Sacramento Apartment Market

[Pratik P.]

Hey everyone!

I've been constantly looking at large multifamily deals in the Sacramento county area (on loopnet) and have been noticing very low cap rates (4-8%). After expenses and debt service, cash flow is coming out to be less than $200/month per unit. Are investors actually purchasing properties with these numbers or am I missing something? I feel like the best way to invest in large multifamily might be to either purchase out of state or Brrrr off-market properties, but obviously on a much larger scale. Thanks for your input and comments!

Pat

[Yousif Abudra]

@Pratik P.  Yes, the cap rates have been compressed in Sacramento for a couple of years now.  You can still come across some 6-8% cap listings but thpically the sellers are being optimistic on the expense side.  The investors that are buying these are mainly from yhe Bay Area and find the cap rates attractive.  Most of the time these properties are in less desirable areas of Sacramento, typically have deferred maintenance, and the buyer is relying on rental prices to increase to generate a higher future cap rate.

Because of this, value-add MFH has been our approach, as we buy with all cash, however even these opportunities are becoming harder to come by and are almost entirely off-market.

Best,

Yousif