How should I invest for first investment property in Sacramento?

[Jon Mo]

Hi BP community!

I'm currently actively looking for a rental property in the Sacramento area. I grew up in the Peninsula portion of the Bay Area and it's too outpriced here to invest locally. I was just in escrow for an SFR that I just backed out of in the North Natomas region of Sacramento. I offered $510k which was accepted; asking was $495k and appraisal is about $540k. Once my lender was able to get back with all the accurate numbers for total monthly payment, and with how much the rents for similar properties were going for, I calculated a negative cashflow of -$600/mo to -$800/mo depending on if I rented the house for $2600/mo to $2800/mo. Total Monthly payment is estimated to be $3420/mo.

I went into escrow as my original calculations were only reflecting a negative cashflow of $-200/mo to -$400/mo.  I am now locked into a 30-year fixed interest rate until mid-July and did not consider a ~$120/mo quote for mandatory flood insurance.  Because of this, the negativity has increased too much to be comfortable paying for the next couple of years.  This property is right across from a nice government funded park and elementary school, in an up and coming part of North Natomas.  I was banking on the appreciation, and was willing to own this property with zero or slightly negative cashflow, but not at the expense of -$800/mo!  The numbers aren't even accounting for vacancies and maintenance.

I'm trying to stay below $500k purchase price for this first investment property. I've found a lender that is willing to do up to 95/5 LTV. Do you recommend I buy an SFR, duplex, or Condo? My goal would be to be able to buy a second rental property in 1-2 years.

Thank you for reading and your advice is much appreciated!

Sincerely,

Jon