2: so they wouldn't do a loan. So now you have
Speaker 2: to find somebody who's willing to do a non conforming loan,
Speaker 2: which is riskier, which means that they're going to charge
Speaker 2: a higher interest rate because they need to be compensated
Speaker 2: for that risk. So there was a moment where it
Speaker 2: looked like it was going to be really, really tough
Speaker 2: for my client to sell their town home and they
Speaker 2: had already bought a new place and we're planning to
Speaker 2: carry the mortgage maybe a couple months. And now through
Speaker 2: something that they had zero control over and no saying.
Speaker 2: It's just like I say, eight to twelve people get
Speaker 2: together maybe once a month if you're lucky, more often
Speaker 2: it's three to every six months or only once a year,
Speaker 2: and they decide the fate of your financial future. So
Speaker 2: I think that that is not a good reason to
Speaker 2: get a condo or town home. The only way you
Speaker 2: buy a condoor a town home is if you can
Speaker 2: afford it. Now, what I will tell you is that
Speaker 2: the nice part about the rate it increases is that
Speaker 2: that to me, really impacted the condo and townhome market
Speaker 2: in southern California. We are seeing how condos and townhomes
Speaker 2: it's not out of the ordinary for them to sit
Speaker 2: on the market for like six seven months in a
Speaker 2: time period where the average days on the market for
Speaker 2: a home is around twenty eight to thirty. So the
Speaker 2: inventory stacks up so much in that condo and townhome
Speaker 2: space that that's where you could see the prices kind
Speaker 2: of come down, and they can it can it can
Speaker 2: help you? Like we I had clients who they're about
Speaker 2: to close on Tuesday on their new place, but they
Speaker 2: were looking at another place that they felt was kind
Speaker 2: of just overpriced, and when we looked at comparable homes,
Speaker 2: we found that in that same development. So this place
Speaker 2: was listed for eight twenty five. My clients wanted to
Speaker 2: offer closer to like seven to twenty five because we
Speaker 2: had seen this was a two bedroom, two bath unit,
Speaker 2: and we had seen three bedroom units in that same
Speaker 2: complex sell for about seven fifty and so we thought
Speaker 2: that the prices had come down. Well, she had bought
Speaker 2: the owner that was selling it. She bought it just
Speaker 2: two years ago for seven seventy five. So now she's
Speaker 2: buying it at a loss. Now I looked at it,
Speaker 2: I did some I look back, and the chances of
Speaker 2: her she's not going to pay out a pocket, right,
Speaker 2: It's not like trying to pay off your car after
Speaker 2: it's upside down. It's not like that kind of a thing,
Speaker 2: because she put you know, arguably ten to twenty percent down.
Speaker 2: It's just she wouldn't get as much as she probably
Speaker 2: would like and maybe arguably should based on when you
Speaker 2: sell a house or buy a house. But that's that's
Speaker 2: also why I tell people, if you know, if you're
Speaker 2: not planning to move in like two years, I like
Speaker 2: five to ten. If you're going to be in a
Speaker 2: place five to ten years, chances are you're not going
Speaker 2: to lose your money.
Speaker 3: Here's the thing. What are we going to do next?
Speaker 2: I want to talk about, ooh, California real estate investing?
Speaker 2: Is it a good place to invest in California? Also,
Speaker 2: I want to get questions. If there's something you want
Speaker 2: me to answer on the show, hit the talkback feature. Also,
Speaker 2: I forgot to mention last time. What I also want
Speaker 2: to hear is if you have questions about a home loan.
Speaker 2: Because I have a fantastic guest coming up in the
Speaker 2: next hour, Christine Hatch with the Mortgage Group. She's a
Speaker 2: lender I use a lot with my clients, really knows
Speaker 2: her stuff, geeks out about math.
Speaker 1: You're listening to KFI AM six forty on demand if
Speaker 1: you're just tuning in.
Speaker 2: I will be here two to four every Sunday at
Speaker 2: least through the end of April.
Speaker 3: They're trying the audition. Last week was my first show.
Speaker 2: This one's going by faster, I feel like, but they
Speaker 2: added two more weeks, so that means at least I'm
Speaker 2: not burning the place down. What I want to talk
Speaker 2: about this segment is is California a good place to
Speaker 2: invest in real estate. I've always felt, even before I
Speaker 2: became a realtor, I've always been biased for real estate investing.
Speaker 2: I have a good friend who's a financial advisor. Shout
Speaker 2: out to Chris Reddick at Edward Jones. He's my dude,
Speaker 2: and we've offen joked about trying to sit down and
Speaker 2: do the math on whether it's better to let someone
Speaker 2: like a financial advisor like Chris handle your investments or
Speaker 2: if it makes more sense to invest in real estate.
Speaker 2: I like, I'm going to steal his word. His words
Speaker 2: are phrases that he likes to say. Why not why
Speaker 2: only use one toolbox on you or tool on your
Speaker 2: tool belt, Use all the tools, use everything, do all
Speaker 2: of the things. But what I like about real estate
Speaker 2: investing is that I feel like if you have a
Speaker 2: base understanding of basic arithmetic, you can figure out how
Speaker 2: to invest in real estate. The rest is just gonna
Speaker 2: There's tons of books out there that will teach you
Speaker 2: like shortcuts. There's great message boards. Bigger Pockets is a
Speaker 2: great resource. They have a great podcast and message board
Speaker 2: that you could go and learn a ton about investing
Speaker 2: in real estate. And I've learned a lot from a
Speaker 2: lot of the people there. Here's what I'll tell you
Speaker 2: to answer my own question is if is California a
Speaker 2: good place to invest in real estate? Really it depends,
Speaker 2: but in short, no, I don't think California is a
Speaker 2: good place to invest in real estate. Here's why. The
Speaker 2: cost of housing is astronomical. So the amount of money
Speaker 2: it takes for you to be able to put down
Speaker 2: on an investment property so that it would cash flow right, so.
Speaker 3: You need it. You need to be able to put
Speaker 3: enough down. I looked into it.
Speaker 2: The average rent in southern California's around three thousand dollars.
Speaker 2: The average mortgage payment is around six thousand dollars. So
Speaker 2: you have to put so much money down so that
Speaker 2: your mortgage payment now is three thousand dollars. So if
Speaker 2: you took that amount of cash that you have, with
Speaker 2: the rest of it being borrowed, so that you could
Speaker 2: have bought that property, more than likely we're talking at
Speaker 2: close to three quarters maybe half a million dollars, depending
Speaker 2: on the property. If you took that half a million
Speaker 2: to three quarters of a million dollars and you put
Speaker 2: it in a state like Ohio, you could probably buy
Speaker 2: an entire apartment building cash with that money, and it
Speaker 2: would cash flow, it would make you money. So I
Speaker 2: think most of the time there's these examples where people
Speaker 2: they inherited home, so there's not really a cost that
Speaker 2: I would be willing to at least hear you out
Speaker 2: and talk about it. But like I shared last week
Speaker 2: about a story where I had a listing appointment to
Speaker 2: meet with some people who had inherited a house in
Speaker 2: Tuluca Lake and they wanted to rent it out. The
Speaker 2: rent for it would be about ten grand a month,
Speaker 2: and I'm like, the amount of people that would be
Speaker 2: interested and able to pay ten thousand dollars a month
Speaker 2: to rent this very beautiful home in a very beautiful
Speaker 2: area is so small that I don't really think there's
Speaker 2: much there. Whereas if you sold this house for the
Speaker 2: one point two value that it had just right there,
Speaker 2: without touching it, without making any improvements, you're walking away
Speaker 2: with about one point two million dollars cash. You set
Speaker 2: aside some money for capital gains, and you go and
Speaker 2: reinvest that somewhere. You're probably going to get a better
Speaker 2: return on that investment elsewhere. So it becomes this game
Speaker 2: like if you want to people like to invest in
Speaker 2: California because it appreciates. It's going to be hard for
Speaker 2: you to find another property that will appreciate in value
Speaker 2: at a rate that it will in California. But to me,
Speaker 2: I think the name of the game in real estate
Speaker 2: investing and why people like it is cash flow. So
Speaker 2: that's all about monthly profit. What are you netting from
Speaker 2: the property. So in California, the reason why it's so hard.
Speaker 2: As we talk, Richie found it. I paid them off
Speaker 2: in his pop tarts today. Last week, Richie, I think
Speaker 2: I thought it was fifteen, but maybe twelve. He confirmed it
Speaker 2: was sixteen percent affordability in the state of California. So
Speaker 2: what that means is that when you account for income
Speaker 2: per the census data, and people putting about twenty percent
Speaker 2: down on a house, what that payment would look like
Speaker 2: the median house price, which is in the mid nine
Speaker 2: hundreds right now in the state of California. Only sixteen
Speaker 2: percent of people that live in California make enough money
Speaker 2: to afford that. But you start looking at other states,
Speaker 2: So let's look at our neighbor in Arizona, sixty six
Speaker 2: percent affordability index there. The national average is seventy two percent,
Speaker 2: but California is only sixteen. Fun fact, West Virginia eighty percent,
Speaker 2: So I think that's the housing price, and then you
Speaker 2: start looking at southern California, it's so much that it's
Speaker 2: going to make it hard to cash flow. The first
Speaker 2: rental property I bought was actually up the street from
Speaker 2: where I live in Burbank, and it cost me twelve
Speaker 2: hundred dollars a month. But I bought it because real
Speaker 2: estate was appreciating so fast after the crash that I
Speaker 2: was like, oh, this is how you invest money. And
Speaker 2: I actually learned from some other investors, and I love
Speaker 2: the way this guy put it. He's like, you don't
Speaker 2: have an investment. You're running a charity where you provide
Speaker 2: housing for a family in Burbank. Is what you are.
Speaker 2: And that person was right, Like, again, I made money
Speaker 2: off of it. I eventually used it when the tenants left.
Speaker 2: I flipped the house and I use that to fund
Speaker 2: my flipping business, and so I made more money out
Speaker 2: of it. So even this is why I think real
Speaker 2: estate investing is so great, is that even though I
Speaker 2: made a mistake and the math I could afford, the math,
Speaker 2: I still was able to make. I think I made
Speaker 2: like eighty grand off of the sale of that home,
Speaker 2: and I use that to make another quarter of a
Speaker 2: million over the few houses that I flipped over the
Speaker 2: years that follow that. Now, right now, let's go into that. Oh,
Speaker 2: I'm so mad, I didn't even think of that. I
Speaker 2: might actually do that. When we come back. I might
Speaker 2: want to talk about flipping because I get so many
Speaker 2: people that watch these shows on HGTV and they when
Speaker 2: they find out I flip houses, they're like, I want
Speaker 2: to flip houses too, and they think it's so great.
Speaker 2: So before I do that, though, we'll talk flipping as
Speaker 2: a real estate investment strategy in southern California when we
Speaker 2: come back. But what I want to talk about now
Speaker 2: is that also the legislative part of California. It is
Speaker 2: very tenant friendly in the state of California. So a
Speaker 2: few years ago we had AB fourteen eighty two, which
Speaker 2: basically created a state wide rent control. It caps at
Speaker 2: I think it's five percent plus inflation is what you
Speaker 2: can cap rent with an absolute cap at ten percent.
Speaker 2: LA County already had a ten percent cap, by the way,
Speaker 2: because it's considered a fire hazard area ABBY, so that
Speaker 2: was already in existence.
Speaker 3: Didn't really affect it.
Speaker 2: And I think that the rent control if you live
Speaker 2: in like La Proper areas. Burbank doesn't have this where
Speaker 2: I live, but in La Proper they have. It's like
Speaker 2: two point ninety seven. It's some weird number that's below
Speaker 2: three percent. La County actually did a survey and found
Speaker 2: that on average, rent increases were less or we're just
Speaker 2: about two percent, So that was less than the cap
Speaker 2: for what the city ordinance was for rent control rent increases.
Speaker 2: So you have all this legi rent control and everything
Speaker 2: that really over regulates the industry in which you're trying
Speaker 2: to invest. So that's gonna restrict your freedom. The latest
Speaker 2: thing that came out was that they put a cap.
Speaker 2: Most people are there exempt from it if you just
Speaker 2: have like a one or two rental properties and you
Speaker 2: didn't put them in a corporation or something like that.
Speaker 2: But you can used to be able to charge up
Speaker 2: to twice the rent and security deposit for an unfurnished house,
Speaker 2: three times the rent on a furnished house, and they
Speaker 2: capped it at just one month's rent because so they
Speaker 2: couldn't do that. The other thing that they're now doing
Speaker 2: Assembly built twenty seven forty seven requires landlords to give
Speaker 2: the option I think they have. It's this month of
Speaker 2: this year that you have to start offering at least
Speaker 2: once a year to your tenants the ability to report
Speaker 2: their payments for their rent as positive things for their credit.
Speaker 2: So you have to report their rent payments as to
Speaker 2: a credit union at least one credit reporting agency.
Speaker 3: I really stammered that one.
Speaker 2: Credit reporting agency has to find out from you if
Speaker 2: you're are paying their rent on time, and it's supposed
Speaker 2: to be a way that they can increase their credit score.
Speaker 2: And they said that you can charge the tenant ten
Speaker 2: dollars for that service. But I found the most common
Speaker 2: service costs the landlord nineteen dollars and fifty cents a month,
Speaker 2: and that gives them up to twenty three leases. So
Speaker 2: if you just have one property, you're already in the
Speaker 2: negative just from that alone. Okay, So, like I said,
Speaker 2: when I come back, we're going to talk house flipping.
Speaker 1: KFI AM six forty on demand