Sacramento rentals too competitive?

42 Replies

I am trying to acquire a rental property for long term cash flow in Sacramento area but getting frustrated with all the cash buyers on rentals.

I'm doing conventional loan. So far, I'm not having luck as my last two offers:
180k - seller took cash offer of 200k
300k - seller took cash offer Of 340k
And same for two other properties.

Two questions:

What are some good areas for rentals in Sacramento area? I have been looking downtown/midtown/Tahoe park/North oak park.

More importantly, I have heard I can help other investors by partnering with them instead of competing with them on deals. I have sizable cash down payment so I am open to that approach as well. Does anyone have any local contacts for this?

I agree. I have been looking for a house hacking opportunity in Sacramento since July. Just yesterday I lost out on a duplex to a broker investor who paid $50k over asking with 50% down but was willing to pay all cash if the deal doesn't close in 30 days. My final offer was $30K over asking with 20% down. I was the best non-flip offer by miles and it still didn't happen. Seems like investors believe the arena is going to magically create appreciation. Feels like there may be more opportunities for a deal after it opens and the market restabilizes. 

i agree with you. I will be looking for a rental early next year and from what i see so far, i might be looking at similar returns in other parts of california. Maybe partnering up to buy bigger complexes may be better. I have been here for six months now, and i love the town.But it is definitely not worth buying a house in a decent neighborhood for 350k and collect 1700 rent. I think i can get that in s ca. 

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Thank you for the feedback guys. Hopefully some more Sacramento investors chime in - may be there is some secret sauce that we don't have.

What areas have you been looking at?

Midtown, Tahoe Park, Carmichael, the Pocket, some Land Park. I have pretty much learned a little bit about every neighborhood in Sacramento by driving/riding my bicycle by during different times of the day/night, touring homes. and talking to neighbors and other home owners. 

I have noticed that inventory has been stagnant since about October. Hopefully the Spring brings us all more opportunity to "shop"!

I purchased one in natomas last year and thats been good to me but the prices have gone up in the neighborhood there so it is no longer as attractive. I am looking for a not so ghetto neighborhood and so far, i might be able to find something in arden arcade (not as ghetto as south oak park in my opinion).  I been living in arden arcade and its been alriight.

Hi Guys,

I am just starting to look at Investment properties in Sacramento Area. I know many folks from Bay area like me are grabbing up investment properties, and making offers over asking price.  Keeping the appreciation aside, what do you think about the returns?

Its good to know about the areas where fellow investors are looking at. I should drive up during the holidays and make myself familiar with these neighbourhoods.

@Minka Sha  

  not sure if this scenario helps.. I just started in that market 10 days ago and I will be closing a property on Tuesday.. Of course its cash  and its a fix and flip. And I don't live there I just back locals that fix and flip  ( I am the money)

Maybe to be competitive  someone like me buys the asset for cash quick close for you rehab it and then purchase it from someone like me.. of course there is a cost to this but it may be less than  the over bid situations your getting into...

@Minka Sha  Can you talk a little about how long you have been looking, how many offers you've submitted, and what return/criteria you are looking for?

I would not be discouraged if you've submitted 5 offers and been outbid on each.  Finding the right deal takes time, and it pays to be patient and stick to your criteria (so long as it's not completely out of line with what the market can provide).

I look at 100 houses over the span of 6 months and made numerous offers before I found my duplex in west oak park. I was beat out by cash buyers, people who were over paying, and etc, but I kept writing offers and eventually I found something. Stick to your criteria, and don't quit.

Everyone's investment criteria, market time frame, and financial situation is different. there isn't really an "average time" one should wait before you find a deal. Everyone's different.

Stick with it!

Citrus Heights, Orangevale, Fair Oaks or old town Roseville near Amtrak..

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Thank you for the areas and replies. This is useful information. I have not looked at Orangevale or Antelope area but I have asked my agent to start searching that area as well. 

@Dennis Lanni - I took a look at North Highlands the other day. Some decent cash flow properties there but the growth in equity and the super-hood feel of the area is a concern.

@Jake Weir - In general, I am interested in properties which are:

  • $100 or more cash flow per unit. Exception to this rule is a property in downtown, where I can move in and rent the other units
  • Price below $425k
  • Rent is More or less 0.75-1% of the listed price

@Minka Sha  I looked at probably 30-40 properties and made offers on 15-20 before I got the one I am working on renovating right now, and I did conventional financing.  Most of my offers I got told were to low and to up them if I wanted to compete, and I just told them the price I offered is my best unless they want to give me a counter offer.  It took me 6 months of looking and offers before I got one.  Just because you have money to spend doesn't mean you will get the property (this is how I felt), it can be discouraging but anything worth having is worth working / waiting to get.

Congratulations @Chris Vail. Thank you for sharing your offer timing experiences. I have made 5 offers so far, for my last property it took me 11 offers before I got one. Let's see where I'm on 11th offer.

Persistence is the key. You may have to look at 10s if not 100s of properties to find the right opportunity. Not sure if you listen to BP Podcast. Josh & Brandon are always recommending to expand search area within hour away. For Sacramento that could include Marysville/Yuba City, Woodland, Auburn, Lodi/Stockton, Shingle Springs. This allows for local investing but still manageable. If the numbers are good it doesn't matter if it is next door or next town from you. 

It sounds like you are in your ballpark with your offers.  I would stick with your process of producing a number for the offer, since it seems that the outputs are reasonable.  

Maybe increase your search area, or maybe it is just a matter of continuing what you are doing.

Are you working with any wholesalers?  You might try contacting owners of recently expired listings?  If they still want to sell, they may be willing to be more flexible on price - especially if they no longer have to pay an agent.

@Minka Sha  I have done thousands of transactions in the Sacramento area, and this is very common.  However, it looks like your biggest issue is offering too low.  If I am reading your email correctly, you offered $180K and someone else offered $200K cash.  I always pay cash and this allows you to usually buy cheaper.  Typically your cash buyers are not going to over-pay for a home.  For this reason, I am guessing the home was actually worth at least $200K.  If a seller has 2 offers, one cash and one who is using a loan, they will almost always take the cash if the prices are the same.  

Let me ask a better question.  Why are you wanting to buy these homes?  Is it because you want to make them rentals for a long period time, because you want to flip them, or some other reason?   I would also ask what zip codes in Sacramento they were in. I know almost every zip code in the Sacramento area, and some are better than others for flipping and also for rentals.

Originally posted by @David Oldenburg :

@Minka Sha I have done thousands of transactions in the Sacramento area, and this is very common.  However, it looks like your biggest issue is offering too low.  If I am reading your email correctly, you offered $180K and someone else offered $200K cash.  I always pay cash and this allows you to usually buy cheaper.  Typically your cash buyers are not going to over-pay for a home.  For this reason, I am guessing the home was actually worth at least $200K.  If a seller has 2 offers, one cash and one who is using a loan, they will almost always take the cash if the prices are the same.  

Let me ask a better question.  Why are you wanting to buy these homes?  Is it because you want to make them rentals for a long period time, because you want to flip them, or some other reason?   I would also ask what zip codes in Sacramento they were in. I know almost every zip code in the Sacramento area, and some are better than others for flipping and also for rentals.

 Thank you for the reply. Long term rentals with positive cash flow of at least 100 per door. What areas or zip codes do you recommend?