How do people make the numbers work in Southern CA?

[Michelle Mapp]

We recently moved to Southern CA. I wanted to get an FHA loan, put 5% down and purchase a multi-family in Pasadena, CA.

I broke out my spreadsheets and WOW - I can't seem to make any scenario actually work, even to break even.   How do people make multi families in this market work?  I am not looking for a ton of cash flow from this property but, I keep coming up with negative numbers.  Now perhaps some of my assumptions are off:  

Variable cost assumptions 

• I built it property management at 10% as even if we want to manage it the first 2 years, after that I would want to outsource this bit 
• vacancy rate:  4% 
• repairs and maintenance:  5% 
• cap ex: 5% 
• landscaping:  4.5%  (assuming that there will be some land maintenance)

Fixed costs assumptions 

• property tax at 1.5% of initial cost 
• insurance at roughly 3%  of rental income 

In terms of total price I used the FHA max numbers and also compared to current MLS listings. Mortgage would be FHA max minus 5% and closing costs.

I am not sure how anyone is buying these with negative cash flow?  Are people buying off market, foreclosures, negotiating down?  Or in order to make these break even you need a larger downpayment.  

Any insight would be greatly appreciated.  :)