The Creative Way I Bought an Affordable Home in Los Angeles

How I Bought an Affordable Home in Los Angeles

*If there’s one money topic I don’t have firsthand experience in, it’s real estate. As a New Yorker, buying an apartment is not for me. So I asked my friend to write about her experience buying a home in Los Angeles, another pricey market. I’m all about thinking creatively to get what you want, and this is definitely an example of how going off the beaten path can sometimes yield the sweetest rewards. Enjoy! -Luxe*

***

As millennials who lost our first jobs in the recession, my husband and I were wary of homeownership. Our low rent in Los Angeles ($1100!) kept us in our outdated one-bedroom for years. The 1970s cabinets and gross carpet didn’t bother us since we saved on rent.

But then we had a baby.

School districts, convenience and safety became our top priority. Proximity to bars and restaurants? Less important these days.

We didn’t know what we were getting into, but we wanted to avoid rising rents in our area. So we started the househunt.

I told Luxe that going through this homebuying process took a few years off my life. There were times where I tore my hair out.

But by changing a few strategies in our search, we were able to buy a two-bedroom condo in a pricey area of LA.

Here’s how we went from renters who never painted the walls before move-in day to homeowners managing a gut renovation on our starter home.

Avoiding the Bidding War

The hardest part in a seller’s market is winning the bidding war. Multiple bids drive up the price, and then you’ll lose out to a higher offer or all-cash offer. In our area, it’s common for a seller to receive 20 bids, and for homes to sell way over asking price.

But what if you could avoid the competition?

All told, we toured about 14 condos and 5 houses all over LA. We were losing out on move-in ready condos and small fixer upper houses.

Our agent then told us one crucial thing: the only thing you can’t change is the location. Everything else about the property can be changed.

We started looking for listings that had been sitting on the market for awhile, that were priced too high for their market value. Also key: look for listings with bad photos and poor marketing.

We stopped going to open houses that had a steady stream of looky-loos. We searched for properties that were sitting more than 90 days (you can filter for this on Redfin).

The two-bedroom condo we ended up buying? Total dump. Holes in the walls, black stuff under the sinks, busted up floors, etc.

But the location was in one of the best school districts in LA.

Plenty of people toured it, and got scared off by the extent of work it needed. It was a real-estate owned property (REO), meaning the bank foreclosed on the owners, who didn’t maintain the unit.

Our agent found out the bank rejected previous lowball offers from investors looking to flip the condo. But timing is everything and the bank was now desperate.

They accepted our lowball offer after two counters. Two-bedroom condos in our town typically go for $400,000-$475,000 if it’s move-in ready, with accepted offers much higher than the asking price. We were able to get our condo under $400k, at 20 percent below asking.

Buying a Fixer: Estimating the Reno Costs

Not going to lie: buying a fixer, especially a REO, is super scary. The frugal part of me loved getting a good deal, but I’m used to scoring deals on handbags and plane tickets, not property.

After inspection, our agent lined up a few contractors to get us estimates on renovations before our contingency expired–if it was over budget, we could still back out.

Reno would cost $15,000-$30,000 depending on what we wanted to do. We decided to leave the bathrooms alone for now, bringing it closer to $20,000. Including reno, we paid less than market value for our condo.

Buying a fixer upper isn’t for everyone, though. Though there are home renovation loans, they only apply to houses, not condos. We’re also on a month-to-month lease at our current rental, so we had some flexibility.

If you don’t have cash saved up for renovations, or you have a set date you need to leave your home, you don’t want to take on a major fixer.

Note: Always get multiple estimates! Early on, I went with the first flooring guy I met. He bailed as soon as I asked for his license number, but thankfully, I hadn’t given him cash yet. There are honest contractors in the business, but they’ll be happy to answer all questions, and will ask to be paid in installments (typically a deposit upon booking and balance upon completion).

Stay Away From Flipped Properties

Earlier this year, a small house needing work came onto market, where it was snatched up by investors. Five months later, it was relisted at $150,000 higher. Newly painted, it now featured gray laminate floors, white kitchen cabinets with mosaic backsplash, and stainless steel appliances.

Investors need to make a profit, so it’s unlikely that they made $150,000 worth of renovations on the home. Also, they cut corners and typically use the cheapest labor and materials. Our agent said flipped properties are easy to spot, since they have whatever is trendy and look dated within a year.

My neighbor joked that this flipped house came with a $150,000 stove.

We estimate that we saved anywhere from $20,000-$50,000 by not buying a flipped property. Renovations are a pain, but I’m happy to coordinate several weeks of work to get a $20,000 discount.

On top of that, all the renovations are exactly how WE want it. Paying less and getting exactly what we want? I’ll take that over paying more for shoddy work and cheap design.

Getting Through Escrow on a Bank-Owned Property

Buying a bank-owned property can save you money because 1) there’s usually less competition and 2) it usually costs less than market value.

But there are some caveats. We didn’t receive any seller’s disclosures as the foreclosed owners were long gone. We know the place is in bad shape, but how bad? That’s a mystery we tried to solve via inspections. When we closed escrow, we weren’t handed keys in a moment of celebration–we were told to call a locksmith and replace the locks.

Unlike a standard sale, the bank is less than motivated to get through escrow. Your home purchase could be stalled by Linda, the bank employee in another state, who just wants to beat the traffic home, so she’ll get to your escrow doc tomorrow. Our close of escrow was delayed three days because the bank misplaced some documents.

Basically, if you don’t have savings left over and need to be out of your home by a certain time, this may not be the best route for you.

Paying for Renovations with Credit Cards

No, I’m not suggesting you rack up a huge credit card debt.

But I didn’t want to drain our emergency fund. So I applied for the Chase Freedom Unlimited card and Citi Simplicity card the day after we closed escrow. Both have a long 0% APR intro period, and I plan to pay off balances in full before the interest rates go up.

This way, I can continue to auto-save and keep our savings intact (well, post-down payment savings) in case of emergencies that require cash.

Not all renovations (like labor) can be put on a card. But we paid for our flooring, paint, appliances, etc. on the 0% APR credit cards.

Note to travel hackers and credit card churners: Do NOT open any cards until you close escrow. It could ding your credit, which could mean a higher interest rate on your mortgage.

Taking Advantages of Sales

If you’re buying near a holiday, purchase materials/appliances during the holiday sale. You can schedule delivery up to 90 days after purchase at Home Depot.

We saved 50% this way on our washer/dryer, and also got a $125 rebate from the gas company for buying an Energy Star certified machine.

Chase shopping portals gave 2x points on Home Depot, so I purchased most of our materials online for in-store pickup. We’re within budget of our monthly payments so we won’t be “house poor” but it’ll be nice to pay for flights with points/miles.

Ikea also had a sale where gift cards were 20% off, so we bought $2,000 worth of gift cards since we knew we’d have major purchases there.

People Will Have Annoying Opinions About Your Home Purchase

The day after we closed escrow on the condo, I went to meet the neighbors. A little old lady introduced herself and then bluntly asked, “How much did you pay?”

Um. I fudged my response, but told her it was below typical condo prices in the area.

She scoffed and walked away, “I paid $85,000 back in the eighties.”

I’ve since seen this new neighbor a few more times, and she’s actually nice (though still blunt). This type of comment is common, though. Folks love to tell you how the only time to buy was 1) decades ago or 2) in the recession.

Well, decades ago I was still a baby. And I was just getting to know my husband in Brooklyn during the recession, so he may have bailed if I started our second date with, “We just met, but let’s buy a house in a suburb of LA!”

The Seven-Year Real Estate Cycle: Is It a Good Time To Buy?

The other typical response is “You’re buying at the height of the market, aren’t you worried the market will crash?” This one bothers me sometimes, since it’s legit.

Our agent did warn us that real estate cycles roughly every seven years, like a roller coaster. Counting from the last recession in 2010-2012, we’re due for an “adjustment” in housing prices. Random folks told us to wait for prices to drop and “buy low.”

“Buying high” and selling in a downturn, or selling within a couple of years can result in a financial loss. For us, I figure the market will downturn. Prices seem too high to keep going up.

This is where personal situations and finances will dictate your choices. We were staring at a higher rent and a need for more space NOW–we couldn’t wait who knows how many years for the market to downturn.

We prioritized location and school district over move-in ready condition for this reason. So if the market downturns when we’re ready to trade up? We can stay put until prices increase, while our kid attends the local Blue Ribbon school.

But that’s us. Other folks will choose a flip in a gentrifying neighborhood, or a nice home with a long commute. Everyone has different priorities and deal breakers.

Starting the Homebuying Process: Know Yourself

If you’re thinking of buying, figure out why you want to buy. Are you ready to hunker down in a location for several years? It’s kind of like marriage–you shouldn’t do it just because it seems like the next step in your life.

I think people get caught up in a real estate frenzy, or they forget why they wanted to purchase a home in the first place. They end up higher than their budget, or they buy in a location they don’t like.

No one can tell you if homebuying is right for you, but there are definite perks. Historically, home prices trend upwards in the long run. Mortgage interest can be deducted from taxes. Unless you foreclose, no one can kick you out. If you want to move elsewhere without selling, you could always rent it out.

If you’re interested, talk to a reputable lender and find a good buyer’s agent. Like us, you may find an overlooked diamond in the rough to make your own.

What do you think–would you consider foreclosures or bank-owned properties to get a deal? How did you save money buying your home? 

Image: Unsplash

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  • <400k for a condo in a good part of LA is crazy awesome. A house near where we used to live (in South Redondo) was sold for about $700k. Torn down, and a new house built. Finding something reasonable just wasn't a thing we could have done out there. These tips may have helped though!

    • Valley Mommy

      Thanks! Getting through escrow and renovation was rough, but so far, we’ve been happy. We get to stay in our town, our kid has space to run his scooter around the condo, and we got a good “deal” (for 2017, at least).

      That’s crazy, so they basically paid $700k just for the land?? I believe it though, LA prices are insane these days.

  • We did something similar with our home, buying a fixer upper then renovating it before moving in. All in, we probably saved ~50-100k versus the going rate of purchasing a move-in ready place, but the process was really rough. Vetting contractors, exploding reno requirements, doing DIY. We replaced a lot of structural things in addition to cosmetic changes and whenever you open up walls there’s no telling what you’ll find. It was a very stressful process. While it saved us a lot of money, I don’t know that I’d do it again.

    • Valley Mommy

      Yeah, I actually kind of agree with you. This was the most stressful project I’ve endured so far. Wedding planning, cross country move, even giving birth — all seemed easy in comparison. This felt like I was sprinting a whole marathon.

      In our case, this was pretty much the only affordable way we could get into our school district in LA. There are lots of things I’m willing to do for this toddler spawn of mine that I wouldn’t bother with if it were just us. The money we saved going this route can be redirected into his college fund, emergency fund, or whatever-the-hell-it-is-this-week fund for our cash-guzzling little man. If we didn’t have the kiddo but still wanted to buy, we probs would have done what our DINK friends did and buy a cute turnkey house in an up-and-coming neighborhood, where the school district sucks but the bars/shops are popping up.

      But yeah, finding a good contractor is freaking hard. I touched upon it in my post, but I almost had a meltdown when that one guy quit the day before he was supposed to start our floors because I asked for his license and a contract. It was a blessing in disguise though, because 1) turns out he tried to overcharge me and 2) I ended up driving to our flooring center in town in hysterics and they were amazing and we love our floors. I definitely learned a lot in this process in my first renovation.

      Anyway, we’re looking at doing this again in a few years, whilst trying to sell this place at the same time. Our end game is an actual house in this part of town, but who knows if that’s possible since we can’t predict the market. I think it helps that we have lots of friends with kids who have done this (also for the school district), so it doesn’t feel isolating on top of insanely stressful.

      But like, in a few years. I need a breather first after the last few months, lol.

  • Emily

    Great tips! My husband and I are thinking about buying in the next few years in a similarly competitive market. Quick question – you mentioned not applying for credit cards before acquiring a mortgage. I churn for miles/points and was going to let up as we get more serious about the process. Did you avoid signups for the full 24 months before purchasing, or for a shorter time period?

    • Valley Mommy

      Hey! Haha, definitely a shorter period as 24 months isn’t necessary.

      If you can find a good lender, you can check with them, but our lender told us not to do ANYTHING that might change our credit (changing jobs, opening credit cards, buying a car) once we got our pre-approval and start looking seriously for a home.

      You probably want to stop opening credit cards about a month before the pre-approval — opening a card doesn’t ding your credit for long, but it doesn’t hurt to play it safe in this instance. Just remember that your actual loan depends on your credit score on the DAY that your actual loan is opened, not the pre-approval. So if it takes you a long time to make an offer and close on a home, it might not matter if you opened a credit card three months ago. But if you get your pre-approval and fall in love with the first home you see, then you might have affected your score and your interest rate.

  • I think one thing that helped me is having a good real estate agent on your side. I first started with a newbie agent who was a friend-of-a-friend, and I wasn’t able to compete with the horde of other offers coming in! Once I changed to a more experienced agent, she had a better feel for the market and could tell me how aggressive I needed to offer, side info on how competitive the other bids were, and so on.

    Another thing is doing some of the renovations after move-in, which allows you more time and less stress. I moved into my condo 2 years ago and have been slowly fixing things up. My condo was a student rental before, so not in the best condition, but not the worst either. Of course, this doesn’t work if you have major structural renovations.

    • Valley Mommy

      OP here. So true about the agent. We met our agent at a party (sounds very LA, but it was a toddler’s birthday party, hah). She was our friends’ agent and longtime friend, and just helped them sell their starter home/upgrade into their current home. We got super lucky — she happens to be one of the best in LA. She was a great negotiator (even got the bank to pay for a few things when usually banks don’t budge on REOs) and introduced us to our contractors. We would not have gotten through this without her, so yeah, a good agent (and lender!) is key.

      We tried to do all the renovations before move-in, but of course that didn’t happen.
      We have a 16-month old who gets into EVERYTHING, so it was a little nuts living in a construction zone for awhile. That said, I agree with you on slowly fixing things up — we coordinated with our contractor to finish rooms on on side of the condo first so we could corral our child there with a baby gate but still move in. And we still have a bathroom shower that we’d like to redo in the next few years. Staggering projects also helps with cost!

  • Kat

    Great blow by blow account of a value-added purchase in an overheated market! I love the detail! I have bought several “distressed” properties (REO, short sale, and on-line auction) and don’t regret a single one. It is some serious work up front, but your perseverance will pay off and you will forget all the pain! I’ve actually got a home in West LA (PDR) that began as our family home and was ultimately converted to a rental. It was a total fixer and we worked on it over a few years (like your bathrooms…they can wait until you’re ready). Buying that place was the BEST decision ever. Yours will be too. Someday you can sit with your blunt neighbor and roll you eyes about the new people who are paying $600+ to get the same condo you just paid $400 for back in 2018!! Ha! Enjoy!!!

    • Valley Mommy

      Thanks! And wow, I’m impressed! Getting through escrow with this REO was so intense. Like every moment we thought it was smooth sailing, something silly happened that delayed our opening or closing. It was hard because while we knew friends who bought fixers, we didn’t know anyone who bought an REO so it was unsettling at times. It’s crazy how little the bank cares about their property!

      But hey, now I sit at home and can enjoy coffee on Saturday mornings while chasing the little nugget around. And you’re right, I’ve mostly forgotten how much the reno has sucked already. Almost, haha. My hope is that he can create some good childhood memories in this place and neighborhood… before we hopefully upgrade in a few years and stay in town.

  • Great post! It’s refreshing to read a different perspective on the home buying process. I’ve toyed with the idea of homeownership on and off for the past year or so, but the traditional “buy a cookie cutter home and pay a 30-year mortgage” idea isn’t very appealing to me. If my husband and I do decide to buy a home, we’d probably be more interested in getting a fixer upper. Like you said though, that’s going to require having a lot of money saved so it will be a while until then. Will definitely keep these tips in mind though!

    • Valley Mommy

      Thanks! Yeah, there’s lots of ways to do it. Our area is pricey, so we knew we wanted to get up to a 20% downpayment, but it would take us a lot longer to save more than that and still have enough left for renovations and emergency fund. If I was in a less pricey area though (like say, Michigan, where our extended relatives live), we could have paid at least 50% down for a sizeable turnkey house. Sigh.

      Some of my friends did the less than 20% and paid PMI. But it’s LA, so a lot of them refinanced when they had enough equity. There are different ways to go about it. Talking to a good lender would be a start (even if homeownership is years from now).

  • Birds of a FIRE

    For a second, I thought Luxe bought a LA apartment cross-country!

    Awesome house hacking post! Your ability to get deals amazes me:). Plus, now you get up to $500k tax-free in gains when you sell the house :D. That should propel your NW a ton!

    • Valley Mommy

      Hopefully! Right now, it’s a nice affordable place to live. But yeah, our end game is gaining enough equity to get a house in the same area. We’ll see if that happens!

  • I’m not sure what part of LA your friend is in but even for the whole city 450-500 is still way lower than most 2-bedroom anythings in LA, and the fact that she got it cheaper than that is great. In my area, a 2-bedroom is at LEAST 700-800k for a condo and definitely over a million (at least) for a house. I need to move. 🙁

    • Valley Mommy

      We’re in the Valley, on the east side. The prices you’re mentioning sounds like West Side, near the beach? I’d love to move to a cheaper area (my in-laws just bought a large ranch home in Michigan, lovely school district, for the SAME price we paid for our condo). Alas, my husband’s industry is here, so here we are.

      I think we got ours for less than 400K for the reasons listed in the post, but also it’s missing outdoor space (no balcony or patio) and no central air. That said, it works great for us (I was looking for no balcony because of our daredevil toddler). Nice turnkey 3b/2ba houses do go for $1 million around here, but starter standalone houses 2b/1ba are now in the $700/800k range, which is discouraging.

      I love LA, but I don’t like the housing prices. Ironically, buying a house in the suburbs would have been cheaper if we stayed in NYC. Some of our friends back east buy in New Jersey or Long Island. For what we paid, we could have gotten a cute little house with a yard in a nice school district! Sigh.

  • Like Birds of Fire, I also thought you’d bought an apartment! We bought our first house back in 1999. Nearly 20 years later, we’re still benefitting from our choices… Here’s what we did, fwiw:

    1. We bought well below our means (at time when having a pulse basically qualified you for a ginormous mortgage). The house had been for sale for more than a year and was only 1700 square feet but there was just the two of us.

    2. We furnished slowly and spent renovation money carefully. We scraped off wallpaper in EVERY ROOM ourselves, but paid for a professional painter and floor re-finsiher.

    3. We refinanced 4 years later after I got a huge bump in salary. Smaller payments, shorter mortgage, and cash that we spent to update kitchen floor, counters, and appliances.

    4. #3 helped us make $100K on the house (yes, I’m vulgar-ly mentioning specific numbers) when we relocated 1 year after that.

    5. When we relocated we had a huge down payment and I’m convinced that’s why we weren’t “under water” after the crash of 2008.

    Buying a house is a particularly scary business these days and I feel for the generation that got majorly screwed by shareholder greed.

    Hope this was vaguely helpful. Old lady rant over!

    • Valley Mommy

      Wow! Yeah we still have some parts of the place left unrenovated. The master bath should get a new shower, and a gas tech tells us we should install a different gas line or something to the tune of a few grand. Apparently it’s perfectly safe the way it is, but the code changed so this current situation wouldn’t pass inspection. Frustrating. But every homeowner I’ve talked to has a version of this story, so I guess it’s par for the course.

      We are hoping to have a huge downpayment for when we actually get into a house too. I’d like to keep our monthly payments low. I’ll have to look to see if refinancing would benefit us in a few years!

  • Frieda

    Hello, fellow LA homeowner here! I agree that avoiding the flipper’s telltale red door (though it seems yellow is the trendy color now) is the cost-effective way to go. We also bought a fixer in rough shape as our first home. We didn’t fix it up completely, due to lack of cash, but that’s okay. Now that we’ve lived here a while, we have a better sense of layout issues and useful future improvements.

    As for the deductibility of mortgage interest, it depends. Based on the cost of your home, I would guess you might do better under the newly expanded standard deduction in 2018.

    • Valley Mommy

      I love a red or yellow door, but that’s just me. The current gray floors trend of flipped homes are not my fave though. I feel like those are going to look dated in a year!

      My dad (retired accountant) is recommending standard deduction for us, too. We have to get our taxes done soon, my husband’s w2s just came in the mail yesterday!

  • randomizationme

    I enjoyed this ! By the way, your neighbor is extremely blunt. I personally would not know how to answer.

    • Valley Mommy

      Thanks! She has other gems, too. During renovations, she liked to walk by and comment, “Oh good, you’re doing renovations. This place needs a LOT of work…good luck…” Then walking away.

      She recently saw me in the middle of the day in the parking garage (currently I work from home) and said, “Where’s your baby?”

      Um, well he was at daycare. But, was I supposed to be like, “Oh crap, the baby! Thank you for reminding me, I totally keep forgetting him in the Costco parking lot!”

  • Nina Thomas

    I would love to see pictures of the before and after if possible! Awesome post.