BASICS: HOW TO KNOW IF THE DEAL MAKES SENSE

[Ken Rodriguez]

Hello all,

I am just starting and am eager start investing in rental properties. I have been wanting to do this for so long. I have so many questions, so here goes nothing:

1. Where do I get rental data (how much I can rent my property for)

2. What is the least amount I should be willing to take away monthly free and clear

3. How do I know what city/market make sense?

4. I relatively close to Sacramento, and its still relatively cheap anyone else in this market that has some insight?

Thanks in advance everyone. 

[Wes Blackwell]

@Ken Rodriguez

Here are the answers to your questions:

1) For rental data, use a multiple sources for rental estimates. Craigslist, Hotpads, Rentometer, and Zillow are great places to start. If you can't find anything you can always call several local apartment complexes and see what their offerings currently are, or if you REALLY wanna know just post a fake ad on Craigslist offering a rental in the area. See what kind of response you get. If nobody contacts you, rent is too high. If you get 50 emails in 4 hours, the rent is too low.

2) Ideally every month you get a little cash flow, but let's face it... even if you get $500 per month it's not like you can quit your day job or anything. What rental property is really about is retirement. Because even if you just break even, in 30 years you'll have a property paid off by someone else, that provides you income every month, and you can borrow against it or sell it if you ever need the cash, and if you fall on hard times you can always live in it. That's what's the game is really about when you're just starting. Every investor has a different requirement for the cash-flow.

3) To know if a market makes sense, you should talk with a local expert (aka Real Estate Agent). But not just any agent, as you'll soon realize that most agents have no idea what they're talking about and are more amateurs than professionals. A really good start for you would be to simply google "[CITY NAME] Real Estate" and read the first 10 pages of news articles about the market. That will put you ahead of 90% of agents out there, guaranteed. You'll want to know how hot the market is, what the projected rent and appreciation rates are, and the local job market and economy. 

For northern California, you should understand the massive migration trend we have heading out of the Bay Area and into the Central Valley. Millennials are finally realizing they'll never be able to buy in the Bay Area, and Boomers are realizing they can sell their San Jose home for $1.5 million cash and move inward to live like a king. That's a large part of the reason that Sacramento will be the #4 hottest metro market in the nation this year with a projected appreciation of 7.2% and an increase in sales growth of 4.9%, and will also be the #1 rental growth market in the nation with a 10% year on year increase this year, and a projected 8.5% next year in 2018. The same sort of growth will happen in Stockton and Fresno, just not to the same degree.

Here are some articles I've written here on BP about Sacramento and Stockton, and a list of the top 100 metro market nationwide for 2017 for other Northern California markets:

https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush

https://www.biggerpockets.com/forums/627/topics/424510-how-to-invest-in-stockton-ca---a-detailed-overview

http://research.realtor.com/2017-national-housing-forecast/

4) Sacramento is great for the reasons I mentioned above... we have a varied job market, a great local economy, and a massive migration pattern of Bay Area money into the city which is driving increased appreciation and rent growth. I would highly recommend considering a 2-4 unit multifamily property (duplex, triplex or fourplex) as you will still get the appreciation but see more cash-flow than a single family home. It's certainly not as great a time to buy as it would've been in between 2010-2012, but it's not like it's 2005-2006 either. We're still $50-75k below the previous peak and will surely pass it, so you've got a lot of appreciation still left to come.

Hopefully this information helps. Feel free to ask any follow-up questions or reach out if you need additional insight.