Northern Cali - 12 unit for 600k?

29 Replies

I'm fairly new to RE investing. Have been looking for MF properties for almost a year now. There just doesn't seem to be any within 200-300 miles which would seem like good investments. I've tried the 50% or 2% rule and there's really nothing around. Here is a scenario, let me know if it makes sense? I'm in Northern California.

Sales price = $600k for 12 units. Would put 30% down.

Monthly total rent = $8160

The seller has low expenses and I've seen the actual number, but doesn't mean future expenses will be the same.

Is the grass greener on the other side of the fence? http://www.paragon-re.com/Bay_Area_Apartment_Building_Market So at $50,000 per door what do condo's in the same area sell for? SFR's?

Maybe instead of giving up on SF give up the 50% and 2% rule of thumb and work with local rules of thumb.

Haven't really looked at condos, but SFR which are in decent areas and 3bd are between $120-150k and rents around $1000 monthly. An investor just bought a house around the corner from where I live for $230k and could only get $1300 in rent. Don't see how they'd make any cash flow.

Originally posted by @Tou V. :
Haven't really looked at condos, but SFR which are in decent areas and 3bd are between $120-150k and rents around $1000 monthly. An investor just bought a house around the corner from where I live for $230k and could only get $1300 in rent. Don't see how they'd make any cash flow.

So who's renting $50,000 apts. for almost $700 when they can get a three bedroom SFH for $1,000? Is a 6.1 GRM common for the area?

The seller's expenses won't be your expenses in the long run, so I recommend throwing them out and coming up with a new set of numbers based upon how you would operate the asset. Maybe you can get them lower, but you may also find that what you're seeing is artificially low for any number of reasons.

Originally posted by @Bob Bowling:
Originally posted by @Tou V.:
Haven't really looked at condos, but SFR which are in decent areas and 3bd are between $120-150k and rents around $1000 monthly. An investor just bought a house around the corner from where I live for $230k and could only get $1300 in rent. Don't see how they'd make any cash flow.

So who's renting $50,000 apts. for almost $700 when they can get a three bedroom SFH for $1,000? Is a 6.1 GRM common for the area?

There are lots of people who would rather pay $700 for a nice 2bd apts, then $1000 for a 3bd house. The $700 normally includes garbage / water paid for by owner. The $1000 3bd house, the renter usually pays additional $150 for water / garbage. As for GRM, it really depends on the property. There's a bunch with GRM of 8 - 9 for sale. I just don't see how any real investor can make money. Yes, there's appreciation, but you can't always count on that.

Originally posted by @John Souerbry:
The seller's expenses won't be your expenses in the long run, so I recommend throwing them out and coming up with a new set of numbers based upon how you would operate the asset. Maybe you can get them lower, but you may also find that what you're seeing is artificially low for any number of reasons.

I'm not even going to use the seller's current expenses, because I know it's not sustainable. He's working too hard to keep his costs down. Such as doing most repairs himself and managing the property. I'd have to outsource those items. Just wondering if it's a good deal. $600k for 12 units, which is currently fully occupied and rents for $8160 monthly.

You didn't answer my question. I wanted the demographic that was paying $700 for a (nice) $50,000 apt. Is that achievable within a few hundred miles of SF? There may well be demand but as a landlord I want to know WHO my tenants will likely be. Too many new investors buy crap and are astonished when their tenants aren't upper middle class.

Tou V. are you looking in SF or in the Stockton/Sacramento area? I don't think others reading your post realize that SF is 80 miles away and a totally different market.

Originally posted by @John Souerbry:
Tou V. are you looking in SF or in the Stockton/Sacramento area? I don't think others reading your post realize that SF is 80 miles away and a totally different market.

He said he was looking 200-300 miles away from the Bay Area.

Originally posted by @John Souerbry:
Tou V. are you looking in SF or in the Stockton/Sacramento area? I don't think others reading your post realize that SF is 80 miles away and a totally different market.

I'm looking in the Sacramento / Stockton and surrounding areas. Within 200-300 miles away is doable. Yes, SF is 80 miles away, but anything east of Livermore is way too expensive.

@Tou V.

You need to figure out if the market will bear out the rents currently charged. If the answer is yes, then this deal is worth looking farther into.

I would find out exactly how much the following expense are going to cost you each month. "The tenant pays" is a good answer as well. Put those numbers up here and I'll tell you what I would pay for the place.

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

Originally posted by @Bob Bowling:
You didn't answer my question. I wanted the demographic that was paying $700 for a (nice) $50,000 apt. Is that achievable within a few hundred miles of SF? There may well be demand but as a landlord I want to know WHO my tenants will likely be. Too many new investors buy crap and are astonished when their tenants aren't upper middle class.

There are many 2bd apts which rents for $700 all over Sacramento / Stockton. As for demographic, probably not upper middle class. Just average working people who needs a place to live.

Tou V.

I am actually buying rentals in the same area Greater SF up to Sacramento and i have no problem to find 50k-85k unit renting for $850-$1200. Not sure where you are looking for but i average $300-$400/month positive cashflow on each of my units. (20% down & ~5%). I developed my network and most of my deals are reference from Realtors.

The last one i bought was last week!

a lot of people in this market say there's nothing available, but if you dig deeper and ask how they've searched, it's not very "deep" searching. Loopnet, Realtor.com, Internet search, etc.

I haven't tried "deeper" searching myself so I might be way off base here, but it's just something I've noticed from a few conversations.

Originally posted by @Aaron Montague :
@Tou V.

You need to figure out if the market will bear out the rents currently charged. If the answer is yes, then this deal is worth looking farther into.

I would find out exactly how much the following expense are going to cost you each month. "The tenant pays" is a good answer as well. Put those numbers up here and I'll tell you what I would pay for the place.

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

Current taxes = $9000 (Would change depending on new purchase price). Same owner for 17 yrs.

Sewer / Water / Trash= $800 monthly for whole complex

Insurance = $3000 yr

Utilities = each unit has separate meter - paid by tenant

No HOA

Cap Ex and Ops = currently $10000 yearly, because owner does everything. I'd be getting it under PM.

Vacancy = none in last 2 yrs, but use average % to be safe.

Originally posted by @Pierre Belanger :
Tou V.

I am actually buying rentals in the same area Greater SF up to Sacramento and i have no problem to find 50k-85k unit renting for $850-$1200. Not sure where you are looking for but i average $300-$400/month positive cashflow on each of my units. (20% down & ~5%). I developed my network and most of my deals are reference from Realtors.

The last one i bought was last week!

Yikes!! If you've been able to recently purchase units for 50k-85k and have them rent for $850-$1200, then you must have insider info or a really great network to get such low prices. Everything on the MLS that's decent is $120k or up and these would only rent for $1000. At $120k, with 20% down, leaving a loan of $96k @ 5%, payments would be $515 + 200 (taxes / ins) = $715. That's not even including other expenses an fees. Every time I do the numbers, it's always cutting it slim, too slim.

The units are out there, you may have to make unsolicitrd offers on unlisted properties, though I've seen some on Metrolist that I'm surprised haven't been grabbed already.

Tou,

i am not buying for myself and what is decent for you might be overkill for me. The areas where i am buying are not the nicest neighborhood, but at that price, you get for what you paid. I am also very involve in my rentals and those deals are not for passive investors!

I do not try to get a top shape unit, i try to get the best return for the money without judging who will be my renter. I deal with Section 8 and alike with probably the same rate of problems other landlords in upper class have.

Originally posted by @John Souerbry:
The units are out there, you may have to make unsolicitrd offers on unlisted properties, though I've seen some on Metrolist that I'm surprised haven't been grabbed already.

Agree :-)

@Tou V.

At 600k this is a good deal. I see $1636/month in cash flow and 10.59% cash on cash return. To meet my numbers, 15% CoC AND $100/door/month, I'd pay $509k for this property.

Here is how I see your expenses against $8160/month in expenses:

Mortgage Rate 5.00%

Length of Mortgage in years 30

Monthly Mortgage payment $2,254.65

Taxes $750.00

Sewer and Water and Trash $800.00

Heat/Utilities $-

HOA $-

Cap Ex and Ops $1,000.00

Insurance $250.00

Mgmt Fee $816.00 (10%)

Vacancy $652.80 (8%)

Total Expenses$6,523.45

Total Revenue $8,160.00

Cashflow/month $1,636.55

Cash on Cash Return 10.59%

I think what @Bob Bowling was trying to get at was that $50k per door is damn cheap, even for Sacramento. Meaning, it's probably a low income area and the bldg is pretty run down. Nothing wrong with that, but it's a lot more work, and serious active management to deal with. Just make sure you're up for the task.

Originally posted by @John Souerbry:
The units are out there, you may have to make unsolicitrd offers on unlisted properties, though I've seen some on Metrolist that I'm surprised haven't been grabbed already.

Trying to learn here. If you don't mind, please show me a couple of current MLS listings in North Cali which you consider good buys. I'd like to analyze the listing and see what you or others consider a good buy. Maybe I'm being too critical of the available properties. Thank you.

Originally posted by @Pierre Belanger :
Originally posted by @John Souerbry:
The units are out there, you may have to make unsolicitrd offers on unlisted properties, though I've seen some on Metrolist that I'm surprised haven't been grabbed already.

Agree :-)

Show me one current listing on the MLS, which you'd consider a good buy. Trying to analyze what others would consider a good investment. Thanks.