Newbie in SoCal Needs Advice on Getting Started

[Denise Pinson]

Okay, fair warning. This is a crazy long post. I just joined Bigger Pockets today and really need the expertise in this forum before I embark on my first investment. The members here seem to really know their stuff, so I'm hoping to learn a lot. Okay here goes, please bear with me: I moved to Long Beach from Atlanta two years ago and am now ready to purchase something. I want this first purchase to help set me up for a couple more investments in the future, but I'm not looking to get filthy rich. My ultimate goal is to be able to work part time, have a residence in the states and a modest vacation condo somewhere in the Caribbean that I can move to full time in about 15 years. I'm a single, corporate executive with excellent credit and no dependents and have been preapproved for FHA financing for a multifamily. However this SoCal market is not for the faint of heart. Everything seems crazy expensive and not really a good investment risk, but I know so little about it, I could be wrong. I've been preapproved for up to $1million for a 4-unit, but there is no way I want to spend that much. I work in Orange County, but live in Long Beach. I'm not tied to the office, so I really am open to living in a lot of places and can basically stick anything out for the year that I would live in the multifamily. But I don't want to be a slum lord. I also have family and contacts in Ohio, Atlanta, Texas and Florida where investment markets seem more favorable, but I wouldn't be able to live there and get the FHA financing so that limits me since I'm only willing to risk $40-50K for a down payment at this point. I have a good realtor, but I don't really think she can be truly objective when there is a commission involved. To summarize, I guess I'm looking for help on the following questions:

• Should I be looking for a cash flowing investment at this point? And I guess “cash flow” means your rental income exceeds your mortgage and expenses right? I’d heard that cash flow wasn’t good at first due to taxes, but I don’t understand that. If you don’t buy something with cash flow right now, you may never be able to raise rents high enough for it to ever become a cash flow property, so what’s the value in that? Especially in SoCal where everything is already overpriced and may not appreciate very much more.
• What should my overall sequence be? I was thinking of two scenarios that may be seriously flawed, so let me know what makes sense:
• oScenario A: Buy a multifamily now and tough it out for a year or so to satisfy the FHA requirements. Then get a conventional loan and move into my own single family.
• oScenario B: Look for an out of state cash flowing investment and buy that now so it can help me save faster, continue to rent now, then buy a SoCal multifamily in a year or two with FHA financing. After I save enough again, I will move out of the multifamily into my own home with a conventional loan. So in the end, I would have an out of state investment, and two properties in SoCal.
• oScenario C: Open
• Where are the best markets to invest in SoCal considering expected housing growth, low crime and good rental income? I’d heard Riverside was growing but that the housing market there can fluctuate dangerously.
• Everyone keeps talking about the expected “bubble” in SoCal. Should I even be looking to invest here at all? Am I too late to the party?

Okay, I guess that’s it for my initial rant. Any feedback would be much appreciated.