A tale of two Properties. Which is better investment?

[Martin Lim]

I know there are many factors that determine "a good deal".  Recently came across two very different San Diego properties.  And as a noobie, wasn't clear which is a better choice. Was wondering what everyone though of them. Which would you pick to invest in?

Property #1- 2Bed 1 Bath good neighborhood.
- Condo in decent neighborhood
- Schools rated 9 & 10
- Popular area for families
- Comparable houses in area are 3-4x the cost
- Cash flow is close to 0
- Price and rent will steadily go up with time. So will start to cash flow steadily each year.
- Built in 1980's some minor repairs. But looks solid.

Property #2 - Duplex (2bed 1 bath each)
- Duplex in a poor area, next to small airport
- Schools are decent, but not stellar
- Instant cash flow of about $400 a month.
- Zillow trend shows appreciation close to inflation, very slow.
- Built in 1960's, so might be hidden repairs.

[Dan H.]

Are these in San Diego?  Did you use the 50% rule to double check cash flow projections?  I am skeptical of both cash flow projections if in San Diego and skeptical of the prop 2 appreciation (it would have to be long term positive) if it is in San Diego.

Condos have an additional risk that the HOA in some way limits rentals. There is a certain control that is reduced for condos. In addition, when purchasing a condo it is important to verify cap ex reserves. If they do not have any you are likely buying into a complex that is expecting to provide their owners supplemental bills for all large cap ex charges (I know someone who recently got one to replace all the windows in the complex).

In general, I will take appreciation over initial cash flow for any long term hold.  So if prop 1 was not a condo, it would be my clear choice.  

Good luck