CA - how are you guys achieving cash flow
Member since 2019 · 24 posts · 5 votes
Hello investors in CA,
Just wondering, how are you guys getting cash flow after so much investment and most of the rent goes to mortagage itself.
I live in corona, average home price is $570K and rent will be approximate of $2700, if i do my calcualtion with taxes, mortage, insurance etc, for the 20% down, i get negative cash flow.
Am i missing anything here? Please let me know.
is investing in CA worth?
Aariff
Options for initial cash flow:
We have used each of these to some degree (we never purchased as low as 70& ARV). We also do not self manage our STR units but they produce enough cash flow to pay for a PM which would be less the case for units purchased today.
Most Coastal So Cal investors are relying on Market and Rent appreciation. They purchase as a forecast negative cash flow with the belief that rents are rising fast enough that in a few years they will have positive cash flow and significant equity via market appreciation. Recently San Diego SFR rents had risen $500/month in the previous 3 years. This implies that if you purchased at the beginning of that window with projected $200 negative cash for that 3 years later you would be experiencing on the order of $300/month positive cash flow.
The issue is that last 7 or 8 years have been outstanding in terms of market and rent appreciation. What are the odds it can continue? I certainly would not project it continuing at that pace in any of my investment projections. Therefore, expecting rent appreciation to turn a cash flow negative RE to cash flow positive could take a decade.
Therefore, we stay with items 1 through 4 above.
Good luck.
Not saying you can do it while sitting on the couch, but one way is to buy stuff like this (listed on the MLS in this case):
https://www.redfin.com/CA/San-Diego/3905-National-Ave-92113/home/147880176
If you'd like to go through the exercise of penciling this out and posting, I'll share my POV on why a property like this makes sense.
This one is unique. Did you buy it?
Out of state cannot be beat, I have invested in California up until the year 2013 with still cash flowing properties. Looked out of state and the numbers are very good and various markets pay the 1-2% rule. I am going all out on out of state and looking for more.
Most recent house bought in Michigan:
3/2 SFR 1400 sq ft, 56,000 all cash, about 5k for repairs, 1050/mo rent, so it's between 1-2% rule. Locals are finding even better deals buying in the 20-40k range, but they have the advantage of being there physically and knowing the areas street to street.
There are plenty of posts on this website detailing their deals. I am using a PM that I have a relationship with and they are my best eyes on the ground, they visit the properties that I am looking at. I buy turnkeys at first then go out on my own and look for properties that need a little fixing up in good neighborhoods. I have done the same thing in Alabama as well, next if probably Illinois and/or Ohio.
Nowhere can you find these kind of deals close by to the Bayarea or hours away. This if if you are into cash flow, other markets have less cash flow but better appreciation, like Florida and parts of Texas. I look for cash flow myself, and multis have even better numbers.
There are about plenty of 1-2% markets that cash flow that I am researching for the next, but I am concentrating on about 3-4 markets.
Hello Justin,
If I understand the property correctly. It can be rent it as 2 units each renting for approximately $1700 each.
20% of 460,000 is 92000. Total investment might be 100k including closing cost and other charges.
I am getting approximate of $2400 as monthly expenses that includes mortgage, property tax and home insurance.
So you might have a positive cash flow of $1000 approximately.
That's a reasonable start but, from my point of view at least, measuring "positive cash flow" is not meaningful. Instead, look at two things: Free Cash Flow and Cash-on-Cash. Or, even more important, projected IRR (but that's out of scope for this convo).
In this case, the Free Cash Flow -- that is, real, actual monthly cash you can reasonably count on having at the end of the year after paying and reserving for everything -- is about $500/m. And, CoC returns are 5%. If you can beat 12% vacancy rate (remember: half of this is commercial), maybe you get that up to 8.5% or so.
And, remember that a 15% return on $1000 doesn't means you can treat your SO to see Avengers in the theater at the end of the year. A 5% return on $100k starts to matter.
If you want, drop $70k on renovations to turn the commercial space into a duplex.
Since @Dan H. mentioned it, here's the Year1 proforma for this. I share this only as a data point to suggest which metrics to focus on and the type of things available on the local MLS. I'm sure Dan would agree - way more important than which market you invest in is understanding which metrics to use, what they mean, and accurately modeling them.
Your total earned ROI is about 9.35% on $120k cash. Throw in rent appreciation and inflation / market-driven value increases if you want and you're in the teens. I'd say that's a fine place to park $100k as a buy-and-hold mostly-armchair investor.
What's not shown on the proforma is that this is a corner lot with two driveways, 2 existing water meters, on a main transit corridor, with a 40' height limit and a 1.35 max FAR...
Justin, what program is that your using to analyze this deal? That looks like a lot cleaner spreadsheet than the one I’m using currently. Thanks
Just a custom Google Sheet I put together. It's gotta look good and be clear+concise since there's oftentimes investors involved. Communicating deal details to outside investors has been a journey to get right for me. :-)
PM me if you'd like and I'll share the Google Sheet template if you'd like to copy and customize for your use.
This.
If value depreciation was equally as likely, this wouldn't be so attractive. But, in an asset class that is structurally correlated to inflation (and in a country positioned to continue causing inflation), this is really the heart of REI. How someone gets the appreciation isn't as important as the fact that they do.