Cashflow Investment Property (Inland Empire)

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Thanks for all of the advice so far. I dont think anyone answered #3, which is how to allocate your money if you have enough for say 40-50% down. Do you put it all towards one property, or split it into 2 investment properties?
 
[quote author="DollarOutta15cents" date=1242972609]Thanks for all of the advice so far. I dont think anyone answered #3, which is how to allocate your money if you have enough for say 40-50% down. Do you put it all towards one property, or split it into 2 investment properties?</blockquote>


I would put 20%-25% down on two properties. A general rule with acquiring rental properties is to put 25% down, accumulate cash until you can have 25% down on another property, and you continue to acquire properties until you retire at which point you start spending the cashflow. You don't want to have too much equity in rental properties. Borrow within limits of staying cashflow positive and having at least 25% equity in a property. Take the rest and acquire more property.
 
[quote author="IrvineRenter" date=1242984978][quote author="DollarOutta15cents" date=1242972609]Thanks for all of the advice so far. I dont think anyone answered #3, which is how to allocate your money if you have enough for say 40-50% down. Do you put it all towards one property, or split it into 2 investment properties?</blockquote>


I would put 20%-25% down on two properties. A general rule with acquiring rental properties is to put 25% down, accumulate cash until you can have 25% down on another property, and you continue to acquire properties until you retire at which point you start spending the cashflow. You don't want to have too much equity in rental properties. Borrow within limits of staying cashflow positive and having at least 25% equity in a property. Take the rest and acquire more property.</blockquote>


I love the idea of acquiring rental properties slowly, but I have no desire to own IE properties. I like the areas of Santa Ana with the older charming homes and see potential for those being rental parity. There are some really neat houses, but the neighborhood isn't so hot. I have a hard time looking at a potential rental as just a rental. I want the home to be cared for, whereas my husband can look at it as just for renters. I really thought our path to retirement was going to include acquiring RE, but now I"m not so sure I really want to be a landlord. It would really break my heart to buy a house, make it nicer and then have it worn down and not taken care of properly. It seems that the areas where you can find rental parity imply that you take that risk.



My question is, even if all the numbers work out, are there some people who just really shouldn't be landlords?
 
[quote author="stepping_up" date=1242987434][quote author="IrvineRenter" date=1242984978][quote author="DollarOutta15cents" date=1242972609]Thanks for all of the advice so far. I dont think anyone answered #3, which is how to allocate your money if you have enough for say 40-50% down. Do you put it all towards one property, or split it into 2 investment properties?</blockquote>


I would put 20%-25% down on two properties. A general rule with acquiring rental properties is to put 25% down, accumulate cash until you can have 25% down on another property, and you continue to acquire properties until you retire at which point you start spending the cashflow. You don't want to have too much equity in rental properties. Borrow within limits of staying cashflow positive and having at least 25% equity in a property. Take the rest and acquire more property.</blockquote>


I love the idea of acquiring rental properties slowly, but I have no desire to own IE properties. I like the areas of Santa Ana with the older charming homes and see potential for those being rental parity. There are some really neat houses, but the neighborhood isn't so hot. I have a hard time looking at a potential rental as just a rental. I want the home to be cared for, whereas my husband can look at it as just for renters. I really thought our path to retirement was going to include acquiring RE, but now I"m not so sure I really want to be a landlord. It would really break my heart to buy a house, make it nicer and then have it worn down and not taken care of properly. It seems that the areas where you can find rental parity imply that you take that risk.



My question is, even if all the numbers work out, are there some people who just really shouldn't be landlords?</blockquote>


I probably will not become a landlord. It isn't worth the hassles to me. I sold my house in Florida before I moved to California because I did not want the responsibility.
 
It seems that intially you are only looking at a few hundred bucks of cash flow per month, which doesn't seem like it's worth the hassle. Over the long haul as rents increase and perhaps the property appreciates, it seems like it might be worth it. But the hassle and risk of someone trashing the place makes an initial few hundred bucks a month in the black really unappealing. I've heard that if you want to be a landlord and make money at it, you do it with apartments, not SFR's. My hubby's uncle is incredibly wealthy from doing just this.



My friend who is making money in the IE is doing it by flipping. But, this is what he is doing for a living right now. It doesn't seem like something you can do on the side.
 
I think that is right. No SFRs. The only people I know who hold them are accidental landlords (due to moving, inheritance, etc).



I have been told that a 3-plex is the minimum a real property investor will own and operate.
 
[quote author="stepping_up" date=1242989285]It seems that intially you are only looking at a few hundred bucks of cash flow per month, which doesn't seem like it's worth the hassle. Over the long haul as rents increase and perhaps the property appreciates, it seems like it might be worth it. But the hassle and risk of someone trashing the place makes an initial few hundred bucks a month in the black really unappealing. I've heard that if you want to be a landlord and make money at it, you do it with apartments, not SFR's. My hubby's uncle is incredibly wealthy from doing just this.



My friend who is making money in the IE is doing it by flipping. But, this is what he is doing for a living right now. It doesn't seem like something you can do on the side.</blockquote>


I thought I read on this forum that this whole idea of flipping is nonsense now, that the increases these flippers saw were from the housing bubble not from any real value added to the home over what was invested. I just read one of those posts the other day about how you only see a return of about 70-80% of the money you invest on improvements to a home. What exactly is he doing, when you say "flipping?"
 
He's not making a killing at it, but is profiting about $10K per property. The best one was only $15K and one was a break even. He's just buying REO's that need a little cosmetic stuff like paint, flooring, maybe a new vanity in a bathroom for $100 and some green plants and putting them back on the market quickly. He's not finding a boat load that have the potential for this quick flip process, but has done 11 now in the last 13 months. He has his license so he doesn't have a sell side commission, just the buy side he offers.



He has the cash to buy the homes, which gets offers accepted better than people who want to do it with a mortgage. And really, if a house doesn't have major issues like plumbing, electrical, structural, etc... but has just hasn't been tended very well it's amazing what you can do with a few bucks. If you take a house like that and put $5K-$10K into it, it has a broader appeal and you get a much better return on those improvements. But again, this is what he's doing full time.



While there is a large group of buyers out there that would buy a foreclosure, there is also a percentage of the market that doesn't want to and would prefer to get a fair price (for the current market) for a house they can just move into.



My husband's best friend and his wife bought a 1 bd condo in Lake Forest just over a year ago. The rent on their 1 bd apt kept going up and for what they were paying, they could have bought a 2 bd condo, most likely a foreclosure, for about what they were paying in rent. Instead, they chose to go with the max they qualified for because they fell in love with this 1 bedroom.... the sellers were an interior designer and architect, supposedly, and had the interior all tricked out with the flooring, baseboards, paint, pergransteel, etc...



I guess you can call it something like "sell the sizzle" and there is a market in the lower end for first time buyers who really can't discern that what looks so nice to them is really just cheap. They don't have to go through the scary process of buying an REO and they get their offers accepted. You see a lot of first time buyers who are trying like mad to buy a lower end property and they make reasonable offers, but there are 10 others and they feel like they just can't win. Give them a home that looks nice and isn't an REO and they will buy it.
 
[quote author="stepping_up" date=1243069746]

I guess you can call it something like "sell the sizzle" and there is a market in the lower end for first time buyers who really can't discern that what looks so nice to them is really just cheap. They don't have to go through the scary process of buying an REO and they get their offers accepted. You see a lot of first time buyers who are trying like mad to buy a lower end property and they make reasonable offers, but there are 10 others and they feel like they just can't win. Give them a home that looks nice and isn't an REO and they will buy it.</blockquote>


I've walked through a number of REOs that need substantial work: new kitchen, new baths, flooring, walls, to make them nice. They only needed about $3500 and sweat equity to make them liveable, carpet, paint and a good scrubbing.



It takes a lot of imagination to look past the mess and see how little it may take to make it liveable and sellable. A little luck and a lot of due diligence not to get saddled with a serious flaw that will turn it into a boat anchor.
 
I have a couple of mentors that have about 200 doors (units) in Huntington Beach each between them. Four-Plexes are the best rental investment in their opinion. The problem of course lies in that we don?t have a million dollars to put down; they both suggested that we try as hard as possible to buy a four-plex and live in one of the units; but the only areas where we can even consider a four-plex is long beach or somewhere in LA. I know we don?t have to necessarily live in Irvine, but I do not want to live in some four-plex in LA!



RE holds for the long run in linear markets make the most sense; with levering, appreciation and being cash-positive. I?ll do the math for you, but if you can find a cash-positive property using only 20% down; the rate of return is something like 30%-45%.



So, since we can?t afford a million dollar four-plex; the next best thing we figure is a SFR in the IE. That is still a consideration. We however need to figure everything into the carrying cost. I would not even consider anything over 10 years old. It needs to be 2000 or newer. I would want the to calculate PM in the costs; I want the option to not handle the property myself. Also, I would want a HOA. It?s another eye on the property. I want a minimum maintenance factor; exterior, lawn, broken windows, trash cans, parking, rules? rules... etc? the stricter the better.



The best renters scenario would be if you possibly work out in the IE; where you can get to know a few co-workers who live out there. Our warehouse just happens to be in Corona, although I work from home and out in the field; I do know a few co-workers who live in the IE, who could possibly be renters or who know someone personally that can rent. Also, some know the neighborhood, and know the people living there, and which houses are going into foreclosure and what not. Again, it?s another eye on your investment property. The more eyes on the house the better.



I know there are some companies out there that, advocate investment properties out of state. IMO that is just another level removed; that is another risk factor that I am probably not willing to take at this stage in life.
 
[quote author="roundcorners" date=1243382961]I have a couple of mentors that have about 200 doors (units) in Huntington Beach each between them. Four-Plexes are the best rental investment in their opinion. The problem of course lies in that we don?t have a million dollars to put down; they both suggested that we try as hard as possible to buy a four-plex and live in one of the units; but the only areas where we can even consider a four-plex is long beach or somewhere in LA. I know we don?t have to necessarily live in Irvine, but I do not want to live in some four-plex in LA!



RE holds for the long run in linear markets make the most sense; with levering, appreciation and being cash-positive. I?ll do the math for you, but if you can find a cash-positive property using only 20% down; the rate of return is something like 30%-45%.



So, since we can?t afford a million dollar four-plex; the next best thing we figure is a SFR in the IE. That is still a consideration. We however need to figure everything into the carrying cost. I would not even consider anything over 10 years old. It needs to be 2000 or newer. I would want the to calculate PM in the costs; I want the option to not handle the property myself. Also, I would want a HOA. It?s another eye on the property. I want a minimum maintenance factor; exterior, lawn, broken windows, trash cans, parking, rules? rules... etc? the stricter the better.



The best renters scenario would be if you possibly work out in the IE; where you can get to know a few co-workers who live out there. Our warehouse just happens to be in Corona, although I work from home and out in the field; I do know a few co-workers who live in the IE, who could possibly be renters or who know someone personally that can rent. Also, some know the neighborhood, and know the people living there, and which houses are going into foreclosure and what not. Again, it?s another eye on your investment property. The more eyes on the house the better.



I know there are some companies out there that, advocate investment properties out of state. IMO that is just another level removed; that is another risk factor that I am probably not willing to take at this stage in life.</blockquote>




Many areas in the IE are now below rental parity. While that may provide investors with a cash flow positive rental property, it could also mean that quality renters will be able to buy a house for less than renting so getting good tentants will be tough. SFR is especially risky in this regard: if one tenant moves out, you will have a 100% vacancy rate.



I don't own any property in the IE but I have lost many high quality renters recently who have purchased homes. I can only assume that this phenomenon is worse in the IE as home prices are so cheap there.
 
[quote author="High Gravity" date=1243383704][quote author="roundcorners" date=1243382961]I have a couple of mentors that have about 200 doors (units) in Huntington Beach each between them. Four-Plexes are the best rental investment in their opinion. The problem of course lies in that we don?t have a million dollars to put down; they both suggested that we try as hard as possible to buy a four-plex and live in one of the units; but the only areas where we can even consider a four-plex is long beach or somewhere in LA. I know we don?t have to necessarily live in Irvine, but I do not want to live in some four-plex in LA!



RE holds for the long run in linear markets make the most sense; with levering, appreciation and being cash-positive. I?ll do the math for you, but if you can find a cash-positive property using only 20% down; the rate of return is something like 30%-45%.



So, since we can?t afford a million dollar four-plex; the next best thing we figure is a SFR in the IE. That is still a consideration. We however need to figure everything into the carrying cost. I would not even consider anything over 10 years old. It needs to be 2000 or newer. I would want the to calculate PM in the costs; I want the option to not handle the property myself. Also, I would want a HOA. It?s another eye on the property. I want a minimum maintenance factor; exterior, lawn, broken windows, trash cans, parking, rules? rules... etc? the stricter the better.



The best renters scenario would be if you possibly work out in the IE; where you can get to know a few co-workers who live out there. Our warehouse just happens to be in Corona, although I work from home and out in the field; I do know a few co-workers who live in the IE, who could possibly be renters or who know someone personally that can rent. Also, some know the neighborhood, and know the people living there, and which houses are going into foreclosure and what not. Again, it?s another eye on your investment property. The more eyes on the house the better.



I know there are some companies out there that, advocate investment properties out of state. IMO that is just another level removed; that is another risk factor that I am probably not willing to take at this stage in life.</blockquote>




Many areas in the IE are now below rental parity. While that may provide investors with a cash flow positive rental property, it could also mean that quality renters will be able to buy a house for less than renting so getting good tentants will be tough. SFR is especially risky in this regard: if one tenant moves out, you will have a 100% vacancy rate.



I don't own any property in the IE but I have lost many high quality renters recently who have purchased homes. I can only assume that this phenomenon is worse in the IE as home prices are so cheap there.</blockquote>


This is one of the reasons I recommended buying a rental for UCR students. College students live in an area temporarily and almost certainly won't purchase a house. Better a series of college students with family support than a guy building a meth lab in the garage who doesn't pay the rent.



There is very little to no new construction very near UCR, and none with a HOA, so that won't work if one insists on those things. Most of the cheaper, newer townhouse style developments with HOAs in Riverside are short sale/foreclosure magnets right now-I wouldn't recommend those either.



The houses that are above rental parity are almost exclusively older. Newer houses cost more but don't rent for much more.
 
[quote author="Geotpf" date=1243384164][quote author="High Gravity" date=1243383704][quote author="roundcorners" date=1243382961]I have a couple of mentors that have about 200 doors (units) in Huntington Beach each between them. Four-Plexes are the best rental investment in their opinion. The problem of course lies in that we don?t have a million dollars to put down; they both suggested that we try as hard as possible to buy a four-plex and live in one of the units; but the only areas where we can even consider a four-plex is long beach or somewhere in LA. I know we don?t have to necessarily live in Irvine, but I do not want to live in some four-plex in LA!



RE holds for the long run in linear markets make the most sense; with levering, appreciation and being cash-positive. I?ll do the math for you, but if you can find a cash-positive property using only 20% down; the rate of return is something like 30%-45%.



So, since we can?t afford a million dollar four-plex; the next best thing we figure is a SFR in the IE. That is still a consideration. We however need to figure everything into the carrying cost. I would not even consider anything over 10 years old. It needs to be 2000 or newer. I would want the to calculate PM in the costs; I want the option to not handle the property myself. Also, I would want a HOA. It?s another eye on the property. I want a minimum maintenance factor; exterior, lawn, broken windows, trash cans, parking, rules? rules... etc? the stricter the better.



The best renters scenario would be if you possibly work out in the IE; where you can get to know a few co-workers who live out there. Our warehouse just happens to be in Corona, although I work from home and out in the field; I do know a few co-workers who live in the IE, who could possibly be renters or who know someone personally that can rent. Also, some know the neighborhood, and know the people living there, and which houses are going into foreclosure and what not. Again, it?s another eye on your investment property. The more eyes on the house the better.



I know there are some companies out there that, advocate investment properties out of state. IMO that is just another level removed; that is another risk factor that I am probably not willing to take at this stage in life.</blockquote>




Many areas in the IE are now below rental parity. While that may provide investors with a cash flow positive rental property, it could also mean that quality renters will be able to buy a house for less than renting so getting good tentants will be tough. SFR is especially risky in this regard: if one tenant moves out, you will have a 100% vacancy rate.



I don't own any property in the IE but I have lost many high quality renters recently who have purchased homes. I can only assume that this phenomenon is worse in the IE as home prices are so cheap there.</blockquote>


This is one of the reasons I recommended buying a rental for UCR students. College students live in an area temporarily and almost certainly won't purchase a house. Better a series of college students with family support than a guy building a meth lab in the garage who doesn't pay the rent.



There is very little to no new construction very near UCR, and none with a HOA, so that won't work if one insists on those things. Most of the cheaper, newer townhouse style developments with HOAs in Riverside are short sale/foreclosure magnets right now-I wouldn't recommend those either.



The houses that are above rental parity are almost exclusively older. Newer houses cost more but don't rent for much more.</blockquote>
With college students I would highly recommend pergo and tile flooring as replacing carpet will get very expensive.
 
[quote author="usctrojanman29" date=1243385236]With college students I would highly recommend pergo and tile flooring as replacing carpet will get very expensive.</blockquote>
You will also be surprised how much college students will trash your place no matter how "studious" or clean they seem.



It's not really a matter of them throwing wild parties it's just that unlike families... they don't really see it as their "home" so they have little respect for it in terms of cleanliness and maintenance. A buddy of mine had 2 sets of 4 female students for 2 years in his rental in Irvine... and each time during the moveout... the place was a mess. It was very hard to understand how girls could let their house get into such a pig sty... the big shocker was the toilets were black... BLACK! For a bunch of guys... maybe... but I couldn't imagine girls letting it get that way. Interestingly, he currently has 4 male students in there on a 2-year lease and they've kept it cleaner in the last 2 years than the girls did in 1 year leases.



So... YMMV.
 
Very interesting points... My friend is only buying newer homes as well, but as I mentioned he is currently flipping them. We lost our tenant up in the Paso home this month due to her buying a house. This did not surprise me because she had great credit, good income and prices have come down considerably up there. A friend of hers loved the place and will be moving in on the 6th with a one year lease. We lucked out there with only having a 1 week vacancy. However, the house is in the most desirably neighborhood up there.



Even though the prices in that neighborhood have come down too, I still haven't seen any single homes that would cash flow. However, there are some 2 unit places that might. The homes are old, which is part of the appeal of the area.



Does anyone know what the land fee means in all the San Bernardino listings?
 
I would perfer family friendly neighborhoods versus college towns; I am looking for responsible families versus college renters. Newer areas only, I just don't want to deal with roofs, water heaters and A/C... I don't mind renting to referrals of undocumented workers, they probably can't buy, even if they have the cash. Also, most hispanic families in the IE live together; have extended families living in one roof. That should decrease the vacancy rate. If the house is large enough, say 5 bedrooms, that would be very attractive.
 
[quote author="roundcorners" date=1243392002]I would perfer family friendly neighborhoods versus college towns; I am looking for responsible families versus college renters. Newer areas only, I just don't want to deal with roofs, water heaters and A/C... I don't mind renting to referrals of undocumented workers, they probably can't buy, even if they have the cash. Also, most hispanic families in the IE live together; have extended families living in one roof. That should decrease the vacancy rate. If the house is large enough, say 5 bedrooms, that would be very attractive.</blockquote>




And if they default on rent, you don't need to bother with the hassle of a UD action and eviction, you can just call la migra!
 
[quote author="freedomCM" date=1242729077]Two words: Deadbeat tenants.





they destroy your place, set up meth labs, run out on the rent, you have to evict them, and their checks bounce. they get laid off, fired, or don't sell enough dope that month.





this is of course the corollary of vacancy..if vacancy is low, you can be more selective about the tenants, but if the place is sitting empty for a few months, you tend to become more accepting of people with 'dings'</blockquote>


Your cash flow method only works when the economy is good with low unemployment. With 12% unemployment there is a ton of people who are going deadbeat because they are losing jobs. I have a Friend who has a house in riverside and he is going through tenants like crazy and they are trashing the place every time. Costing him 1 to 2 thousand dollars to rehab and re market and he is not getting rent while it is empty.He does not even put screens on his house because they kick them out not to mention they do not take care of the lawn. The last couple he rented to ended up splitting up then the husband started renting rooms and finally after the tenant lost his job he stopped paying and moved out 3 months latter with a trashed home. my friend had to drop 5k to fix every thing inside (flooring drywall repair cabinets destroyed appliances gone) to get it up to rental shape. He made a positive cash flow for many years when the economy was good but now he is going to dump the home as he has lost any profit he ever made and after 3 years of bad tenets he has had it with trashy tenets. he has gone after the worst offender through court but if they are not working you can not get them to pay under a judgment. And if they quit a job because of a pay attachment you have to hire a special investigator to see if they have found another job. And they just quit their jobs once they are found out again. So in short anyone who wants to buy to rent these units in Riverside and San Berdo are just asking for a financial bloodbath and your dreams of making positive cash flow is just a dream. Rents will continue to fall as demand keeps shrinking because unemployment will continue to go up for the next couple of years. I see a lot these investors who are buying now while be knife catchers in a couple years as prices and rents drop and we will see a lot of these homes going back to the bank furthering the pain.
 
Invest within 20 miles of where you live. Keep that number as low as possible. Absentee owners get walked over unless they have real good management, but that cuts into the bottom line. Make the place look nice and be very competitive with rent - you will have plenty of tenants to choose from. Think of me everytime you're driving out to Riverside to fix a problem - told ya so!
 
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