Why Hemet and not Temecula/Murrieta/Menifee?

So why wouldn't I recommend investing in newer, nicer areas like Temecula, Murrieta, and Manifee? It's simply a numbers game. The homes are twice as expensive and the rents only 33% higher. In addition, there are fewer older homes that can be purchased dirt cheap. These other cities have mostly newer, larger homes that rarely price below $175K for a single family 3 bedroom, 2 bath house. However, Hemet, has far more older and smaller homes built in the 1980's and late 1970's that are pricing for $50-$90K. That's right! Insanely cheap prices due to the fact that so many foreclosures have hit Hemet and many of these homes are in need of rehab work! Some of the homes a in really bad shape and some are just cosmetic fixers.

For example when searching on the MLS for homes with 3 bedrooms+ and 2 baths+ priced between $50K-$90K and comparing rental prices for 3 bed/2bath SFR, results are:

*From MLS actives, 3 bedrooms+, 2 baths+, SFR detached homes between $50K-$90K

**craigslist rentals based on asking prices for the 7 days (3/18-3/23). Condos, townhomes and apartments excluded in average.

The rental price comparison among these neighboring cities demonstrate that there is more potential cash flow properties in Hemet. Perris is a close second but it is a much smaller town and the rental inventory (and demand) is less than half that of Hemet’s. In addition, Perris homes tend to be more expensive because there are more newer homes there compared to older homes. More detailed research in Hemet also indicates that a newer 3 bedroom home given the same square footage does not price much differently than an older home. Renters are very price sensitive will not pay more to live in a newer home. I know one investor in Hemet that purchased a newer investment home on the West side paying over $130K for the house. Then he tried to price higher ($1,400) than the older East side homes and was unsuccessful in getting stable tenants. He had to eventually lower to $1,195 to get it rented. I also know another investor who purchased an East side REO with 3 bedrooms for $65K, rehabbed it for another $5K, and was able to find good tenants within 4 weeks at $1,250. After taxes, insurance, and considering repairs and vacancy of 25%, he still has a cap rate of over 11%.

The second scenario is what I would recommend to a cash flow investor. Sure, you have an older house in need of TLC, but you will get a huge return on your money!