The high income tax and property taxes or the high price to rent ratio. 

There has been too much of that lately with people too excited about the short term rental "loophole", resulting in bad investments just to save a few bucks in tax.I have a ready solution - say you sold a rental property for $1m, then you can just pay me $1m in fees to talk about it, and you are at net $0 of income ;)

Malibu allows it but requires a 15% "hotel tax" on the gross revenue.I would recommend looking out of state or underwrite the property as a long term rental in the event laws change.

My plan is to reinvest the most of the income back into the property until I'm satisfied with its condition and then start putting away for a downpayment for another income property - since that one will require 10-20% down.

Hi Jay, Using equity from your home is a great way to start, there are many programs especially for investors that will not require any personal income documents or using a DTI to qualify you.

Do they want consistent stable income?

During all those years he had a lot of expenses, but no income on that deal....and those kinds of deals usually evaluate several sites, and it could have just as easily disappeared.Residential....I would argue that there is always a market. 

DSCR loans qualify the property based on the income-to-expenses ratio.

@Marco Silva data: population growth, job growth, housing supply, landlord friendly laws, purchase price, anticipated rehab cost, property tax rates, insurance cost, is insurance cost rising quickly, expected rent, rate of rent growth, can someone with the median income afford the rent, diversification of the economy, quality of local schools, crime rates, is the property next door a dump, how many other people are bidding on the property, is there a Starbucks nearby, is there a grocery store nearby, are there multiple property managers nearby in case one fails.There's so many ways to find deals, to name a few: MLS, wholesalers, foreclosure auction, tax sale auction, doing your own marketing through a bunch of different channels like direct mail.

My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth.