He takes ample time to expand on his thoughts of why this or that is the right thinking. I've been in the business 11 years and I can learn things from him!
If your only thought is cash flow, yes cheaper is often better. However, if you eventually move away from the area and become an absentee landlord, the premium for the better neighborhood may be be worth the trade off in piece of mind about the property having good tenants, becoming vacant or vandalized. etc.
2nd. There are parts of North Natomas that are cheap, okay for owner occupants or renters, and not in the flood Zone.. Check out parts of 95838 that are north of Main. East of Carl Hansen Park Streets with names like Delta Leaf, Mint leaf, Copper Leaf, and Amber Leaf and Fire Leaf.. I would do the street address search *Leaf.
Drive that neighborhood. If you don't like it, then give up on finding any single family detached home under $125,000 that you would like.
4th; If you want to stay down near the magic $125,000 but want a better neighborhood, then think condo or townhouse. North Natomas is blessed with an ample abundance of resale condos right now. A competitive market to be sure, but you can win a bid with the biggest wallet.
Most of the Investors I work with prefer to to stay away from Natomas because of the added cost of flood insurance. You can find out what flood zone a home is in before you make an offer. You will get better cash flow in areas like South Sacramento. Investors seem to target a minimum of 1% of the acquisition cost for rent and anything above that is considered good. It's not likely that you will get that return in Natomas. If you are going to consider moving there first then you may consider homes built between 2002 and 2006 - you will find the best values in Natomas, Elk Grove, and Anatolia - these areas were hit very hard with foreclosures with some homes losing 60% of their value or more. When investors think long term they usually focus on cash flow and buying two properties with better cash flow might make the most sense. If you are familiar with Excel I can send you my Investor Analysis - just plug in your assumptions and it calculates everything from ROI and to Debt Service Coverage if you are using a mortgage.
With housing prices so low and money still so cheap (i.e. interest rates are low), you can buy a house about anywhere and rent it out. The key is you have to find a neighborhood that you and your hubby will be happy living for the next couple of years before you turn it into a rental. That said, the real key, in my humble opinion, is to pick an agent you trust and start exploring areas through investor-glasses. Virtually any area in Sacramento County is fair game for renting, so I would first consider where you feel most comfortable living.
While most people are saying housing prices will not rise for many, many years, I just had Howard Blum, an international economist, on an interview and he says in Sacramento housing prices are at their very lowest and will rise in the next 2 years. You can listen to the podcast if you like. Being educated is your best bet, so good for you for reaching out and asking questions! http://www.InLoveWithSacto.com.
Second, with a little homework you can figure out what rents are going for in any area (email me I can help) but for the most part a solid estimate is that if the home costs more than $150k it will not pencil. Based on current interest rates of a minimum of 6% (probably closer to 7%) for non-owner occupied it cost about $600 per month per $100k. I am sure you will get lotâ€™s of opinions but I am conservative.
Having said all this, I would concentrate on lower end homes less than $125k (after repairs) and they will typically pencil, but they may not be want you want to live in? Be conservative and you will make money. Feel free to email any additional questions.