Is it possible? Cash flow rentals?

The declining property values and preponderance of foreclosures in certain areas of Los Angeles have produced an opportunity that has not been available for years: Cash Flow Rentals.


In certain parts of town, REOs can be purchased in bulk at levels that allow for homes to be purchased and rented at a price that cash flows – even after subtracting for expenses and professional property management.


For example, in the West San Fernando Valley, we are aware of investors who have been able to acquire homes in bulk for $250,000 or less in neighborhoods where the cheapest homes are selling for $400,000 or more.


A typical property might be purchased for $240,000 with $10,000 of fix-up costs. If the property appraises at $300,000, a 75% loan at 6% would work out to $1,750 per month including Principal, Interest, Taxes and Insurance. Home rentals in these areas are easily above $2,000.


Seldom in the recent history of Southern California have the rent-to-value ratio reached this kind of levels.


This would seem to indicate that the market may be near a bottom in some of these areas that have been flooded with foreclosures and where banks are parting with REOs at rock-bottom prices. However, there are still expected to be many more foreclosures coming onto the market yet this year, and the credit markets have still not solved their problems. Nonetheless, clearly savvy investors with the purchasing power of cash are starting to see some definite opportunities that have not been available for a long time.