Seems like a good deal to me. Tell me why it's not.

[Matt T.]

I’ve been reading through the threads here for a couple of months and have learned a lot. Great site. Great source of education.

I have a couple of questions that have, in some ways, been answered before here, but not in ways entirely specific to my situation.

I’m 42, a new father, and make 85K a year. My wife makes 100K. Here in California that puts us just about in the middle of middle class. The home I live in is in the East San Francisco bay area and is worth about 350K. I plan to stay there. I have no equity in this home—it’s all been washed away since 2007. But no problem; I’m staying.

Question one is sort of specific to California RE investors: Why should I not buy a fairly nice 3/2 home in a middle class part of Tracy or Ripon California? These are central valley cities that are almost in the bay area and were commuter towns at the height of the boom. Houses out there (specifically the ones I’m looking at) were going for 450-500K in 2005. Now they are 140-160K. They haven’t been this cheap since the mid 1990s.

These places rent for about 1300 a month and with twenty percent down fall just under the 1% rule.

I have a mentor out here who buys these houses in bulk, but he doesn’t seem to follow any sort of purchase rules. He just buys more. He was buying at the height of the market and seems to have no regrets about having paid 500K for homes that now are worth 150K. He’s got enough money, evidently, not to care. So since I’m not so able to lose money, I ask this question here, where I see that every dollar counts.

So, again, why should I not buy in Tracy or Ripon CA?

Question 2: is it okay to buy houses that simply pay for themselves? So few people on this site suggest this, and I’m wondering why.

After reading all the posts in the landlord forums, I know that many investors would only buy if they could hit 2% and that if I post this question there, many posters will tell me to run from these deals.

But I wonder if this would be good for ME. Not a big time investor, not someone who has tons of time to wheel and deal and scour the central valley endlessly.

With the 50% rule, at 1300/month I have a NOI of $7800
I’m pre-approved for a 30 year mortgage with monthly P & I of 590.
House cash-flows at 60/month
However, I will manage, so I’d want to use the 45% rule and get a bit more.

Now I know I’m putting money (20%) into it to make it work. And I know that 60/month isn’t much, but it seems like buying nice (1980s) homes at break even levels in nice, stable neighborhoods would be a great idea—in the long run.

Sure I’d have to drive out there (one hour away) and fix things and deal with tenants, but wouldn’t this likely be a solid investment in the long run?

I ask because I’ve read so many threads where people post their deals and the hardcore RE investors eviscerate the OP, stating that the poster is being a fool for not making more cashflow.

I believe these posters are right about the importance of cash flow and right to find the very, very best investments, but I wonder if the bar on Bigger Pockets is set to the level of “full time, pro investor” and that I’m being scared out of the market by warnings not to buy without at least coming close to the 2% rule.

If I buy a 3/2 house in the valley that pays for itself and cash flows just a little bit—and will allow me to pay PITI with 75% of rents, isn't that "good" in the long run?

Thanks.