How best to invest a lump sum of cash

[Dr Democracy]

I'm a young guy (25), and I'm about to sell an asset of mine that through a particular area of expertise I have (and a whole lot of luck) will net me around $60k after taxes. I live in California, and given the horrendous state of the CA real estate market, I'm considering investing in properties.

For the past few months I've been browsing through multiplexes on realtor.com, and have created a fairly extensive spreadsheet detailing numerous properties that look profitable. I'm a bit apprehensive of investing in a relatively poor area (like Merced), so all of the properties I'm looking at are either in Sacramento, the Bay Area (Oakland, Antioch, etc), San Bernardino, or Stockton. Los Angeles has a few good deals as well, but most seem to be in those areas.

I won't be ready to buy for a few months, so at the moment I have only pictures to verify that these properties are not in complete disrepair. However, I'm finding a number of properties that seem like they would net me so much more than the "$100 per unit" after the 50% rule that is so often discussed in these forums, that I can only assume I must be missing something.

For example, take this Sacramento Duplex:
Price: $50,000
Monthly Rent: $1,600
Expenses (assuming 50% rule): 800
Mortgage (assuming 20% down, 30yr @ 7%): $266
Profit: $534 (or 267/unit)

Or this San Bernardino 4-plex (each unit is 3/2):
Price: $100,000
Monthly Rent: $3200
Expenses: $1,600
Mortgage (same assumptions): $532
Profit: $1,068 ($534/unit)

Coincidentally, these properties give the exact same ROI.

Now, I'm certainly not suggesting these properties are everywhere, but I normally find a few new listings like this each month (most last about that long before they're taken down - I assume because someone snatched it up).

However, assuming I'm patient and assuming the properties I'm finding with comparable numbers pass inspection, with a 60k investment, I'd be looking at about $38,400 in profit per year, or a 64% pre-tax return on my investment.

Common sense tells me I must be missing something, but even with pessimistic projections I can't see what it is. Can the CA real estate market really be this bad?

60k at the age of 25 is a lot of money, and my hope is if I invest it wisely I can make something of myself (be it as a landlord, or another business). To those of you with experience, I would be very grateful for your thoughts.

Thanks,

Tom

[Tin Lam]

Tom,

Stop listening to people telling you to buy out of state properties. Yea I would buy out of state if I would live in that states. But one thing I learn from other season investors in my area, which is Orange County, CA, is DON'T GO ACROSS TOWN, WHEN YOU GO ACROSS THE STREET. Tom, have you ever factor in the time you'll put in to buy out of state, the rely factor in prop. management, the facts that you can't see, touch, feel, and drive by your property. That's the reason why we as investors target absentee landlord in the first place. The farther your property away from you, the less equity you feel you have, that's why eventually, you'll receive letters from other investors trying to buy your property. Also, when things break, you have to rely on your prop management to tell you, most of the time, they'll mark up quite a bit. you don't know what kind of tenants you have, and every time something happens, you'll to buy flight plan to go back and forth. IF you have a job, you'll have to ask for leave to go...ect. So, that's something you have to consider yourself. But let me tell you something Tom, you can go as far as you want even with 60k. Real estate works only if you believe it works.