Finally in Contract

Buying & Selling Real Estate
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Finally in Contract

Chris Vail
Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes

Hello BP,

  I am happy to say that I finally have an accepted offer on my first rental property purchase.  This property will not conform to most of the rules out there in BP, however I feel it works for me and my situation out here in Sacramento.

I have had both the Wood destroying pest inspection (came back clean aside from a few dry rot locations which I already knew about), and a home inspection (also came back clean aside from some of the know issues before the inspection).

I am hoping some of the other Sacramento Investors / Landlords 

@Al Williamson , @David Hutson , @Dennis Lanni  can give me some insight into the forms that you use for tenant screening, leases, and general info on what you do to get a rental up and running in our Sacramento Market.  Also if there are any contractors that tend to be 

And a big thank you for all that have helped me in some way along the beggings of this journey. 

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David Hutson
Rental Property Investor · Tampa, FL · Member since 2013 · 404 posts · 421 votes
11y

@Chris Vail 

Congrats, great to hear you took the leap. 

I use the California Apartment Association forms.  Their packet has the applications, lease, and all of the addenda needed.  It's about $65 for a packet with two sets.  The packet has all the required forms for California and they have all had a legal review.  They also update the packet each year to add or subtract forms as needed.

As for contractors, your text cut off.  It looks like you may be looking for some.

I am like Dennis.  I slightly undercut rents or slightly overimprove my house with market rents and rarely raise rents unless the tenants give me a reason. 

No matter what you do ensure to screen the tenants thoroughly if you are doing the rent up yourself.  That is what will make or break you.  You need to search for great qualifying, long term tenants.  You can't always tell who those will be but if you take the time to screen them and discuss why they are moving, why are they wanting to live in your area, how long are they looking to stay in your home...... and the list goes on.  You can't discriminate but you can be very throrough and ask a lot of questions.

Message or call me if you have any questions.

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  • Dennis Lanni
    Investor · Sacramento, CA · Member since 2012 · 144 posts · 65 votes
    11y

    GOOD JOB CHRIS!!!

    @Brandon Turner wrote an awesome post (a little long but juicy) on tenant screening a few years ago, I loved it.  I am not the correct person to ask because I always under price my rentals by @ 10% & tell the renters to never call me up, pay the rent on time & the rent will never increase (I seriously do that).

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  • David Hutson
    Rental Property Investor · Tampa, FL · Member since 2013 · 404 posts · 421 votes
    11y

    @Chris Vail 

    Congrats, great to hear you took the leap. 

    I use the California Apartment Association forms.  Their packet has the applications, lease, and all of the addenda needed.  It's about $65 for a packet with two sets.  The packet has all the required forms for California and they have all had a legal review.  They also update the packet each year to add or subtract forms as needed.

    As for contractors, your text cut off.  It looks like you may be looking for some.

    I am like Dennis.  I slightly undercut rents or slightly overimprove my house with market rents and rarely raise rents unless the tenants give me a reason. 

    No matter what you do ensure to screen the tenants thoroughly if you are doing the rent up yourself.  That is what will make or break you.  You need to search for great qualifying, long term tenants.  You can't always tell who those will be but if you take the time to screen them and discuss why they are moving, why are they wanting to live in your area, how long are they looking to stay in your home...... and the list goes on.  You can't discriminate but you can be very throrough and ask a lot of questions.

    Message or call me if you have any questions.

    1Reply
  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    I totaly forgot to put in the details:

    SFH

    3 bed / 1.5 Bath

    1140 Sq Feet

    Contract Purchase Price 125,000

    Closing costs: ~4,000

    Budget allowed for fix up: 8,000 (seeking contractors that are investor friendly in the Sacramento Area if you know any) 

    Down Payment: 25,000

    All in costs: 37,000

    Expected rent: 1,200 per month

    Less Vacancy allowance: 1,100

    Income: 1,100 per month/ 13,200 per year

    Expenses:

    PM: 120 per month (even though I plan to self manage aka pay my self)

    Repairs and maintance: 120 (using 10% for now as I will have a sizable reserve set aside to start but there should be very little needed after fix up)

    Insurance: 63.75 per month

    Utilities: 0 (I plan to have all utilities paid by the tenant, water I will cover and bill back to tenant on the next months rent, looking for insight on this from other Sacramento landlords)

    Total Monthly expenses: 303.75

    Net Operating Income (NOI): 796.25 per month

    Debt Service (PI): 521.65 (100,000 @ 4.75% 30 years)

    Property taxes: 130.00 per month

    Net Cash flow: 144.60 per month / 1,735.20 per year 

    Plus PM Fees: 264.60 per month / 3,175.20 per year

    Estimated equity at purchase after initial fix up / rehab: ~75,000

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  • Al Williamson
    Rental Property Investor · Sacramento, CA · Member since 2011 · 2k+ posts · 1k+ votes
    11y

    @chris vail, Wow - pigs are flying somewhere!
    Good job. Go install a keybox right away - save yourself some headaches.

    You've already received some great advice regarding forms.

    No days I push rents and give the service to back it up.

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  • Sergey TkachevPro Member
    Investor, Agent, CPA · West Sacramento, CA · Member since 2009 · 706 posts · 262 votes
    11y

    Chris, congratulations!!

    Just curious, what kind of work does the property need? And I'm assuming you purchased it via the MLS - was it a bank owned property?

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Hello @Sergey Tkachev 

    Property needs new flooring, baseboards, minor drywall repairs,texture, scraped ceilings, paint (3 tone inside, celling, walls, and trim), updated light fixtures, general cleanup of the yard, replacement of some dry rot, and a redo of the kitchen (small kitchen).

    Some of the work I plan to do myself and that will ultimately depend on quotes I get back from folks on the work. I am putting together a full blown SOW, later today to get bids on, but the list above encompasses most of what needs to be done.  I could probably get away with doing less but I feel the repairs listed will allow me to rent the house faster and keep a tenant longer.

    This was purchased via the MLS, not bank owned but the family needed to get rid of the property due to family issues.

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  • Jeff Jamieson
    Rocklin CA · Member since 2013 · 88 posts · 12 votes
    11y

    Good job!

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  • Sergey TkachevPro Member
    Investor, Agent, CPA · West Sacramento, CA · Member since 2009 · 706 posts · 262 votes
    11y

    Awesome, that doesn't seem like too big of a job, it's pretty much the usual things that I take care of as well.  

    I agree with you on the fact that good repairs will help the unit rent faster and keep the tenants longer.  I have a tendency to over-repair and I'm trying to balance that, but I'd rather over repair than under repair as I do find that it's so much easier to find a good renter quicker, especially when your unit is better than what the competition is offering, it will definitely stand out.

    Let me know if you end up purchasing flooring, cabinets, etc yourself, I can suggest some  places I've used so that you don't pay more than you have to for the material.  I usually pick the material myself and just have someone do the labor, in most cases.

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Just got word and recording happens tomorrow, meaning keys will be in hand tomorrow!!!! I will post pictures of the house in a new thread and keep up with the process of the rehab and will update when available all the way through renting out the unit (form the eyes of a first timer of course).

    Lessons learned through the offer process and closing:

    A good Title and Escrow company is a must. 

     My agent and I went with the sellers title and escrow company and it was not a pleasant experience, waiting days for someone to get back to you and when they do not having the right or full information you asked for makes you waste your time on following up with them when you could be putting that time to other endeavors.  

    Fees, fees, and more fees

    I underestimated the amount of fees that were associated with closing that are outside of the fees listed on the C.A.R. form.  When we had seller paying 50/50 for escrow (Page 2 section 4 c.) I didn't realize that this is only for the "Escrow Fee" and not related to all of the fees associated with the "Escrow Fee" (messenger fee, loan tie in fee, wire fee, electronic document fee).  The same thing for Title on our contract we had the seller paying 100% for the owners title policy, which apparently covers the title policy but not all of the fees associated with said policy (Mortgage recording fee, Endorsement Fee, Messenger Fee, Sub Escrow Fee, Mobile Notary fee).  I am not sure how this could have been avoided in the future (on the C.A.R. we had everything as the sellers responsibility 100% except for the escrow fee being 50/50) but this is something that I will look into on the next deal.  Maybe having something that state seller will put 2k or 3k towards additional closing costs, I am not sure but something to look into before the next deal for sure.

    Agent commission

    Seeing what my agent will get as his piece (which I am happy he is getting) makes me think about getting my license for the next deal. As this is money that I am potentially leaving on the table not to mention the benefit of having MLS access and being able to put offers in my self. This is not a must have for the future but it does bring to light the possibilities of one deal easily paying for what ever time it would take to get the license.

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Link to the Rehab process: http://www.biggerpockets.com/forums/522/topics/161157-first-rehab-to-rent-property

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  • Justin C.
    Rental Property Investor · NW, PA · Member since 2014 · 174 posts · 39 votes
    11y

    Hi Chris, what is your total repair costs projected to be?  just curious... thanks!

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