Noob investor in California

4 Replies

Hello everyone. I'm Tom from California. I recently decided to get into real estate to produce some passive income.  My plan is to purchase single family homes priced up to $100k with at least a 12% cash on cash return. I've been saving for a down payment for about 5 months.  I got most of the way before I realized it might be better to pay off the remainder of my student loans first. My payments are $584 and I only owe about $37000.  That's pretty much the same amount of capitol Id need to buy a $100k house and get it renter ready. I seriously doubt I could find a place that would produce that much cash flow in my price range.  Until I have enough money to pay off my loans in full I will keep saving for a down payment just in case a golden deal shows up. I would consider using OPM to finance my investments but I don't know anyone who has that kind of money.

Whichever route you are thinking of going....just run the numbers. Where are you paying interest and how much? If the returns you can get on a rental property are higher than the interest you are paying on your student loan, get the property. If the interest on the student loans (or OPM) are higher than what the property can give you, pay off the loans. 

It's all about the numbers. And where you buy...for those cash flow numbers. (hint: not CA)

@Ali Boone I understand what you are getting at. I was focused only on total cash flow. Paying off my loans give me a guaranteed $584 per month bump in cash flow for what would be the remainder of payback period (6-9 years depending on the loan) whereas the properties I've run the numbers on only give me $200-400 in cash flow if I can maintain a 8% vacancy rate and maintenance stays below 10% but that is for as long as I own the property. My interest payments on the loans are relatively low between 3 and 7%. I think I currently pay about $130 in interest every month. In the long run a rental property could be a better investment as long as I choose wisely.

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