Investment Potential for Riverside.. use rental income to pay for irvine rent.

I'm exploring some possibilities outside orange county as a good potential for investment... Seems that some of the newer <15yrs homes are running around the 250k mark for around 2000 sqft... These typically rent for about 1700-1800 a month.



I understand that mortgages need a sizable down payment to go thru. Making this as objective as possible, from a cash flow perspective, interest only + property tax on a $250k home, if set at 7% comes out to $1450 per month (with the appropriate down payment figured in, its probably 1100ish)..



With rent being in the neighborhood of $1700-1800, the numbers sound pretty enticing. I'm thinking that $50k can be put down for the investment property, then using the rent income to rent something in Irvine.



One of my relatives have an investment property over in riverside. Aside from taking a huge bath on the home's value, the rent prices seem to be holding steady. And if another property with similar specs was purchased, it feels like a good move.



And with this business idea, I was wondering if anyone has advice or insight, on socioeconomic factors that might not be very obvious. Assuming that the neighborhood/school area is decent, seems like it would work. Oh by the way, how do we calculate rental parity again? I have a hard time searching for this number.
 
http://www.irvinehousingblog.com/calculator/



Run your numbers through there and see what your actual cash required is going to be. I'm not dissing your idea offhand, clearly there are investors snapping up properties that are cash flow positive in the lower end areas. But they also have the benefit of knowing what they are doing and have years of landlord experience. Living off the rent, in Irvine, doesn't seem feasible with just one property.
 
I appreciate your being straightforward.. and of course, I would be crazy if I can put $50k down on ONE property in riverside and expect that to pay my rent. At most it would be $200-300 monthly cash flow positive situation, and at +$200 a month on $50k its still ~4.8% return without considering a potential 5-10 year return.



With the calculator, total cost of ownership is $1125/mo with a initial outlay of $77k (maybe 64k if we squeeze it to 3 months of vacancy). + $125/mo for property management fee = $1250... Rent for $1750 = $500 positive cash flow each month... comes out to 7.7% which is higher than my estimate above, haha.



Looking at the investor/competition situation, my relatives have maintained a rental property for 4 yrs now, with friends there I'm very familiar with the area. They've recently signed on with a fairly reputable property management company, and depends on how the property rents and maintains, a better picture will show up soon.



Of course there can be the <$150k homes but I'm not interested in being a slum lord, the evictions/squatters will drive me absolutely nuts.
 
Don't know about the Corona rental situation. Does your calculation include vacancy? Not initial vacancy, turnover vacancy? Lost rent? Repairs? Keep in mind the IE's unemployment rate is really high. With a single property, you may get lucky and get of good tenant, or you may not.



On the East side of Costa Mesa, I know there are number of lower end rentals, 2/1s or 2/2 townhomes that have been sitting empty for months. Not one, not two, but May, March, etc. There's a 2/2 townhome with a 1 car garage, carport and it's been empty since March. It's not a slum. Nor is the rent high. But it sits.



and sits.



I'll also have to go back and double check a house. Seems like it's sign has been up a while too, but I'm not sure. The townhomes, that I'm positive about, I remember looking at the for rent sign and price when it came on the market in March. still up. still empty.
 
Yeah, its the socioeconomic factor I'm inquiring about.... riverside county. Trying to differentiate the unemployment rate between white vs blue collar, etc etc etc. I don't know how the pre-screening method can be to prevent it from being discriminatory or against the law, but i think that some homework needs to be done.



My relatives tenant just had to be evicted... they were in there for 4 years and over the last year the payments started falling habitually behind. Last straw was pulled when the tenant admitted they are not looking for a job because unemployment checks are "almost as high as the job".



Vacancy calculation, not so much... $200-300 of positive cash flow every month means the place can stay empty for about 1.5 months a year without going negative.



The inland empire is definitely a bit different... cash flows seem to make sense, but we'd have to factor in the fact that there are many more squatters out there than Irvine :)
 
$1750 X 12 = $21,000 X 75% = $15,750



$1250 X 12 = $15,000 - $15,750 = $750 net annual return. (Depreciation and tax benefits not included. Speak to a tax professional before any RE investments, and don't be surprised when those benefits don't add up to much.)



Rent in Irvine = $2250 X 12 = $27,000 in annual rent.



That means you would need to buy 36 properties to cover your annual rent, and $1,800,000 for down payments to cover your rent. Or a 1.5% annual return on your investment of $1.8M.



You can find better deals than that in OC. Plus, I have heard mostly horror stories of tenants in the 909.
 
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