The Los Angeles Police Department confirmed officers were called to the Brentwood neighborhood estate to investigate the incident of the racial epithet.
The vandalism was discovered about 6:45 a.m. PT and has since been painted over by the property manager, according to the LAPD.
A Los Angeles Times source described the slur as the "N-word."
The LAPD is investigating the incident as a hate crime and an official police report was expected later Wednesday.
James responded to the incident during his media session Wednesday.
"As I sit here on the eve of the one of the greatest sporting events we have, race and what is going on comes again," he said. "On my behalf, family's behalf, I look at this as if this sheds a light and keeps the conversation going. My family is safe, that's most important.
"Just shows that racism will always be a part of the world, part of America. Hate in America, especially for African-Americans, is living every day. It is hidden most days. It is alive every single day. I think back to Emmett Till's mom and the reason she had an open casket, she wanted to show the world what her son went through in terms of a hate crime in America. No matter how much money you have, how famous you are, how much people admire you, being black in America is tough."
Police did not specify whether security footage was being used as part of the investigation to identify any suspects for the graffiti.
James bought the 9,440-square-foot house in 2015 for about $20.9 million, according to public records. His primary residence during the NBA season is in Akron, Ohio,
James, a sports icon who has spoken out against racism throughout his career, and the Cavaliers are in the Bay Area to take on the Golden State Warriors for Game 1 of the NBA Finals on Thursday night.
"It's ignorance, that's what it is," a source close to James told ESPN. "Unfortunately in 2017 people still think the way they do. I can't say it's surprising given what's happened in this country the last eight months.
"You can be a titan of industry, you can be a community leader, you can be the best at what you do and they can cut you down to just, 'You're black.'"
This series will mark James' seventh consecutive NBA Finals as he goes for his fourth championship ring. Games 1 and 2 will be in Oakland, Calif., before returning to Cleveland for the following two games.