CA - how are you guys achieving cash flow

[Aariff Kadar]

Hello investors in CA,

Just wondering, how are you guys getting cash flow after so much investment and most of the rent goes to mortagage itself.

I live in corona, average home price is $570K and rent will be approximate of $2700, if i do my calcualtion with taxes, mortage, insurance etc, for the 20% down, i get negative cash flow.

Am i missing anything here? Please let me know.

is investing in CA worth?

Aariff

[Dan H.]

Options for initial cash flow:

1. Value add that raises the rents and provides sweat equity.
2. STRs - especially self managed.
3. Off market SFR RE purchased at 70% ARV. This still may not cash flow.
4. Duplex to quad in working class areas at retail you can still find some that will have some cash flow (very little cash flow) or duplex to quad purchased a little below retail can have slightly better cash flow.  This is ideal to be combined with item 1 and/or 2.

We have used each of these to some degree (we never purchased as low as 70& ARV). We also do not self manage our STR units but they produce enough cash flow to pay for a PM which would be less the case for units purchased today.

Most Coastal So Cal investors are relying on Market and Rent appreciation. They purchase as a forecast negative cash flow with the belief that rents are rising fast enough that in a few years they will have positive cash flow and significant equity via market appreciation. Recently San Diego SFR rents had risen $500/month in the previous 3 years. This implies that if you purchased at the beginning of that window with projected $200 negative cash for that 3 years later you would be experiencing on the order of $300/month positive cash flow.

The issue is that last 7 or 8 years have been outstanding in terms of market and rent appreciation.  What are the odds it can continue?  I certainly would not project it continuing at that pace in any of my investment projections.  Therefore, expecting rent appreciation to turn a cash flow negative RE to cash flow positive could take a decade.

Therefore, we stay with items 1 through 4 above.

Good luck.