"California Dreamin"
CA market is disgusting. I've been looking for a deal with any kind of margin for 2 years...nothing. I finally found a 2/1 for a price that can max out rent just to meet mortgage. I can get into it for 0 down and minor fixes. I know seasoned investors here who are buying upside down for -100. a month, just to get in and make it back in a year or two. Everyone here is investing on appreciation only !! This area goes up about 8% a year. What do you thinK? 
Thought about buying outside the state?
This first invetment is going to be owner occupied financing. Can't do this beyond a certain radius of employment....or can i .....
If this is going to be your primary residence then go for it. It will work out just fine for you.
I want to rent it out after a period. Market rent will just pay mortgage. I really want to keep it as an appreciating investment. Bad idea? I've been waiting 2 years to move my a$$, but no margins in this are. I'm Mr. Too Careful.
Why margins are meaningless here:
.....2 years ago I saw a riverfront fixer (5K repairs) for 189K. Rent in the area would pay half the mortgage...Buried...Upside down. This year it sold
(as a fixer & more weathered) for 350 K . I could have eaten $600. for 24 months for a 15K . Sold the fixer today & Profit? 160K !! Welcome to the Golden State...Am I crazy to invest strictly in appreciation? I know nothing...More wine please.
LOVE THIS POST! Sometimes it is so hard to explain this crazy market! Where are you from Craig? I am from the Central Valley...just north of Modesto. A complete piece of sh*t duplex goes for about $170k and the total rent you could get for that duplex? A whopping $1200 TOTAL. My first duplex brought me a negative $200 cash flow each month. Stupid? I don't think so. Here's why....we expected it. We knew our numbers and could live with them. We put 10% down and got the money from a HELOC on our personal residence. But, owning that one duplex COMPLETELY ELIMINATED our tax liability. That brought us an additional $5,000 back on our taxes. Figure that in and, BINGO....there's your cash flow. That duplex appreciated $45k in 18 months. That's one side of the market.
Another side.....about 9 months after we bought that first duplex, we bought a 6 unit complex for $389k with seller financing if we put 15% down. Not a problem. Got a line of credit on our appreciating duplex to make the down payment on the 6-plex.....got a $1200 POSITIVE cash flow starting the first month. I found this property because I had a goal of making 25 phone calls per day on properties I found in the paper, internet, etc.
Bottom line - I don't believe a "negative" cash flow is necessarily a bad thing IF you expect it and IF you can afford it....especially if you have a job in another industry with W2 income and this is your first rental. The tax savings alone are well worth it. Also, there are deals out there. Sometimes in some markets they are a lot harder to find. Make sure you have your ducks in a row in regards to financing (find a private money lender!) because sometimes speed is more important to people than price......
[addsig]
I'm not in your market, but here are a couple of thoughts.
You may want to evaluate your methods.
Have you considered Options, sandwich lease options, flipping contracts, preforeclosures, rehabs?
Other investors are in cali making money. Hunt them down and start talking to them and figure out how they're doing it.
For those TCI-ers who are really interested in understanding what is going one foremost West and maybe somewhat South of your state, it is important to un-generalize the term "Cali market" because there is no such of thing. Move just 50Mi east of LA and the palms gets replaced with desert cactuses and dust in your face. Prices? Much cheaper the near the coast but if you want that you could have stayed in AZ or NV where dust up to your years is still cheaper then near ugly and slummy shoebox stile housing swamped West LA. Never the less, there on you can still find deals and talk some blue collar desert rat to give you the deed subject to and for the right buck it worth driving for dollars. Isn't it?
What you have in this most populous state are multi-regional markets reflecting different levels of desirability and their demographically unique characteristics.
Now, while I can't talk about Central Valley as well as dear Shirley can, I can tell you about COASTAL part of the So. Cali that is in the state of bigger and bigger mess in which apparently each and every 8th American lives from today till tomorrow, stresing out for the job, for the soulmate, partner and friend because the good old days of relaxing on the beach are long gone history. Welcome to modern arena in which the gladiators are "neither fed nor given water to drink". What I want to say is that in 50Mi radius, in 5 counties surrounding LA, 17 mill people eat, slips, drives, work, shoop,etc. and the number is climbing day after day with alarming rate while state have NO APPARENT PLAN how to deal with shortages of schools, water supply and other basic infrastructure that continues to deteriorate with the alarming rate. Just take for example our freeways which daily turns into parking lots and water supply into dry pipes that make Cali not so golden state any more. But the prices of real estate still going up because 1) the hope is that they will continue to grow fast indefinitely and 2) because there is no other investment let to consider. Falls but true. \
And if you are planing to start looking for a job out here, just forget about it before you start. With so many people competing for everything, including jobs, you might to look for the goat hunting job in Tijuana because it pays the same amount of our devaluated dollars as some computer engineering positions offers tghis days. However, if you are coming from other states to spend money your moms and pops gave you when they sold the farm, you are welcome. Our state budget is empty and among all the economist this state has, we got a body builder and pure actor Arnold Swarzy to fix it up.
Without getting into to many details, let me tell you about a single event that just happened to me today on a probate sale. A 2/1 SFR with a rear asbestos composed siding, 40 years old wallpaper and carpet out of hell that made me throw my shoes in trash got sold for $287K in CASH. The property is located in an ethnic intensive neighborhood that someone coming from a civilized city would not want to walk true.
Thy buyer sad he'll tear down the house and build the units (lot is about 6,000sft and is sandwiched with two other SFR-s) with subterranean parking which I know will cost him more then he can sell such property for. I cant say whats the game but they certainly had one in mind or will not pay the outrageous price for that little old property. I guess, we are all little "mad" out here. Aren't we?