Total newbie investor here, looking for some advice. My wife and I would like to purchase our first investment property. Our experience is just our previous 2 owner-occupied SFRs. We're currently living in that 2nd SFR, which is in LA, CA.
We thought Long Beach, CA would be a good place to invest since it’s close, we like it there, and it’s less expensive than LA. But as I dig into the numbers, as far as I can tell, any investment would be negative cash flow initially, by about $200-500 monthly. The rents are shockingly low, at least compared to what I’m used to in LA.
Our budget is anything up to 700ish and we have cash on hand to cover 20% down-payment as well as unexpected expenses.
We could even subsidize negative cash-flow, but that seems anathema to me.
We’re looking at both SFRs and condos with lower HOAs. The rental would most likely be long-term since the condo HOAs don’t allow STRs. We could potentially do an Airbnb in a small SFR, but I’m nervous about the time-commitment needed. We both have careers that are not very flexible time-wise.
I understand that one of the strategies for turning a property to cash flow positive is to upgrade the property. But unless we do a total rehab, I can’t quite understand how that additional investment is always a good idea given the opportunity costs of what I could potentially do with that $ with other investments. If I invest $20k in property upgrades, how can I know how much my expected rent will increase? Even though we plan to keep this property long-term, it seems like it would be a very long time before that additional capital investment would be recouped.
All advice and insights are greatly appreciated.
@Sarah Schwab Personally I’d be concerned about a negatively cash flowing property. While I’m sure in California appreciation would eventually get your money back when you sold it could be another 7-10 years before rents raise high enough for you to be making money and then there’s expenses too!
I know there’s other “emotional” reasons for why we invest the way we do. For instance if you wanted to retire and live in Long Beach that might be more of a compelling reason for this investment. Or if you discussed it with your accountant and could recoup your negative cash flow against your salary on your taxes. I have no idea if this is possible so please consult a professional.
Otherwise I might suggest looking elsewhere where you would have a positive cash flow for a return on your investment.
Thanks, Rick and Alecia. I agree. Just wanted to make sure I wasn't missing something.