Should we sell 1 in CA to buy 2 in NM?

[Chris Pelley]

A little back history. We purchased our first home in 2012 in CA. It was our primary residence, and when the military moved me to NM it became a rental for us. This of course like so many people got us interested in owning more rental properties.

So the question is, do we keep our one home in CA or do we sell it in order to buy two in NM that cash flow better? The military doesn't pay that well so saving up money for a down payment will take us 3 years, which by then we will be moving again. The hope is to get some different properties that will help expedite more purchases in the future.

The CA house - We purchased it for $157,000 out the door with zero down on a USDA loan. It is located in a medium size rural town north of Los Angela's close to Edwards AFB and a huge wind energy area. This is a great town, with a great community. It is in a very desirable neighborhood near the high school. The huge positive on this property is the home is very well built (1991), had many of the big ticket items replaced by the bank before sale (new AC, paint, floors, etc.), and is in an area that will continue to get better and will be desirable for a long time. When we departed in Aug we rented it very quickly for $1400 a month. A quick breakdown, we have an NOI of $10,734 per year, and a mortgage that costs 8725 per year. So we clear about $200 a month in positive cash flow. Looking at the market we can probably sell for $200,000 in Aug when our lease ends with the tenant, which would give us about $35000 to re-invest post sale.

The NM homes - I have been doing a lot of looking and I think I have found what we want to buy in NM. You can buy SF 3/2 homes in a semi-desirable part on Albuquerque (ABQ) for about $100,000. In ABQ there are a lot of rougher areas which I am trying to avoid. My goal is to find a home that you can get a longer term tenant, but is at a reasonable value, so it doesn't have to be the best neighborhood in town. These are newer 2000+ homes, but probably a little on the smaller side, like 1300 sf. Using one of the many calculation sheets on BP I have come up with the following numbers. Putting a 20% down payment, the NOI would be $7,760 with an annual mortgage of $4,864. This is with a $1,000 a month rent. This comes out to a monthly cash flow of about $240 a month. This is for a single property, so if I can get 2 in the next year, that will put me up to $480 a month, which is much better than my CA home does. I will have to come up with some more money out of pocket as my "profit" from the CA home will be a little short, but we have enough money set aside to cover this.

So with the two examples, here are my thoughts, and I wanted to make sure I'm not missing something. The goal as stated above is to garnish more cash flow per month, so we can use this to fuel more investment property down the road. We are subscribed to a buy and hold process and we like using property managers so we can be as hands off as possible (within reason). So my concerns are this: The CA property is in such a great community, and is such a quality home that I am of the strong opinion that this house will continue to produce positive results for us. It will have its maintenance needs, but it is a very great condition, was built very well, and won't need a lot of attention. Plus we should have longer term tenants in their constantly, and shouldn't ever have problems finding new ones when needed. The ABQ area however is very different. The city as a whole has a very large low income population. Even the nicer areas of town just don't compare to the part of CA my home is located in. The areas I am looking (based on my price ranges) are decent, and should draw younger professionals and younger families from the military base and surounding industry out here (Intel factory, Lockheed, etc. are all out here). My fear is that I am going to trade my security I have in my CA home for cash flow, and may end up in a worse position, especially once we move again in the next 3-4 years. With our inexperience we are really just trying to understand how much we should be concerned about taking on some additional risk (two properties with mx on both and the area) for the additional cash flow. We are leaning very heavily towards taking the plunge and converting our CA real estate to NM, but I wanted to see if we could get some opinions before we have to start making moves in the coming months. Thank you very much for reading and for any advice!!!