San Francisco, CA · Member since 2016 · 34 posts · 8 votes
Hey fellow investors!
I'm a new investor living in San Francisco, but am looking to purchase my first investment property in the Sacramento metro area. I'm looking at SFH and duplexes at this point, but would be open up to four-plexes since the lending criteria is around the same. I'm also open to paying cash, too, but only if it makes a competitive offer.
I've been perusing the main listing sites (redfin, realtor.com, zillow) as well as getting some listings from my agent. I know the Sac market is hot right now, which is why most of the numbers I'm crunching aren't really green in my analysis: I'm looking for 10%+ CoC and CF of $300+.
I've been using the following estimates for my calcs and am looking for some help validating the assumptions or reel me in where I'm way off base. Any feedback would be much appreciated!
Large CapEx - 8%
HOI - 0.25%
CA LLC - $80/mo
Prop Taxes - 1.25%
Prop Mgmt - 8%
Vacancy Rate - 8%
Maintenance/minor repair - 8%
Have I missed any key estimates and/or how do the %'s and $ values look? How are my CoC and CF requirements? These were numbers I put down on paper, but I've been seeing some rates close to 8% with my estimates, but not with the $300+ CF. Also, I know that the LLC price is the minimum I'm liable for and will also decrease as more properties are added, but for now, it would only be one LLC in the property.
"Sacramento" is pretty broad. I tend to break it into several broad areas. I'll give my take as someone who has lived in the area my whole life and has spent a few years trying to break into the investment/rental market.
The city itself. I don't even go there anymore. :-) It seems pretty specialized and is not what I'm used to. Pretty urban, dense, with lots of older houses and fairly large multi-family. Weird, big-city politics that I don't pay attention to. Arena deals, mayor scandals, etc. So many distractions.
North of the city - mainly Natomas. It's an odd area. It was over-built, then construction completely stopped. It was hit HARD in the crash.
The north-east - North of 80 between Natomas and Roseville. Some potential warzone areas out there. Some of it is not an area I like to drive through, let alone buy in.
Roseville/Rocklin - Another over-built area, hit hard in the crash. It seems to have recovered pretty well. Construction has started up again, but prices on exiting homes still haven't made it back to where they were at the peak. Interestingly, some neighborhoods out there made mass-conversions to investment/rentals during the downturn because their value went down so much. We lived in one and it was eerie to watch foreclosure signs going up by the truckload.
Folsom - HOT rental market, but it's hard to buy something to rent out.
Rancho Cordova - an interesting mix of borderline-warzone (between the river and hwy 50) and new stuff (south of 50). It includes some fairly new, but quite inexpensive developments that somehow went from straight from brand new to looking like 20-year-old rentals. The south-of-50 market is something I'd actually like to explore more, myself. Overall, the city has really gotten its sh!t together in the last 10-15 years and seems to be on the right track for the future.
The middle - Carmichael, Fair Oaks, Orangevale, and Citrus Heights have a mix of everything from old, run-down houses to fully-custom mansions. There are lots of pockets of this and that, but in general the area seems like a pretty good mid-range rental market.
West Sac - once you cross the river, you're in a different city, but you can still see Sacramento. It's pretty small, but worth looking at. Just make sure you remember it's not technically Sacramento. It's not even the same county. But, they have a baseball stadium and an Ikea, so that's pretty cool. The top employers are the state and UPS/USPS, so probably a solid long-term rental market.
The south - I'm not too familiar with things west of Rancho and south of the city of Sacramento. Pocket/Greenhaven is older and most seems like pretty low-income. Elk Grove/Laguna was another overbuilt market crash victim. It might have been the worst in the area, but I haven't watched it very closely. I heard they're making a comeback, too.
So, to your original question, we pay sewer and garbage at our rentals. Tenants pay electricity, water, and gas. Water can be a big deal. Our SFR has BIG lawns and it's not cheap to keep it green.
@Samir Pathak Welcome - those numbers look in the right range to me. What about Utilities or do you plan on having tenant cover all utilities? I'm also a new investor from San Francisco looking in Sacramento and outlying areas, we should connect.
@Account Closed From what I've been seeing on listings, it seems that the tenants are covering the utilities. I'll analyze those on a case-by-case basis.
It would be safe to add in water/sewer/garbage. If the tenant pays anything other than rent it's mostly only gas and electric. And your vacancy rate will definitely vary depending on where the property is so it could be 5-8%
Thanks @Derek Jones! I'm slowly starting to get up to speed on neighborhood ratings virtually (will be visiting later this month to get an in-person feel for them). I realize they will vary on a block-by-block basis, but any recommendations on those to absolutely stay away from?
1.i t depends on the property management company but when there is a vacancy generally they charge 1 month rent for filling up tennat.not sure which part of sac area you are looking but keep some legal fees in the mind as well
2 have you considered umberella insurance instead of llc until you have handful properties? Talk to more experts.
For the neighborhood search you need to create parameters like this much income and this much crime you can tolerate. Take zip code and than try to compare with the area you already know.
It's great that you're starting your REI career with a solid understanding of how to actually calculate whether a deal is good or not. Keep that up!
I would second @Rahul Bhatt's comment because the risk/reward for paying LLCs fees (and CPA fees when doing taxes) with only 1 investment property. Insurance at this point is likely enough.
Also, as usual @Derek Jones is spot on re: water/sewer/garbage. Tenants do not normally pay this and it runs about $280 for a duplex in the City of Sacramento (versus unincorporated parts of the County of Sacramento).
Personally, I would stay away from North Sacramento/Natomas, parts of Central to South Oak Park, and South Sacramento. Otherwise, Sacramento is very neighborhood specific. Don't be afraid to look at Lincoln and other similar areas "just" outside of Sacramento. Good luck on your search!
Good luck, @Samir Pathak! Sacramento is a great market right now and only heating up. Think there are a lot of great opportunities there.
On the utilities side, I've generally seen owners cover gardening services as well. That seems to be somewhat standard to Sac. Just another thing you may want to add in to your calculations.
Best of luck! Let me know if I can be helpful! Happy to connect.
lincoln is a bit over priced right now & highly unlikely you will find anything that will return much (if any) coc per month. There are a few duplexes that come up, as there arent many here in the first place. Rocklin actually has quite a few duplex/halfplexes that may work better than lincoln right now
I found a 4 plex. Analyzing it now in south sac/oak park area.
Love the neighborhood and the potential. I'd strongly consider "house hacking" it. Can go FHA but would be open to crowdfunding/private lending if the numbers work better (no PMI). Property is for about 350k.
Trying to go over all my options.
Hey @Samir Pathak - I remember you from last week's meetup! I've been looking a little bit at Sacramento as well. Don't know if I would buy in this environment, but would definitely be up for a drive up in about a month's time to get the lay of the land.
"Sacramento" is pretty broad. I tend to break it into several broad areas. I'll give my take as someone who has lived in the area my whole life and has spent a few years trying to break into the investment/rental market.
The city itself. I don't even go there anymore. :-) It seems pretty specialized and is not what I'm used to. Pretty urban, dense, with lots of older houses and fairly large multi-family. Weird, big-city politics that I don't pay attention to. Arena deals, mayor scandals, etc. So many distractions.
North of the city - mainly Natomas. It's an odd area. It was over-built, then construction completely stopped. It was hit HARD in the crash.
The north-east - North of 80 between Natomas and Roseville. Some potential warzone areas out there. Some of it is not an area I like to drive through, let alone buy in.
Roseville/Rocklin - Another over-built area, hit hard in the crash. It seems to have recovered pretty well. Construction has started up again, but prices on exiting homes still haven't made it back to where they were at the peak. Interestingly, some neighborhoods out there made mass-conversions to investment/rentals during the downturn because their value went down so much. We lived in one and it was eerie to watch foreclosure signs going up by the truckload.
Folsom - HOT rental market, but it's hard to buy something to rent out.
Rancho Cordova - an interesting mix of borderline-warzone (between the river and hwy 50) and new stuff (south of 50). It includes some fairly new, but quite inexpensive developments that somehow went from straight from brand new to looking like 20-year-old rentals. The south-of-50 market is something I'd actually like to explore more, myself. Overall, the city has really gotten its sh!t together in the last 10-15 years and seems to be on the right track for the future.
The middle - Carmichael, Fair Oaks, Orangevale, and Citrus Heights have a mix of everything from old, run-down houses to fully-custom mansions. There are lots of pockets of this and that, but in general the area seems like a pretty good mid-range rental market.
West Sac - once you cross the river, you're in a different city, but you can still see Sacramento. It's pretty small, but worth looking at. Just make sure you remember it's not technically Sacramento. It's not even the same county. But, they have a baseball stadium and an Ikea, so that's pretty cool. The top employers are the state and UPS/USPS, so probably a solid long-term rental market.
The south - I'm not too familiar with things west of Rancho and south of the city of Sacramento. Pocket/Greenhaven is older and most seems like pretty low-income. Elk Grove/Laguna was another overbuilt market crash victim. It might have been the worst in the area, but I haven't watched it very closely. I heard they're making a comeback, too.
So, to your original question, we pay sewer and garbage at our rentals. Tenants pay electricity, water, and gas. Water can be a big deal. Our SFR has BIG lawns and it's not cheap to keep it green.
@Harman N. - yup, that's me. It was my first one so I didn't know what to expect. Definitely looking forward to the next one! Since we are both in sf, we should grab coffee and chat.
@Jeremy Brown - that was insanely helpful!! I will definitely be using that as input during my tour. Are you solely SFRs or do you have MFH as well?
Flat rate charged for 2 units w/n the city. That number is literally my bill so is not an estimate. It will increase every July 1 for a few years, per a recently passed ordinance.
Those are great estimates. Mine are similar but I like that you added your LLC costs and Large expenses. I only have one expense number large and small so I think I'll change mine.
Fire insurance is one which has to be paid even if you have LLC.
@Samir Pathak, Welcome to BP! I would reiterate what others said about utilities. Most owners cover garbage and sewage because they want to ensure those get paid to avoid liens on the property. Water is often charged back to the tenants to encourage responsibility of use. I manage and own properties and live in the South area of Sacramento and also am familiar with Rosemont/Rancho Cordova area. There are some nice areas and pockets here that are in a working class poor zone but not the war zone. If you are looking in the B+, A- areas it will be hard to cash flow them since we are in a hot market right now. PM me if you have any specific questions about a particular neighborhood or rental comps in these areas.
We own a duplex in Sacramento County and it averages $285 every two months. There is also an assessment fee for $15 per unit once a year to pay for the County Rental Housing Self Inspection Program. Prior to purchasing any property, I ask for copies of recent utility bills so 1) You know the owner is current and in good standing and 2) You can assess your costs for that expense.
@Samir Pathak, welcome to BP and it's great to see you take serious steps towards finding your first property. I'll concur with what others said about sewer and trash - expect to pay it. In West Sacramento, the water is included on the sewer and trash bill, although I've found it to be less with water in West Sac than just sewer and trash in Sacramento county. Utilities is something many investors brush over and don't take into account as well as they should (I was making that mistake initially) - after all, if you are looking for $300/mo cashflow and you underestimate the utilities, they have a potential of wiping a majority of that CF out.
Keep in mind that whether you have an LLC or hold properties in your name, you still need insurance. The LLC may give you more privacy and separate you from the property but you still have liability issues, it is not full proof. It is definitely good to have once you start building your portfolio with more properties.
@Jeremy Brown and others gave a pretty good summary of the areas, although there are always good pockets in bad areas and bad pockets in good areas. Geographic/investment location also has a tint of preference to it so not all people will agree on what are the best/worst area to invest in. So keep an open mind and analyze as much as you can. Wish you much success!
@Sergey Tkachev - thanks for confirming! From the properties I'm seeing so far, the numbers aren't really working out (rents aren't keeping up with the appreciation of the homes), but nobody said finding a deal was easy. =)
Try http://www.SacramentoAppraisalBlog.com. There might be some rental data there and the appraiser who runs it might be able to help you with a value range for specific neighborhoods.
Hi Samir and Martin -I am also looking into investing in Sacramento. Please let send me a quick message if you want to connect and search opportunities together.