New Member, Palo Alto, ca
Investor · Palo Alto, CA · Member since 2016 · 22 posts · 7 votes
New Member, Palo Alto, ca
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San Francisco Bay Area · Member since 2015 · 196 posts · 181 votes
10yhi, how have you faired in Stockton CA?
I'm scared to jump in over there, because I don't understand what drives the economy over there. And last recession it was the hardest hit around the bay by foreclosures.
35 Replies
- Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes10y
Hi Tom - Ah, the larger multi families. That is what I thought it might be based on your price point per door. I actually eye guzzled that one at Edison Street one a more than a few times in the listings:). It's been for sale quite a while. Right now it does not fit in my plan yet (I want to get 2 more residential mortgages so that I hit the "10 mortgage" limit first. Only then I plan to leverage my portfolio as a whole). But consolidating that I do want to go in that direction (large multi family).
I think that is where the money is "at". You get some economies of scale and it is easier to manage. I have 3 triplexes that are all right next door to each other and while you would not think it would help, I feel it has worked better for me then if they would have been all over town.
More beds under a roof just gives better numbers. Even if the rent is lower per unit. And you are definitely correct about it being over the threshold for regular investors. Those commercial units are definitely a league up from the regular residential stuff where all the dentists are lawyers that are looking to increase their short term deductions are looking to overpay for property in order to park their income.
My experiences with rent increases you ask? What I found (to my disappointment) is that there is a *very* high price elasticity this segment. People will pick one apartment over another simply because it is $15 cheaper. Most or all other factors are ignored.
The other thing that goes hand in hand with the question of rent level is vacancy. I have learned the hard way what I should have known all along: It is better to rent something out for $650 without any turn over for a few years in a row than to try it at $750 and even have a little turn over. Turn over is a HUGE hassle, in a large part because property mangers suck (or should we say their goals are not aligned:) ). Also if someone puts in their 30 days notice with their last rent payment (if they pay), that means that you will most likely have it empty for 2 months. Why 2? Because anyone that is qualified to rent from you is going to have to honor their current 30 day notice, so if they see your add on the 8th of this month even if they decide right away they will not be able to move out of their current place until the end of next month if that makes sense.
Does that mean I don't increase rent? I actually do increase it yearly on my legacy units but I am boiling the frog extremely incremental, to the tune of 2% per year. The ones the I totally redid (silly me) I rented out at what I thought was a good rent and I am not touching that for a few years, see who settles in. Most don't though and that's where the turnover comes in.
As far as an rent price outlook? I think the rental market is heating up in Stockton. I have more than one tenant who actually left the bay area (like Oakland) to go and live all the way in Stockton because the rent is cheaper. So it becomes kind of like an underclass suburb as you will. Also people buying rental units at today's prices will need to charge a lot more rent than people that bought 4 years ago because their payments on the properties are simply higher, so the ownership turnover caused by older landlords cashing out will also crank up the average rent. I do not have an analyses on the "fundamentals" of Stockton to offer. Just the old "people to to have *some place* to live"...:)
Anyway, that was way more of an answer than you bargained for I bet.
BTW: You mentioned that you were going to tour some properties tomorrow. Do you mean with an actual broker? If so and you are serious about inviting looky-loos to tag along PM me, because I definitely volunteer for that. I am pretty sure I wasted my time in worse ways:).
In any case happy hunting. I am curious to hear how the large multi family stuff works out for you!
Chris
- 10yJohnson H.Pro MemberInvestor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
Congrats on your Lodi purchase, if it was on the MLS, I remember it as there are not many listings in Lodi, that was a good purchase. I think Lincoln Village in Stockton is a great area to invest in, I tried to purchase a property close to Trader Joe's but our numbers were too far apart. Investors in Stockton have to remember that there is a ton of multifamily in the area, it doesn't make it a bad place to invest in, just something to realize that your rent has to be competitve. I always like to invest in areas with a good school district as its a big differentiator when competing against other rentals. In rougher areas of town, I would save that for local investors that can be more hands on. Just my two cents.
- Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes10y
Originally posted by @Johnson H.:
realize that your rent has to be competitive. I always like to invest in areas with a good school district as its a big differentiator when competing against other rentals. In rougher areas of town, I would save that for local investors that can be more hands on. Just my two cents.
As as Stockton MFR landlord I have been debating myself on the "school district" question. Don't get me wrong; for SFR rental I *totally* see the point. Someone moves in with small kids and will not leave until they are out of school and maybe never. Great!
However, for small multi family (lets say a 2 bed 1 bath triplex) I am not too sure how much of a difference it makes what school district the building is in. Tenants without kids will not pay extra. And people that live in a 2/1 with kid or even kids are probably not very likely to stay there very long. While I think most rational people would agree that having your kids in a good school district is very important. However, but most people that end up with their kids a 2/1 in Stockton are either 1.) in a transitional unstable period of their lives (divorce, job relocation, getting away for some other are or situation), or 2.) not very good at making important live choices altogether. In which case its doubtful they will pay significantly more to invest in their child future.
The conclusion that I draw is that when buying 2/1's, the school district should not be a big consideration. Area / neighborhood of course is, but if all other factors are the same I, I don't think I'd put a lot of premium ($$$) on the school district when buying those types of units.
Am I wrong? To short sighted? I am very curious to hear others options on this!
- 10yJohnson H.Pro MemberInvestor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
Originally posted by @Chris V.:
Originally posted by @Johnson H.:
realize that your rent has to be competitive. I always like to invest in areas with a good school district as its a big differentiator when competing against other rentals. In rougher areas of town, I would save that for local investors that can be more hands on. Just my two cents.
As as Stockton MFR landlord I have been debating myself on the "school district" question. Don't get me wrong; for SFR rental I *totally* see the point. Someone moves in with small kids and will not leave until they are out of school and maybe never. Great!
However, for small multi family (lets say a 2 bed 1 bath triplex) I am not too sure how much of a difference it makes what school district the building is in. Tenants without kids will not pay extra. And people that live in a 2/1 with kid or even kids are probably not very likely to stay there very long. While I think most rational people would agree that having your kids in a good school district is very important. However, but most people that end up with their kids a 2/1 in Stockton are either 1.) in a transitional unstable period of their lives (divorce, job relocation, getting away for some other are or situation), or 2.) not very good at making important live choices altogether. In which case its doubtful they will pay significantly more to invest in their child future.
The conclusion that I draw is that when buying 2/1's, the school district should not be a big consideration. Area / neighborhood of course is, but if all other factors are the same I, I don't think I'd put a lot of premium ($$$) on the school district when buying those types of units.
Am I wrong? To short sighted? I am very curious to hear others options on this!
Hi Chris,
I see you are a Stockton local. You know what areas are good even if they may have a less than stellar school district versus out of area investors. I think there are actually a lot of families living in 2/1's. Although it may not be a huge consideration, if I was a renter and I had my choice between two rentals, one with a better school district with all else the same, I would live there. When I invest, I would like to have as much going for the property as possible ie good neighbors, good safe area, close to amenities, good school district, nearby to a freeway, good job market, basically a desirable area for the type of tenant I am targeting. I may not always get it all but I try my best to setup my investments for success. If my property is geared more towards college kids or young professionals then school district would be a non factor.
From my research it seems that properties in good school districts hold property values better. Also, some of my tenants have been around for multiple years just because the have kids in the local schools and can't see themselves moving anywhere else.
I don't think your thought process is wrong, we just see two different scenarios with the target tenant profile.
Just my two cents,
Johnson
- Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes10y
Originally posted by @Tom Z.:
Also, I'll be viewing some properties in Stockton this weekend, others are welcome to join.
--Tom
Hi Tom - Did you get a chance to drive those multifamily apartment buildings in Stockton this weekend? I am very curious to hear what your impressions were, if you want to share.
As I think I mentioned I am not ready to move into that league myself yet, but I do like to dream a bit. So in that context I have been eye-guzzling this one: http://www.loopnet.com/Listing/19651794/621-Hale-R...
I drove out there to have a look a few weeks ago and I liked it from what I could find out by walking around it. No frills, but the feel it gave me was a lot better than what I am used to seeing in Stockton. I drove around the neighborhood next to it had the same feeling, much more positive than what I have become used to seeing in Stockton.
- Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes10y
Originally posted by @Johnson H.:
Originally posted by @Chris V.:
- Investor · Palo Alto, CA · Member since 2016 · 22 posts · 7 votes10y
There is a strong demand for rentals in Stockton and Lodi. I have not considered school districts in my purchase. I'm fully aware that my properties cater to low income tenants, to whom school districts are by and large not the main concern.
As it is, my property manager has a waiting list and units get rented out as soon as they are cleaned
and fixed.I am concerned however what will happen when the economy changes for the worse. I am being told that the low end apartments are less affected than than higher end as there is always demand for lower end. Even if market prices go down as long as you do not suffer a serious reduction in cash flow you should be OK. It's all a matter of vacancy and rents.
Still, I can imagine a feeling of missing out if the purchase timing is wrong.
I'd be interested in opinions and experiences regarding real estate performance in times of recession.
Abraham.
- Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes10y
Hi Abraham - While I don't have data to back it up I would think that lower income multi family would be about as recession proof as you can get for all the obvious reasons. While they might move around the city/area to find a "better deal" I have not found low income tenants to be very mobile in the sense of "lets move to Austin because there are lots of jobs there". Bar cataclysmic Detroit style events, I think lower income tenants will be around, economy good or bad.
As far as timing for buying in Stockton now... I don't think this is awesome timing. If you are comfortable with out of state investing I think there are WAY better cash flowing deals out there. Personally I am not comfortable with that sort of investing and I don't have the proverbial trusted "boots-on-the-ground" in any of those markets, so I am staying in my Stockton comfort zone for a while, knowing that I am not getting the best in cash flow I could get on a national level.
That being said, I am in the process of acquiring 3 additional properties, but I would describe none of them as awesome no-brainer deals.:( I am buying because I think that prices will continue to go up for a while and that if I don't lock in that equity now at the current low mortgage rates I will have to look very very hard for something that even cash flows at all... Or wait a long time.
Who is your property manager? And it sounds like you are happy with them? I am very interested to hear what your experiences are.
- Investor · Palo Alto, CA · Member since 2016 · 22 posts · 7 votes10y
Thanks Chris for basically affirming my own beliefs. Did you actually go through the 2008 downturn with your properties? I started investing in Stockton in 2013 so do not have actual experience to back up my beliefs.
My property manager is a private individual. I am probably over-paying him but he gives me peace of mind.
Abraham
- Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes10y
Hi Abraham - I should have made that clearer; I did not go through the downturn myself. Just like you I started buying when things were in a safe upward trajectory. However I know people that did go through it and they have rentals in the lower end of the market and they were ok (not affected). Probably because they were in the low end of the market and did not buy any duplexes at $400 or $450K...:)
If I had to I could lower my rents (quite) a bit to fill vacancies and still cash flow positive. However anyone buying at financed duplex or triplex at Stockton Retail prices today is going to have a hard time lowering rents and cash flowing positive. I am buying a few properties myself right now and the only reason I feel somewhat confident at these prices is because I will be able to absorb any shorter term hiccups that I might have on the new properties with the cash flow from my other properties. Once I get the new properties "dialed in" I think they will perform fine but not awesome.
If someone had only just enough money for the down-payment on one of these properties and did not have any other disposable income to absorb unforeseen events I don't know if I would recommend them to buy it at today's prices... Its definitely not a no-brainer anymore like most were in 2013. And with prices going up and inventory being low I think we are going to see people enter the market that must charge higher rents just to break even. Or even cash flow negative hoping for appreciation to bail them out.
PS: You did not mention how much you are paying for your property manger, but if you found someone that gives you peace of mind I bet it's well worth it!:)
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