A little back history. We purchased our first home in 2012 in CA. It was our primary residence, and when the military moved me to NM it became a rental for us. This of course like so many people got us interested in owning more rental properties.
So the question is, do we keep our one home in CA or do we sell it in order to buy two in NM that cash flow better? The military doesn't pay that well so saving up money for a down payment will take us 3 years, which by then we will be moving again. The hope is to get some different properties that will help expedite more purchases in the future.
The CA house - We purchased it for $157,000 out the door with zero down on a USDA loan. It is located in a medium size rural town north of Los Angela's close to Edwards AFB and a huge wind energy area. This is a great town, with a great community. It is in a very desirable neighborhood near the high school. The huge positive on this property is the home is very well built (1991), had many of the big ticket items replaced by the bank before sale (new AC, paint, floors, etc.), and is in an area that will continue to get better and will be desirable for a long time. When we departed in Aug we rented it very quickly for $1400 a month. A quick breakdown, we have an NOI of $10,734 per year, and a mortgage that costs 8725 per year. So we clear about $200 a month in positive cash flow. Looking at the market we can probably sell for $200,000 in Aug when our lease ends with the tenant, which would give us about $35000 to re-invest post sale.
The NM homes - I have been doing a lot of looking and I think I have found what we want to buy in NM. You can buy SF 3/2 homes in a semi-desirable part on Albuquerque (ABQ) for about $100,000. In ABQ there are a lot of rougher areas which I am trying to avoid. My goal is to find a home that you can get a longer term tenant, but is at a reasonable value, so it doesn't have to be the best neighborhood in town. These are newer 2000+ homes, but probably a little on the smaller side, like 1300 sf. Using one of the many calculation sheets on BP I have come up with the following numbers. Putting a 20% down payment, the NOI would be $7,760 with an annual mortgage of $4,864. This is with a $1,000 a month rent. This comes out to a monthly cash flow of about $240 a month. This is for a single property, so if I can get 2 in the next year, that will put me up to $480 a month, which is much better than my CA home does. I will have to come up with some more money out of pocket as my "profit" from the CA home will be a little short, but we have enough money set aside to cover this.
So with the two examples, here are my thoughts, and I wanted to make sure I'm not missing something. The goal as stated above is to garnish more cash flow per month, so we can use this to fuel more investment property down the road. We are subscribed to a buy and hold process and we like using property managers so we can be as hands off as possible (within reason). So my concerns are this: The CA property is in such a great community, and is such a quality home that I am of the strong opinion that this house will continue to produce positive results for us. It will have its maintenance needs, but it is a very great condition, was built very well, and won't need a lot of attention. Plus we should have longer term tenants in their constantly, and shouldn't ever have problems finding new ones when needed. The ABQ area however is very different. The city as a whole has a very large low income population. Even the nicer areas of town just don't compare to the part of CA my home is located in. The areas I am looking (based on my price ranges) are decent, and should draw younger professionals and younger families from the military base and surounding industry out here (Intel factory, Lockheed, etc. are all out here). My fear is that I am going to trade my security I have in my CA home for cash flow, and may end up in a worse position, especially once we move again in the next 3-4 years. With our inexperience we are really just trying to understand how much we should be concerned about taking on some additional risk (two properties with mx on both and the area) for the additional cash flow. We are leaning very heavily towards taking the plunge and converting our CA real estate to NM, but I wanted to see if we could get some opinions before we have to start making moves in the coming months. Thank you very much for reading and for any advice!!!
My husband is also active duty. He is navy so we are in the same financial boat. We are doing this for long term possibilities. We manage the properties ourselves saving us thousands. We have two kinds of investment, personal properties and than pure investments. Our personal properties are houses we buy for us to live in and than rent out. We live these because we only have to put 5% down and have lower interest rates. Heck the first two were bought with VA and nothing down.
Personally, I wouldn't sell your California house. You are not getting alot out of it. I like diversification and for us that is owning in different states. Do you own a property in NM. Have you used your VA loan yet? Houses that you live in what would they rent for? Personally I would buy a starter home in NM in a great community using half of your VA loan. Than I would move halfway and upgrade to another good rental. As long as you have a good reason for the bank you can buy another personal property. Than when you move on to the next duty station you buy another personal property and so on.
That is the "over" simplified version of what we do. It has allowed us to invest when money is tight and pure investment not possible. I wouldn't invest in markets that the rent wouldn't cover the mortgage and more (usually $200 clearing). We don't expect to make tons of money, but keeping cost down with areas that appreciate. Have worked well for us. Feel free to pm me. This is in addtion to pure investment wtih 20% down.
A couple thoughts to help you think this through. First of all, if you do decide to take the plunge, as you stated, always expect the unexpected. I have seen to many situations where the investor buys a property in a questionable area, and incurs increased vacancy, maintenance, non-pay etc. And their reserves are too low. So whatever decision you make, ensure that you check out the properties thoroughly (particualrly the location) and leve yourself plenty of cushion. Regarding the location, I use a tool frequently that I recommend you use www.rentfaxpro.com. Its ideal for evaluating the location of properties in areas that you are not familiar with, particualarly out of town. It takes into consideration all the factors you would look at if you were to purchase a home - crime, schools, transporation, unemployment, etc and arrive at an index score that is placed on a spectrum. Right away you can tell if the property is in a more difficult area, which is going to introduce more valatility for you. The tool also provides a rental estimate and an income estimate. There is a fee for the service, but you will find it very economical, particualrly if it helps you make a better decision.
Last point - the property manager is KEY to the success fo the rental. Make sure it is a good one, get references. Good luck!
Thanks Elizabeth and Dan. I would like to do another live then rent property. We live on base and thats the way my wife likes it. She really likes living on base and being part of the community here. So for that reason we can't do that here. So if we want to grow our investments, we need to do it the traditional way...
Dan thanks for the website reccomendation! I will use that when evaluationg properties. Also the places where we are looking in NM. They aren't specifically low income parts of town. They are decent areas in relation to ABQ as a whole. I was originally looking at some of the less enjoyable parts of town and quickly realized we wanted to steer clear of any problematic areas like that. Ultimately we want to buy homes in an area that is condusive to longer term tenants that will take care of the house. So if it mean waiting longer or saving a little more, then so be it. The draw to selling and re-investing here is we can buy more properties for less because of the lower cost of houses compaired to CA.
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