What is a good return in Bakersfield, CA?

Question

I hear the 2% rule tossed around, i.e. buy for $100k, rental rate should be $2k per month.  Unless I go to the parts of town I don't want to have a buy-and-hold rental in, I'm looking at more the 1% to 1.25% range from what I can see.

Any advice on this?  I hear the Bay Area and LA/San Diego don't cashflow much.

I want to get some experience under my belt in places I know first, then branch out to other states.  Thanks for your help.

Dawn Anastasi · Answer

The "2% test" means that if you can rent a place for $2,000/month, the most you should pay for the place (including rehab) is $100,000.

Generally you cannot get "2% test" type properties in SoCal.  The Midwest has more of these type properties.

Account Closed · Answer

Thanks for that @Dawn Anastasi.  I've read some other forums where people are investing in So Cal just for capital appreciation, and your view certainly supports that.  It seems that right now, in CA, buy and hold is a tough strategy due to the cashflow.  I've talked to others that are still buying every day, but they are in B- to C neighborhoods rather than the A-/A+ neighborhoods.

I understand that strategy, but we're still identifying our A, B and C areas in Bakersfield, so until we do that and see a good deal, we're on the sidelines for now.  Anyone else have a comment on the cashflow situation, purchasing at current prices in CA?

Seneca Hampton · Answer

A seasoned mentor of mine told me this:

"The further you move from the Coasts the more cashflow you can earn, the further you move toward the coasts the more equity one is able to build over time"