All Forum Posts by: Matthew G.

The heart of this question is the tolerance with different investor strategies regarding positive cash flow vs. appreciation potential.

This scenario is probably more common in California due to the difficulty in cash flow real estate. Thanks BP in advance for your insights.

Owner of SFH in Orange county CA. is looking to purchase new primary residence in the $1.9-2-3M range and rent existing property. Funds are available for down payment on new property.

Current comparable rents for existing property are around $3-3,400/month.

Current mortgage balance is $535K giving a monthly payment incl tax/ins. of $3,644. Mortgage is at 4% APR. Current equity is 40%

Options to consider:

1. Keep mortgage as is and rent the home with a negative cash flow of aprox --$244/month not including maintenance costs. (Note the property is in excellent condition and was just completely remodeled.)

2. Pay $114k down on mortgage to equal $417k (max conforming loan balance) with money currently allocated for down payment for now home. Refinance at $4.25% (higher than original loan rate). This would yield a monthly mortgage payment with tax/ins of $2974 and subsequently a $426/month cash flow if rented in the above scenario.

Further discussion:

In option 1 the owner will pay approximately $83K over the life of the loan due to the negative cash flow. This assuming the rent stays the same for 30 years which I will obviously change. The total interest paid over the life of the 4% loan will be $372k. Total loan cost principle and int for the life of the loan is $906k.

In option 2 the owner would make approximately $153K over the life of the loan but need to pay in $114K now. The total interest paid on the higher 4.25% on the loan would be $322k. This scenario would also require the owner to wait at least 6 more months before purchasing new home to replenish the $114k for the down payment. Even though the interest rate is higher the amount paid over the life of the loan because of the lower balance is $50k less then option 1. Total loan cost principle and int for the life of the loan is $738k.

The question is that because homes appropriate better in so cal and the rents are consistent, would it be acceptable to some investors on this forum to keep the current mortgage the same with a small negative cash flow but lower interest? Or it is better to pay down loan to max conforming, delaying purchase of new home and refinancing at a higher interest rate for a small cash flow?

Bottom line is it worth spending $114k and taking a higher interest rate to avoid a small neg cash flow on a property in an area that shows high appreciation values compare to the rest of the country.

Thanks again in advance and if any other investors see another option I'm all ears.

I'm looking to rent my primary residence and purchase a larger home. Becasue the home has a pool I'm wondering if anyone has a sfr with a pool in california and if there is any advice on how to structure the lease agreement regarding tenate responsibility. I was thinking of offering use of the pool if they agreed to pay for half of the service fee or not allowing use at all?

Any ideas or thoughts would be appreshiated.

Welcome @Clint Kreider

I'm a newbie from Huntington beach looking for my first MFR deal. Good to see a fellow so cal investor. I'm also looking for cash flow but havent abandoned the idea of buying here.

Thanks @Joshua McGinnis

You are right. I corrected my website address. I'm not completely opposed to buying in Boston as I'm originally form up state NY but I wonder if there are good markets a little closer to California.

@Jon Klaus

You are right about the appreciation. What I'm also seeing as a main challenge is regarding cash out refinances. Purchasing a $1.2M 4 unit property even with 40% down in most instances still will not cash flow. So I would be totally dependent on appreciation which could be ok in certain situations. However based on what I'm hearing from most mortgage brokers is that a cash out refinance on a property like that requires a 60% LTV which essentially ties up most of the equity that would normally be pulled out for another purchase. That's at least what I'm finding in my infant research stages. Herd to start that way if you can't pull your equity out in a few years and still cash flow.

Hello BP Community,

I'm a new investor looking for my first deal. I'm interested in 4-10 unit multi family properties that have below market rents and may need some rehab. I am a successful business owner and am blessed to have the opportunity to limit my time at the office and spend 1-2 days per week on investing.

I have not decided if I am going to invest out of state however I'm moving that way as I research properties here in So Cal and notice normal real estate methods do not apply due to the high cost. I'm a hands on guy and would love my first investment to be close but am not opposed to buying out of state and hiring a PM company to run the property.

I'm looking to network with so cal investors that are actively investing here in so cal that would like volunteer help or additional down payment money on an investment.

I'm looking for so cal investors that are actively investing out of state and can give me contacts to professionals that can educate me on market conditions, point me in the right direction regarding different cities, and facilitate purchases.

I'm glad I stumbled onto this sight and look forward to learning and sharing with the community.

I'd like to go. From Huntington Beach and have open schedule.

First off I'm a newbie.

I'm searching on loopnet for MFP 4-6 units in Orange County in the $1-$1.5M range. It appears that even when I'm reviewing the pro formas for properties within a quarter mile of each other the cap rates are very different (up to 2% difference at times).

I'm trying to do some pre due diligence before I consider contacting the seller and ask for rent rolls etc. but it appears these brokers are just adjusting the Cap Rates to justify their asking price.

Further for most of these properties I'm seeing when I calculate loan payments for the year with 25% down I'm not even close to cash flowing.

Am I missing something?

Is investing in orange county strictly based on speculative appreciation of the property in lieu of 60% down payment to cash flow?

Maybe I should look for a larger property in a better market in another state? However since I live in So Cal I wanted to purchase my first REI property close.

Any thoughts? Anyone have solid ideas on how to find accurate cap rates? I want to value the property myself based on prior performance but clearly need to understand how these rate fluctuate so much.

Thanks