If you talk to experienced investor/landlords, many will tell you that they go by the 50% rule (or 40% if they don’t use a property manager). Simply put, they allocate 40% of a property’s gross rent for long-term operating expenses NOT including the mortgage, HOA, and property taxes. This number apparently ends up being very accurate when you’re talking about decades.
There are 100x properties in Temecula right now, and on the face of it they cash flow $500+/month with 30% down. However, applying the 40% rule, in reality, they BARELY cash flow over the very long term and are actually in the negative if you pay someone to manage them for you. In my opinion that is why it’s so important to buy close to the bottom of an area, and the reason buying on the coast as an “investment” at current prices is such a big mistake. Worst case, you’ll never see most of your down payment again, and expenses will eat away the rest of your wallet over the years.
