Purchasing Rental Property

[Wujohn]

Hi All,

I’ve been lurking on and off for the last 4 years and I am looking for some advice/opinions on the purchase of a rental property. I own my home but am new to the investment property market. I have played with some spreadsheets to look at different ratios (cash on cash, GRM, Cap Rate) and cash flows but I cannot say I am comfortable with the data yet.

I am looking to purchase a lower end property ($200K range) but uncertain about the best area to begin my search (i.e. condo in La Jolla or Mission Valley vs SFR in Escondido or Temecula).

Can you:
1) Give me some opinions on good areas to look for a rental purchase
2) Do you feel it is a good time to jump into owning a rental.
3) Anything else you’d like to add.

If you specialize in purchasing investment properties, feel free to message me. Am I shooting myself in the foot by saying I want a Realtor to contact me :-)?

Bottom line – I am looking for that sage like advice that can help lead me in the right direction.

Thanks!

[SD Realtor]

WuJohn

If you are serious about purchasing rental property for a long term investment then I would advise you to broaden your horizons and define your objectives. If your objectives are appreciation then yes some of the areas and types of homes you mentioned are not bad ideas.

If your goal is cash flow then the areas you mentioned are going to be challenging unless you have a large downpayment. There are easier objectives for cash flow. For example if you want a 9% yield you can invest in rentals with many groups. For instance the Norris Group has a 9% yield on Inland Empire homes but it is an 8 year committment. Locking up a 9% yield for 8 years is questionable but should work out okay for a few years considering what savings rates are today. However in a few years it may not be great.

I cannot stress enough how much better out of state rentals are if you are looking for cash flow. Appreciation wise not good at all. However getting 15% cash on cash is possible in the midwest.

Similarly places like Temecula offered very strong opportunities in 2008 and early 2009 but those have been mostly snapped up. I am regretting not following through with an investment purchase out there 2 years ago. Our man on the ground Temeculaguy has great insights to homes out there and investors swarmed the area.

So in the end I am not trying to sway you. Purchasing a condo near UCSD or a small SFR in an outer area may be okay depending on what our goals are. There are alternatives to consider.

[SD Realtor]

WuJohn

If you are serious about purchasing rental property for a long term investment then I would advise you to broaden your horizons and define your objectives. If your objectives are appreciation then yes some of the areas and types of homes you mentioned are not bad ideas.

If your goal is cash flow then the areas you mentioned are going to be challenging unless you have a large downpayment. There are easier objectives for cash flow. For example if you want a 9% yield you can invest in rentals with many groups. For instance the Norris Group has a 9% yield on Inland Empire homes but it is an 8 year committment. Locking up a 9% yield for 8 years is questionable but should work out okay for a few years considering what savings rates are today. However in a few years it may not be great.

I cannot stress enough how much better out of state rentals are if you are looking for cash flow. Appreciation wise not good at all. However getting 15% cash on cash is possible in the midwest.

Similarly places like Temecula offered very strong opportunities in 2008 and early 2009 but those have been mostly snapped up. I am regretting not following through with an investment purchase out there 2 years ago. Our man on the ground Temeculaguy has great insights to homes out there and investors swarmed the area.

So in the end I am not trying to sway you. Purchasing a condo near UCSD or a small SFR in an outer area may be okay depending on what our goals are. There are alternatives to consider.

[SD Realtor]

WuJohn

If you are serious about purchasing rental property for a long term investment then I would advise you to broaden your horizons and define your objectives. If your objectives are appreciation then yes some of the areas and types of homes you mentioned are not bad ideas.

If your goal is cash flow then the areas you mentioned are going to be challenging unless you have a large downpayment. There are easier objectives for cash flow. For example if you want a 9% yield you can invest in rentals with many groups. For instance the Norris Group has a 9% yield on Inland Empire homes but it is an 8 year committment. Locking up a 9% yield for 8 years is questionable but should work out okay for a few years considering what savings rates are today. However in a few years it may not be great.

I cannot stress enough how much better out of state rentals are if you are looking for cash flow. Appreciation wise not good at all. However getting 15% cash on cash is possible in the midwest.

Similarly places like Temecula offered very strong opportunities in 2008 and early 2009 but those have been mostly snapped up. I am regretting not following through with an investment purchase out there 2 years ago. Our man on the ground Temeculaguy has great insights to homes out there and investors swarmed the area.

So in the end I am not trying to sway you. Purchasing a condo near UCSD or a small SFR in an outer area may be okay depending on what our goals are. There are alternatives to consider.

[SD Realtor]

WuJohn

If you are serious about purchasing rental property for a long term investment then I would advise you to broaden your horizons and define your objectives. If your objectives are appreciation then yes some of the areas and types of homes you mentioned are not bad ideas.

If your goal is cash flow then the areas you mentioned are going to be challenging unless you have a large downpayment. There are easier objectives for cash flow. For example if you want a 9% yield you can invest in rentals with many groups. For instance the Norris Group has a 9% yield on Inland Empire homes but it is an 8 year committment. Locking up a 9% yield for 8 years is questionable but should work out okay for a few years considering what savings rates are today. However in a few years it may not be great.

I cannot stress enough how much better out of state rentals are if you are looking for cash flow. Appreciation wise not good at all. However getting 15% cash on cash is possible in the midwest.

Similarly places like Temecula offered very strong opportunities in 2008 and early 2009 but those have been mostly snapped up. I am regretting not following through with an investment purchase out there 2 years ago. Our man on the ground Temeculaguy has great insights to homes out there and investors swarmed the area.

So in the end I am not trying to sway you. Purchasing a condo near UCSD or a small SFR in an outer area may be okay depending on what our goals are. There are alternatives to consider.

[SD Realtor]

WuJohn

If you are serious about purchasing rental property for a long term investment then I would advise you to broaden your horizons and define your objectives. If your objectives are appreciation then yes some of the areas and types of homes you mentioned are not bad ideas.

If your goal is cash flow then the areas you mentioned are going to be challenging unless you have a large downpayment. There are easier objectives for cash flow. For example if you want a 9% yield you can invest in rentals with many groups. For instance the Norris Group has a 9% yield on Inland Empire homes but it is an 8 year committment. Locking up a 9% yield for 8 years is questionable but should work out okay for a few years considering what savings rates are today. However in a few years it may not be great.

I cannot stress enough how much better out of state rentals are if you are looking for cash flow. Appreciation wise not good at all. However getting 15% cash on cash is possible in the midwest.

Similarly places like Temecula offered very strong opportunities in 2008 and early 2009 but those have been mostly snapped up. I am regretting not following through with an investment purchase out there 2 years ago. Our man on the ground Temeculaguy has great insights to homes out there and investors swarmed the area.

So in the end I am not trying to sway you. Purchasing a condo near UCSD or a small SFR in an outer area may be okay depending on what our goals are. There are alternatives to consider.

[Wujohn]

Thanks for the reply SD Realtor. My personal preference would be to purchase somewhere in the greater San Diego area. I do not plan on using a property management agency at this point, and that rules out out of state options…although 15% CoC does sound nice.

My plan is to put 25% down; not exactly a large down payment but a bit more than the minimum. I am looking to be at least cash flow neutral to a little cash flow positive…if that is possible.

I feel like I need to jump into an investment property now. Though pricing will fluctuate over the next few years I feel like it won’t go significantly lower. That and the fact that interest rates are trending up is basically forcing my hand.

Thoughts?

[Wujohn]

Thanks for the reply SD Realtor. My personal preference would be to purchase somewhere in the greater San Diego area. I do not plan on using a property management agency at this point, and that rules out out of state options…although 15% CoC does sound nice.

My plan is to put 25% down; not exactly a large down payment but a bit more than the minimum. I am looking to be at least cash flow neutral to a little cash flow positive…if that is possible.

I feel like I need to jump into an investment property now. Though pricing will fluctuate over the next few years I feel like it won’t go significantly lower. That and the fact that interest rates are trending up is basically forcing my hand.

Thoughts?

[Wujohn]

Thanks for the reply SD Realtor. My personal preference would be to purchase somewhere in the greater San Diego area. I do not plan on using a property management agency at this point, and that rules out out of state options…although 15% CoC does sound nice.

My plan is to put 25% down; not exactly a large down payment but a bit more than the minimum. I am looking to be at least cash flow neutral to a little cash flow positive…if that is possible.

I feel like I need to jump into an investment property now. Though pricing will fluctuate over the next few years I feel like it won’t go significantly lower. That and the fact that interest rates are trending up is basically forcing my hand.

Thoughts?

[Wujohn]

Thanks for the reply SD Realtor. My personal preference would be to purchase somewhere in the greater San Diego area. I do not plan on using a property management agency at this point, and that rules out out of state options…although 15% CoC does sound nice.

My plan is to put 25% down; not exactly a large down payment but a bit more than the minimum. I am looking to be at least cash flow neutral to a little cash flow positive…if that is possible.

I feel like I need to jump into an investment property now. Though pricing will fluctuate over the next few years I feel like it won’t go significantly lower. That and the fact that interest rates are trending up is basically forcing my hand.

Thoughts?

[Wujohn]

Thanks for the reply SD Realtor. My personal preference would be to purchase somewhere in the greater San Diego area. I do not plan on using a property management agency at this point, and that rules out out of state options…although 15% CoC does sound nice.

My plan is to put 25% down; not exactly a large down payment but a bit more than the minimum. I am looking to be at least cash flow neutral to a little cash flow positive…if that is possible.

I feel like I need to jump into an investment property now. Though pricing will fluctuate over the next few years I feel like it won’t go significantly lower. That and the fact that interest rates are trending up is basically forcing my hand.

Thoughts?

[sdrealtor]

Wujohn
My personal preference is inexpensive condos in the urban core of SD (i.e. a mile or two north/south of I-8). There are condos that can be purchased under $150K and some below $100K. I like older but well maintained complexes with high owner occupancy and low HOA fees. The older and owner occupied means less distress and more long time owners who keep an eye on things. The lower HOA fees obviously means better cash flow. I also like 1BR condo for cash flow because the price discount vis a vis a 2BR seems to be greater than the rent differential. If you can find a decent 1BR with a garage and laundry in the unit you should never have vacancies and should be able to keep long term tenants. The downside is they will appreciate less. This is not to say I dont like 2BR as I see lots of them available well under $150K that can be rented for $1300 to 1400/month. Picking the right complexes is the key.

sdr

[sdrealtor]

Wujohn
My personal preference is inexpensive condos in the urban core of SD (i.e. a mile or two north/south of I-8). There are condos that can be purchased under $150K and some below $100K. I like older but well maintained complexes with high owner occupancy and low HOA fees. The older and owner occupied means less distress and more long time owners who keep an eye on things. The lower HOA fees obviously means better cash flow. I also like 1BR condo for cash flow because the price discount vis a vis a 2BR seems to be greater than the rent differential. If you can find a decent 1BR with a garage and laundry in the unit you should never have vacancies and should be able to keep long term tenants. The downside is they will appreciate less. This is not to say I dont like 2BR as I see lots of them available well under $150K that can be rented for $1300 to 1400/month. Picking the right complexes is the key.

sdr

[sdrealtor]

Wujohn
My personal preference is inexpensive condos in the urban core of SD (i.e. a mile or two north/south of I-8). There are condos that can be purchased under $150K and some below $100K. I like older but well maintained complexes with high owner occupancy and low HOA fees. The older and owner occupied means less distress and more long time owners who keep an eye on things. The lower HOA fees obviously means better cash flow. I also like 1BR condo for cash flow because the price discount vis a vis a 2BR seems to be greater than the rent differential. If you can find a decent 1BR with a garage and laundry in the unit you should never have vacancies and should be able to keep long term tenants. The downside is they will appreciate less. This is not to say I dont like 2BR as I see lots of them available well under $150K that can be rented for $1300 to 1400/month. Picking the right complexes is the key.

sdr

[sdrealtor]

Wujohn
My personal preference is inexpensive condos in the urban core of SD (i.e. a mile or two north/south of I-8). There are condos that can be purchased under $150K and some below $100K. I like older but well maintained complexes with high owner occupancy and low HOA fees. The older and owner occupied means less distress and more long time owners who keep an eye on things. The lower HOA fees obviously means better cash flow. I also like 1BR condo for cash flow because the price discount vis a vis a 2BR seems to be greater than the rent differential. If you can find a decent 1BR with a garage and laundry in the unit you should never have vacancies and should be able to keep long term tenants. The downside is they will appreciate less. This is not to say I dont like 2BR as I see lots of them available well under $150K that can be rented for $1300 to 1400/month. Picking the right complexes is the key.

sdr

[Author]

Posts