Real estate investor · San Jose, CA · Member since 2014 · 5 posts · 1 vote
Hello,
My son is looking to purchase his first rental investment property. He lives in the Bay Area and is looking to buy a positive cash flow single family house (at 20% down). Would it be be best to look in California (Sacramento area, Central Valley) or to look out of state? What are your thoughts?
Thank you ahead of time for your insights.
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@Steve G. it really depends on if your son is comfortable managing and owning out of state for his first investment property. You can find positive cash flow properties in Sac and surrounding areas but can also find them in other parts of the country. Rents around downtown and midtown are on the rise because of the new arena and gentrification. But there is still the low hanging fruit surrounding sac that could make for a good investment. Also depends how much your son was looking to spend. $200k might only get him into a C neighborhood here.
@Ramsey Kheshen feel free to message me with what kind of property you're looking at as I work in the Sac area.
@Steve G. it really depends on if your son is comfortable managing and owning out of state for his first investment property. You can find positive cash flow properties in Sac and surrounding areas but can also find them in other parts of the country. Rents around downtown and midtown are on the rise because of the new arena and gentrification. But there is still the low hanging fruit surrounding sac that could make for a good investment. Also depends how much your son was looking to spend. $200k might only get him into a C neighborhood here.
@Ramsey Kheshen feel free to message me with what kind of property you're looking at as I work in the Sac area.
@steve g It is getting tougher now to get positive cash flow in the Sacramento area. Here is an example of a 4br 2ba house for sale on birchwood cir. citrus heights, ca 95621.
price is 224k possible rental income of 1400 per month. payment with 20% down of 45k give you a piti payment of $1260.0. That is $140.0 per month not including price of property manager and water,sewer bill.
@Ramsey Kheshenthis is a long shot but I listed a 8 unit complex here with seller financing that you could take a look at.
Hey Steve! Yay for your son getting into investing :) How old is he?
As far as whether to buy around his area or out-of-state, it completely depends on his goals. If he is solely in it for the monthly cash flow aspect, out-of-state is going to be his better bet. The returns, in terms of monthly cash flow, are much higher and at much lower entry prices. Positive monthly cash flow is very difficult most places in CA, and even if you do find somewhere that gives you marginal positive cash flow, CA has a lot of tenant-friendly laws that can very quickly cost your son a ton of money with one bad tenant and wipe out what little cash flow he was getting.
Now, however, CA is a lot better on the appreciation front. So if he is more concerned with building equity in a property and looking at cash flow that way, then CA may be the better bet. It's riskier, because most likely he'll be losing money each month waiting on the appreciation, but it is a strategy option.
What is his budget for purchasing? That alone may be a determiner for whether he sticks with CA or goes out-of-state.
@steve g It is getting tougher now to get positive cash flow in the Sacramento area. Here is an example of a 4br 2ba house for sale on birchwood cir. citrus heights, ca 95621.
price is 224k possible rental income of 1400 per month. payment with 20% down of 45k give you a piti payment of $1260.0. That is $140.0 per month not including price of property manager and water,sewer bill.
@Ramsey Kheshenthis is a long shot but I listed a 8 unit complex here with seller financing that you could take a look at.
I actually drove by that property on Birchwood about a month and a half ago. That property is much cheaper that other houses of it's type on the citrus heights market, but it's on a very bad street. Lots of chain link fences, 4-6 or more cars parked in front of each house on the street, best house on a bad street. It also backs right up to a very busy part of antelope road and does not have a sound-retaining wall behind it (like the surround neighborhoods off antelope), but a standard wooden fence. I would compare the houses on that street to a standard North Highlands neighborhood. C, maybe even a D grade. I absolutely agree with you that cash flow is tough in this town now.
It really depends on your sons goals. Is he looking strictly for cash flow, appreciation? California is a beautiful area, however the houses are very expensive. For the price of 1 house in CA you could buy 4 houses is the Midwest, however, the downfall is he will have to use a property management firm which would be 8% of the rental income.
Good luck on his first investment property!
Steve G. I am a young new investor and live in San Jose. I would love to invest close to home but don't have the hard cash to get into something in the Bay Area as everything is to expensive for me. I simply can not afford the downpayment and they will not cash flow enough for me. Most scenarios I run for the bay area shows no cash flow. If I could I would invest here for appreciation but then again I am worried prices may drop soon as they have skyrocketed like crazy over the past 2 years.
All that said I invest out of state in Indianapolis and Birmingham where you can get a cash flowing property for around $10k down financed and cash flow $150-200/month. It's risky and takes select people to partner with as your boots on the ground but can be done. It's just not as easy as people think.
First and foremost you need to focus on areas for investment where you are most comfortable with. Check out with in 2-3 hour driving radius for any market with positive cashflow. I know CA is not positive cash flow market. If nothing within 2-3hr radius, expand your search further and switch 2-3 driving equation to flying radius that will land you in many cash flow markets like Kansas city/Indiana/Ohio etc. lot of opportunities there but before you jump in, zero in on a market and start researching as much as you can about macro economy/population growth/jobs/neighborhoods etc, network with other fellow investors and take feedback about their investing experience in that specific market. This is what I would focus on first before digging any further.
Central valley is bit spotty because of our drought. Sacramento I think has some potential. Look for investments near colleges and universities in those area, That way he will know there is demand.. But me cautious with those numbers has students are not always year round and can be hard on the properties.
where in Sacramento are you, and what is the address of the property?
Thanks, Ramsey
Hey Ramsey, the property is on:
6916 birchwood cir, Citrus Heights CA 95621.
Check it out, PM me if you'd like to exchange analyses. It would only be moderately attractive to me at an extremely lowball price. It doesn't appear as if the seller is dying to get rid of it, based on how many times it's been listed (overpriced every time) and removed in the last 6 years.