I am looking for my first SFR and my strategy is buy & hold for retirement. I am looking in Hanford, CA where average monthly rents are $1100-1200. However, I felt that the best cash flow actually came from a new construction that is $231K that can earn about $1525/mo rent based on neighboring rents (my PITI would be $1207 with a 20% down 4.375% 30 yr loan). I wasn't initially looking for this tenant pool (higher end), but what is attractive to me is a brand new home that would likely not need much for repairs. In addition to being brand new, which I hope would attract some tenants, it has solar panels. I used to think that $1525 rent - $1207 PITI - $60 yard maintenance = $283 cash flow, but after browsing this site I see that I have left out vacancy and maintenance (will self-manage). If I add those, then ($1525 rent)(5% vacancy)(5% maintenance) - $1207 PITI - $60 yard maintenance = $109 cash flow. This number may seem low to most, but here in CA I don't know if I can find much better. I am torn because I'm worried about the tenant pool being small, but attracted by the minimal maintenance of a new construction. Any thoughts...especially if you know the California Central Valley area? I know the cash flow is better in other states, but I am scared to invest too far away.
I can't be of any help on the info in your area but I will say that there are times that I wish my 4-Plex was 5 minutes away instead of 30.
I will also say that I would struggle to dish up 20% of 231k ( 46,200 ) for 1308 a year in positive cash flow because of my other business ventures being more profitable with less cash input.
Just my inexperienced 2 cents - hope someone with more knowledge of your area can be of help.
@Kris Taylor Thanks for your input. It is hard for me to see the opportunity cost of putting the $49k down, but I am starting out and don't have any other business ventures to compare to. My other option with it at the moment is that it has been sitting in a basically 0% savings account so putting it into real estate seems like the better deal even though I am looking at a tiny cash flow, it is more than it has been getting in interest from the bank! Not to mention the benefit of having someone else build the equity. Also, initially I imagined that the higher end tenants would be easier to deal with but after reading from this site, I not wonder if I should shoot for the average tenant.
I am a buy and hold investor in handord/lemoore. I had the amazing opportunity to speak about our business plan on podcast 103. That would provide some great background ;)
That being said, I bought 2 new construction for my parents last year as resale didn't make sense. Personally in your shoes I wouldn't by new construction unless you are getting a 4 bed 2 bath at that price with 1900 sqft. You can get a great older home (8 years old) that is large 1900 sqft and will get you 1600 a month jn rent and will rent quickly for 225k. You don't want "extras" in this market. Having solar panels, lawn service, adds no value. There is a ceiling! People don't look at houses above certain numbers no matter the extras.
I know this market pretty well. I manage 8 houses here ;) Let me know if I can help! Investing out here is Ana amazing idea! I think it's a great market. While there are still deals, the market has gone up enought that you have to be "smart"
@Elizabeth Colegrove Thank you so much for your input! I agree with your point about the ceiling...I have a feeling that I may have caught the "shiny object syndrome" but it can be hard to see through this to see if it is indeed a good deal, and to consider the actual tenant pool. The home in question is a 4/2 1700 sq ft that is in the Sagecrest homes area. The big downside is that the backyard butts to the railroad, which is why even with the "extras" I don't think more than $1525 for rent... Anyway I would love to connect with you...sending request!
Natasha I would run! You do not want to be located next to the train tracks for the price! I know of quiet a few better houses that will get 1600. Backyard are "very" important in this demographic! Shiny is not good because that really doesn't do you a lot of good with renters and if your "core" things aren't going for you!
This does not sound like a good deal at all! I know that it may seem good since properties in California are so high; however, there are deals out there (even in California). You just have to be patient and look for the deals that come your way. It may take some work, but that work will payoff in the end.
The two downsides are the house is built way too close to the railroad tracks and the positive cash flow is only $109. This is of course very low and reduces many of the equations that you should be looking at to evaluate the property. One is the Cash-On-Cash return. Just stick with it and you'll find a good deal.
Thank you @Elizabeth Colegrove and @Peter Mckernan for your advice. I know I got caught eyeing the shiny object and I just need some patience!
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