Primary Residence / Rental Property Advice (Sacramento)

[Scott Doyen]

Hello BP Community, 

Situation: I am a young tech professional. My gf is applying to nursing school and we think she will start somewhere in the Sacramento Area in about 6-12 months. It is generally a 2-2.5 year program. Now this means that if she is indeed in the Sac area then I will be here for a fact at minimum 2-3 more years. After that, I say it's 50 50. I've committed to myself that I want to get into Real Estate sooner rather than later ("it's not about timing the market, but time in the market"). So I see 3 options:

1) By the time she starts, I should have enough money (with additional reserves) to put a conventional 20% down on a property between 300-350K. I don't really like the duplexes around here for my Primary Residence as they usually are not very nice, and even so to get a good one they are 400-500K. So we want a Single Family Home. At 350K, I've calculated my mortgage, interest, Property Tax, and insurance totals around $1700 which is identical to my Rent currently (gf would help me, but I could also afford on my own if I had to). Naturally this makes sense for a long term Primary Residence; however, also according to my calculations, these properties would have a hard time renting for $2400 (conservative breakeven w/property mgmt) if I up and moved somewhere else. They generally rent for around $1900 currently from my estimate, but including rent appreciation in the 2-3 years I live there, maybe $2100 if I were to leave (still unknown). Maybe I put some sweat equity into it? I know they say never take on an investment that doesn't cash flow, but if this means I get into real estate earlier and for 3 years am paying myself (equity) not paying rent, is it worth it? On the average, I calculate $100-300 negative cash flow out of my pocket if I were to move, which I could afford, but still... 

To sum it up:

-> Buy 350k house in solid school district. 

-> Pay $1700 in M+I+T+I => same as my current rent (a plus)

-> Live in it for ~3 years (worst case)

- > Rent out after 3rd year. Slight negative cash flow for 2-5 years. (a con)

2) I've looked a lot into Turnkey & Out Of State REI and while many people do not advise it, the coasts make it hard to get into Real Estate passively. I still plan to do my due diligence (no REI is truly passive), but I see much better returns even with paying a premium. I wouldn't look for tremendous cash flow but more focused on solid investments in B class neighborhoods. I'd have to rent though (that's fine) & just save on the side for my primary residence down the road when I know where I will settle down. Most people I know have told me to invest where you know or not at all until you are truly ready, but I think I'm pretty diligent & data driven when it comes to investing. I would fly to the area to meet the providers, I would make sure the properties aren't in war zones (even if the cash flow looks great), I would manage the property managers, I would hire 3rd party inspectors, look intensely at school districts, industry, crime, etc.

3) Wait until I know where I am going to be for a long time. 

Thanks all for reading. All advice is welcomed, but no solicitors please :)