New Investor, tough decision.

[Isaiah Lopez]

Hello BP Members! I am very new in my pursuit of becoming a RE investor. I am in the military, 24 years old married and have 2 young children. Because of this I often find myself trying to be very conservative. However about 1 year ago I decided to get over it and start looking for my first property. My goal is to own a fairly decent size portfolio, absolutely no less then 5 units in the next 5 years. I feel like this is a very fair/ conservative number after seeing many BP members doing this amount in their first few months. I was living in San Diego Ca and only had 8,000 saved up. I then got ahold of a mortgage broker and he let me know i would have to use a VA loan which wouldn't require any down payment, only closing costs. But I would have to live in the property. I ended up getting pre-approved for 400,000. At this point I was extremely excited to jump right in but at the time the market was moving very fast. Nothing in a decent area was close to my price range. After a few months with no luck I decided to extend my search north to the Temecula area. I did not have any structure to what I was buying. I just wanted to get in and start paying principle on a property, instead of throwing away rent money. So after getting out bid multiple times I finally got accepted to a nice 3 bed 2 bath 1150 sqft single family house with a 5700 sqft lot for 315,000. My savings pretty much went to closing costs and I was in on my first house. This was early July, 2016. Since then I found out I will be moving to North Carolina. My initial plan was to rent this house using a property manager if I ever moved. This has came sooner then I anticipated. The good news is the properties in North Carolina are extremely cheap compared to those of Southern California. Everyone I have talked to from there says they make good rentals but their property continues to depreciate. After looking online at other single family homes same size in Temecula , the rent is between 1600-1800. My mortgage and PMI however add up to 1950. Most local management companies I have found charge 50% first months rent when getting a new tenant and 100 per month there-after. If I was to sell it (looking at other listings) I could put it up for maybe 330,000 like other comps. But with that closing costs and taxes would likely take any gains. So I know most likely I will be paying out of pocket. I do believe that property in this area appreciates very well and will hopefully continue. So my question is should I keep the property in Temecula as a rental and look forward for the appreciation and hopefully paying it down over the years. Or should I sell it and possibly look for wiser investments in a cheaper market. Also when I move which will be soon. Should I look to buying another property and living in it or should I play it safe and just rent. Doing this is the only way I can comfortably afford getting into another property. Until i can start looking into possibly multi-family homes or build a good track record with a bank. Please if anyone can give feed back, I could use all the advice available. I am very open to learn and would love to hear what everyone thinks of my current situation. Thank you very much reading. Respectfully, Isaiah.

[Dan H.]

I am an advocate of So Cal RE investing but I suggest you sell. I would not purchase that property as an investment.  Those who are stating this unit will result in a little negative cash flow do not have a good concept of  rental expenses including cap expenses.  If your mortgage includes escrow for taxes and insurance the negative cash flow will be $150 to $350 (rent differential) + $160 vacancy (5% vacancy ($80) + 50% of $1600 every 20 months ($80/month)) + $100 maintenance + $250 cap expense.  I show negative cash flow of $660 to $860 each month.  That is bleeding cash.  

Recent appreciation in So Cal have easily exceeded this amount but I would not want to rely on such appreciation.   If you were slightly cash negative that would be different.  However with this negative cash flow you need decent appreciation just to have your investment returns be even.  

So this advocate of So Cal RE investment is strongly encouraging you to get out.  This property, as a rental, could literally bankrupt you.  

Good luck