How best to invest $200k Purchase price for cash flow & low risk

Question

If you had around 200k to purchase a rental, would you look for a VR or a regular rental, and why? I’m looking for cash flow primarily, with some appreciation. What state or specific area/town would you look at? I live in California, and, as mentioned, the numbers can be difficult. I don’t have a problem going out of state, just not sure where to focus, and whether I should look for a VR or regular/full-time rental. Thanks for your insight!

Lisa Eckman · Answer

Thanks Andrew for the response. Let me fill in with some additional information. I’ve actually had several rentals over the years, both VR and regular. I have my brokers license that I primarily used to buy and sell my own properties. In the last few years I’ve sold all properties and am no longer a landlord. (Yea!). However, I’m really not interested in investing in the stock market. And I’m thinking now, since I at least know something about RE, and like it, that makes more sense in terms of an investment. So, I’m now thinking of jumping in again.

That said, I think I’m really leaning toward LTR, because, as you said, way less involvement needed. And, yes, I’m looking for something that doesn’t require or need a lot of hands on effort. I’ve used PM before, and probably would again, but have found it REALLY hard to find someone that I feel is worth the expense. However, I would try and find someone as I would need to invest long distance (not in CA). So... I guess what I’m really looking for is advice on WHERE I should start looking. I’m really only knowledgeable about RE in my immediate area - which won’t work.

Sorry for the long post...  just sorting thru options. But, in summary, I guess I’m now looking for advice on where to look at purchasing for a LTR. I would say a B or C property, in a weather-safe location, that would generate good cash flow and some appreciation. Thank you for getting thru this post and any advice you can offer!

Andrew Gingerich · Answer

Lisa, it seems to me the biggest difference between a long term rental and vacation rental is the amount of hands on work. You can farm out the work, but the overhead and turnover effort on a VR is much greater in most situations.

Having said that, in some markets the VR is the way to go because you can gross more in hot VR markets compared to long term rentals.

In some neighborhoods only one strategy works and other strategies can't be justified numbers-wise.

In many California and west coast markets it's hard to find the 1 or 2% rule.

If it were me and I was new to rentals I'd try and start more locally or at least in a market that I felt like I knew the neighborhoods and what is a value buy. You don't really want to pay full market value in my opinion. Further after years of strong appreciation, I would want to make sure my first buy cash flows so that I could absorb a decrease in market value.

Best of luck,

Andrew