I was hoping for some advice on where to begin in realistic expectations for the Sacramento area. Clearly the 2% and 50% rule are tough to find in CA and even Sacramento, so in order to not turn EVERY property away, I need to know what I CAN find that is a good deal.
Given that 25% down on a 200,000 SFH in Sacramento would exhaust all of my investment capital, is this the smart place to put my money? Especially when the 2% rule is more like the .8 - 1% rule here, and that is considered good?
Is it wise to put all of my current investment capital into a property that will yield neutral cash flow assuming I buy right and can keep it occupied without lapse?
The upside to that risk is that I would be banking on appreciation and later increasing rents, and after all that sounds better then sitting on my money for 5 years until the next market cycle. But that can also be dangerous.
I would love to do multi family in Sacramento but those seem even more difficult to find, not to mention that I would have to raise additional money to get one.
Given that others seem to be having problems finding deals in this area also (just my view of things from the forums), out of state investing towards the middle of the country seems very appealing, especially when I see people talking about 25K a unit. But as a noobie out of state seems a bit daunting and an easy way to get into trouble.
In all fairness I have not established a relationship with many brokers or wholesalers in the area, nor have I established a good network yet, so I cannot give up before I really even begin right!
I am simply looking for guidance on where to start directing my efforts and training my brain given the economic landscape. Thanks for any advice you can give me!
Hello @Tyler Haskell ,
To answer your question simply would be this... You will have to decide what your expectations will be, as no one will (or should) be able to state what your standard should be. Now that being said I can give you what I am currently looking for in Sacramento, which is a SFH investment where I am making at a minimum of 7% return on the cash I have invested. Have I found it yet, no, but I contiune to look and will continue to do so.
I am speaking from someone that was asking the same questions 4 months ago and realized at the end of the day it didn't matter what was a good deal to someone else if it wasn't a good deal in my eyes then its an investment I shouldn't make regardless of what someone else is saying. Might be time to really look at what you want to get out of a REI and ask your self "What would you be happy with?" If you can answer that question truthfully to your self then you will know what your criteria for an investment will be. And remember this is a marathon, not a sprint.
I would recommend that you first develop an investment model. The model should take into account your Inputs (time and money), what Actions do you perform with those inputs (look for properties, submit offers, earnest money, loan deposits, referral fees, etc.) and your expected Outcomes (property value increase, cash flow, and profit). A typical model may look like this (very simple version):
- 20 hours per week for the next 3 months
- $10K cash
- Enter into agreements with Bird Dogs to look for properties for me ($1K for each deal I close)
- Spend 5 hours/week contacting members of my team (Bird Dogs, realtors, title companies, friends and family) to locate properties
- Spend 5 hours/week making offers on properties
- Spend 5 hours/week working deals to find buyers for my properties
- Spend 5 hours/week negotiation wholesale deals between sellers and buyers
- $100 - $2,000 earnest money for each purchase contract
- $5,000 towards the actual purchase of a property per month
- Enter into 5 purchase contracts per month
- Assign 4 purchase contracts per month for at least $5,000 each
- Complete 1 property purchase per month to buy and hold and generate positive cash flow of 10% per year
This is a very basic sample of a real estate investment mode for Wholesaling (and I threw in the buy and hold for fun). You would use an Excel file to develop your actual model (there are many real estate investment templates online and on this site.) In 2003-2005 I developed a model for purchasing pre-construction homes to flip upon completion. My model required $10K, a FICO score of 640 and I could double your money in 6 months with only $3K risk of the $10K. I did this model for two friends. One turned $10K into $25K in 4 months and the other turned $12K into $50K in 6 months. I doubt that model will work now (required 100% financing, which was easy back then), but I hope you understand the concept.
God Bless you!
@Chris Vail I appreciate your comments. The more I read about REI and BP forums, the more I see that there really are no rules and no "right way" to do anything. Its about creativity, acting on opportunity, and making your own way to success with the help of others. Your point about me being satisfied with the return is true, because in some markets depending on condition you have to tweak your criteria and your expected ROI. Your last sentence is also something I personally have a hard time taking into account; this is a marathon not a sprint. My personality is to obsess over a goal, live it every day all day, and become good at it really quickly. But then I also need to see the results fast as well. Real estate is something that without patience can get me into a lot of trouble. Good luck on your search as well, Im sure we will find what we are looking for eventually!
@Michael Evans Thank you so much for the reply! While I realized that I need to build an investment model that took into account financial inputs and outputs, I had never considered that I need to factor in other resources, such as my time per week. This ties into what was said about this being a marathon, and can help me to budget my time better. I also like your approach to dividing that time into specific meetings and goals per week!
After more thought, I will take a look at narrowing down my criteria more, determine what kind of yearly cash return on my money I will feel good about, and then develop an action plan to expand my network, and find a systematic repeatable approach to looking for deals to match the criteria. I may even delve into some direct mail and see how that goes.
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