Can You Earn Passive Income with a Rental Property in Orange County?
Passive income. Sounds nice, right? But is it actually possible to create passive income buying a rental property in today’s market?
I’ll lead with the punchline: yes, those opportunities are still out there. But it takes homework, realistic expectations, and patience for the right deal to line up with your goals. If you’re able to zoom out though and look at the bigger picture of investing in stable Southern California markets, that’s often where the real opportunity starts to show up. Stick with me and read to the end to see what I’m talking about.
Before we get there though, let’s focus on the main purpose of this newsletter: monthly rental income. It sounds simple. Find a good property, rent it out for more than your monthly costs, and boom — there’s your passive income. But I’m here to be honest with you, it’s not always that easy.
Let’s look at a real-life example, there's a condo that’s on the market right now in Trabuco Canyon, CA. It’s a 2-bedroom, 2-bath condo listed for $525,000. Maybe I can negotiate that down for us and we get it slightly under list price, but for simplicity, let’s say we decide to go in together and buy it for $525,000 in cash. That means no mortgage payment, which is nice. But we still have costs to plan for. We’ll have closing costs, which are often estimated around 2% to 5% of the purchase price. We also decide to put $20,000 more into the property to spruce it up and attract a strong tenant willing to pay $3,200 per month. From there, we need to account for vacancy, maintenance, repairs, taxes, insurance, HOAs, and property management. The costs can add up quickly. But because we did our homework and built in realistic expectations, the property still can produce a modest positive cash flow. Lets break that down:
The Property:
Property: 2-bedroom, 2-bath condo in Trabuco Canyon, CA
Cash Invested:
Purchase price: $525,000
Estimated closing costs: $18,375
Initial repairs/improvements: $20,000
Total cash basis: $563,375
Income:
Market rent: $3,200/month
Less 5% vacancy: $160/month
Effective Monthly Income: $3,040
Expenses:
HOA: $570/month
Property taxes: $464/month
Insurance: $175/month
Maintenance, repairs, and reserves: $833/month
Property management: $243/month
Total Monthly Operating Costs: $2,285
Estimated Cash Flow:
Effective monthly income: $3,040
Less monthly operating costs: $2,285
Estimated monthly cash flow: $755
Estimated annual cash flow: $9,060
So is that worth it? If you're interested in quick formulas and benchmarks investors use to judge these kind of deals please reach out. But the reality is it just depends on your goals. After seeing those numbers, some investors might say: “I’m not putting down over $525,000 to make about $9,060 per year — and that’s if everything goes as expected.” That’s a reasonable reaction. And there may be better monthly cash flow deals out there we should wait for. If you’re only looking at monthly cash flow, a lot of Southern California rental properties can feel tight.
But this is where investing in a place like Orange County gets interesting. Because the other major part of the equation is appreciation. Historically, many stable Southern California markets have rewarded long-term owners through rising property values. Not every year, and never in a perfect straight line, but over time, limited supply and strong demand have made ownership in these markets compelling for many investors. Let’s go back to our Trabuco Canyon condo example. Remember we bought the property for $525,000 and let’s assume it appreciated at an average of 5% (which is a historical actual by the way) — per year for 10 years. The formula would look like this:
$525,000 × (1.05)^10 = $855,110
That would give us an estimated future value of $855,110, which is an increase of about $330,110 from the original purchase price. Fun to think about, huh? That’s the bigger-picture I foreshadowed. Even if monthly cash flow is not massive, appreciation can become a major part of the long-term investment return. Rental income can help carry the property, and let time do the heavy lifting as your net worth grows.
Now, I want to be clear: these are projections, not guarantees. Markets fluctuate. Expenses change. Rents can move up or down. Appreciation is never promised. That’s why the homework matters. Before making any move, it’s important to understand the numbers, the risks, the location, the tenant demand, and the long-term strategy.
If you have questions, want to learn more, or are thinking about buying a rental property in the future, please reach out. I’m always happy to help you run the numbers and think it through. As always, no hard sell, guaranteed.
Best,
Peter Antone
DRE# 02425214