New investor in Sacramento, California
Sacramento, CA · Member since 2014 · 7 posts · 1 vote
Hello BP! My name is Jeff Yates and I'm a new investor living in downtown Sacramento. I am interested in purchasing buy-and-hold multifamily properties. I would prefer to invest locally, as community involvement is important to me. My goal is to build a portfolio of rentals large enough to cover most of my expenses and contribute significantly to charity.
I am currently trying to learn as much as I can from the BP blog posts, forums, and podcasts, as well as a few RE books. I have also started attending some local REIA meetings. I am very interested in connecting with other multifamily investors, especially in the area.
Cheers!
Welcome to Bigger Pockets! You're in the right place!
Sacramento is a great opportunity for multifamily investing right now. We're projected to be the #4 hottest metro market in the nation this year with 7.2% appreciation and a 4.9% increase in sales growth. We're also projected to be the #1 rental growth market in the nation with 10% growth this year, and 8.5% growth next year.
A large part of the reason for this is the massive migration of Bay Area transplants who are looking for more affordable living. I've written about this migration pattern extensively here on BP:
Every week I analyze every single 2-4 unit multifamily property from Placer county all the way down to Merced, and here are the numbers you can expect from the better performing properties here in Sacramento county:
PRICE: ~$306k
25% DOWN: ~ $76.5k
MONTHLY RENTS: ~$2,250
ANNUAL RENTS: ~$27,000
PITI @ 5% w/ 25% DOWN: ~$1,640
PITI CASHFLOW MONTHLY: ~$610
PITI CASHFLOW YEARLY: ~$7,320
1% TEST: 0.74%
GROSS ANNUAL YIELD: 8.92%
PITI CASH ON CASH RETURN: 9.95%
If you ever have any questions, or simply want to reach out and connect with other local investors and real estate professionals, simply join the conversation already going on in the local forums here on Bigger Pockets for Sacramento:
https://www.biggerpockets.com/forums/621-sacramento-real-estate-forum
Feel free to reach out if you have any questions about the Sacramento market, and best of luck!
@Jeff Yates, welcome to BP. This is a great site to learn and network. Check out the podcasts. There are several focusing on investing in hot markets, like yours. Good luck!
Welcome, @Jeff Yates!
Thanks, @Kevin Hunter @Chris Mason !
Hello, @Jeff Yates! I'm in the greater Sacramento area (Elk Grove), in your same place in the RE journey, and with similar goals.
@Jeff Yates welcome to BP! The market is hot right now so it takes a bit more effort and creativity to find deals locally, but it can be done. Or take the time to educate yourself now and be ready when the next downturn in the cycle comes.
@Nate Pomeroy - Nice to know I'm not alone. Let me know if you want to grab coffee sometime.
@Tim Kunz - Thanks for the advice! My primary short term goal is to learn, network, and save enough to be in a good position for the next downturn. It would be great to find a deal before then, but I understand it is tough in this market for an inexperienced, non-cash buyer, so that's more of a stretch goal.
Welcome to Bigger Pockets! You're in the right place!
Sacramento is a great opportunity for multifamily investing right now. We're projected to be the #4 hottest metro market in the nation this year with 7.2% appreciation and a 4.9% increase in sales growth. We're also projected to be the #1 rental growth market in the nation with 10% growth this year, and 8.5% growth next year.
A large part of the reason for this is the massive migration of Bay Area transplants who are looking for more affordable living. I've written about this migration pattern extensively here on BP:
Every week I analyze every single 2-4 unit multifamily property from Placer county all the way down to Merced, and here are the numbers you can expect from the better performing properties here in Sacramento county:
PRICE: ~$306k
25% DOWN: ~ $76.5k
MONTHLY RENTS: ~$2,250
ANNUAL RENTS: ~$27,000
PITI @ 5% w/ 25% DOWN: ~$1,640
PITI CASHFLOW MONTHLY: ~$610
PITI CASHFLOW YEARLY: ~$7,320
1% TEST: 0.74%
GROSS ANNUAL YIELD: 8.92%
PITI CASH ON CASH RETURN: 9.95%
If you ever have any questions, or simply want to reach out and connect with other local investors and real estate professionals, simply join the conversation already going on in the local forums here on Bigger Pockets for Sacramento:
https://www.biggerpockets.com/forums/621-sacramento-real-estate-forum
Feel free to reach out if you have any questions about the Sacramento market, and best of luck!
@Wes Blackwell - Thanks for the Info! As a millennial that has lived in the area for 5+ years I can definitely agree that Sacramento is quickly becoming a very desirable city for young professionals. I personally know someone looking to move here from South Bay to escape the congestion and high cost of living. Unfortunately, being a new investor I am not quite comfortable speculating on rent and value appreciation, nor do I have the down payment to achieve higher cash flows. After factoring in additional operating expenses, I don't think the example above is too appealing for me. But maybe I'm missing something.
I wouldn't call it speculation, since that's roughly what we did last year. You can expect the same this year. Just about every new listing turns into a multiple offer scenario, which keeps driving prices up. Plus, we only built 512 new apartment units last year, but there are waaaaay more people planning on moving here over the next 5 years. Here's some recent stats for the market:
Perhaps you should try looking in the San Joaquin / Stockton Market. The median home price is about $40k less (which will free up roughly ~$220 per month in a mortgage payment) but the rents are fairly comparable in most cases so your money goes a lot further. Downside is you won't have the same growth that Sacramento will. Here's what the same numbers would look like for the better performing properties in San Joaquin county:
PRICE: ~$244k
25% DOWN: ~ $61k
MONTHLY RENTS: ~$2,100
ANNUAL RENTS: ~$25,200
PITI @ 5% w/ 25% DOWN: ~$1,305
PITI CASHFLOW MONTHLY: ~$795
PITI CASHFLOW YEARLY: ~$9,540
1% TEST: 0.86%
GROSS ANNUAL YIELD: 10.34%
PITI CASH ON CASH RETURN: 15.65%
Also remember that this is a long-term investment. Even if you made $0 per year in cash flow by the time you accounted for expenses, in 30 years you'd have a property that was paid off by someone else, that also acts as a giant savings bank that you can pull money out of or liquidate at any time, and it'll be worth far more than it is now and provide you far more rental income every month as well. Buy just and handful of those over the next 20 years and your retirement will be quite nice.
Hi @Jeff Yates,
I'm also a millennial. I'm from the Bay Area. I lost out on a place in Sacramento.
8 plex @ 62.5k per door unsure about the details of the property since I wasn't in the area to walk the property. Seemed sort of okay
Went pending today 2/16/17
All Cash buyer over list with a shorter-ish closing period. There were 9 All cash offers
So....
The bay area the market is crazy cap rates are awful and so much rent control. Sacramento is the next viable choice.
Be mindful of your exit strategy Stockton properties generally sit on market for a longer period of time
You have come to the right place to connect with the wide array of real estate professionals and investors. Make sure to view the Bigger Pockets book store: https://www.biggerpockets.com/store
Welcome aboard. I would also find a local meetup and network with a local property management company . Find out the accountant that most muti family are using in the area and make contact.
@Wes Blackwell - Thanks for the perspective and the interesting data. I don't doubt that appreciation can be projected fairly accurately X months into the future, especially with an experienced investor's understanding of the data you've shared. However, after those X months, I don't want to count on continued appreciation to make the investment appealing.
From what I've read here on BP, the general recommendation is to find properties that cash flow with full financing and 40-50% expenses, and take any appreciation as a cherry on top. Maybe this is totally unreasonable here in Sacramento. That's what I am trying to learn--whether assuming some appreciation is required to make the numbers work here, if investors here are fine with taking 0 cash flow and just building equity with loan amortization, whether it's just a bad time to get started and waiting for a downturn is required.
@Jason Monroe - Thanks!
Yes! Bay Area investors with plenty of cash are coming for your lunch because the cap rates / flip chances are higher than the bay area.
Another example http://www.loopnet.com/Listing/20090572/132-Ash-St...
Roseville portfolio the guy who owns them is from San Francisco and because they are B class properties at least according to Gabe. The owner self manages them.
If cap rates are mostly locked at 3-5% and they can get 6 or 7% in Sacramento people will charge up the Tesla initialize auto-pilot to come and eat your lunch.
ALSO
Price per door is 300-700k+ in the bay area Sacramento seems to generally trade right now at 100-150-ish per door.
That means that multi family deals 5+ units in the bay area are at least 1.5 excluding some of Oakland and some of Richmond
The down payment for deals that size are usually in the 400-500-ish range
So if a deal is 500k or less it's often called a "bite sized deal" and rest assured that people from the Bay Area are going to be looking at them
The Downtown Sacramento makes no sense to me as the cap rates are Bay Area like outside of downtown you might need to worry.
If the cap rates are higher or there is a potential for a quick turn people will make the drive as Sacramento is marketed as "Safe"
You're right... you shouldn't make an investment based solely on projected appreciation, because that's a very risky game to play. Although, the thing about California is that it's extremely different from most the U.S. so general rules like 50% expenses and the 1-2% test don't apply.
For example, take a look at this map of home values across the U.S.
https://www.trulia.com/home_prices/
Notice that the median home price is Sacramento County is roughly $300k, while most of the rest of the nation is less than half that. So a general rule of thumb that applies to 80% of the nation does not apply to the areas where home values are twice as much.
And that's because those numbers don't scale. 5% appreciation is twice as much equity growth on a $300k home as it is on a $150k home. But, the expenses don't go up twice as high just because the property costs more. Maybe your mortgage payment does, but other costs like utilities, repairs, etc. don't. Also, those properties don't always rent for twice as much either.
So, you really have to take it on a case-by-case basis. You can easily determine your PITI (principal, interest, taxes, and insurance) and you can get a rough estimate for utilities from the current owner, although you don't have to pay any of them, you can put it all on the tenants.
If the property is beat up, plan on more repairs. If it's recently remodeled, plan on less. And vacancy isn't just a percentage you can plan either. 1-2 month's rent per unit if you're doing major renovations the first year, and 0-1 month's rent per year after that depending on what you know about the tenants. Sometimes you buy a property and the tenants have been there for 5+ years, so they're probably not going anywhere anytime soon.
Also, every market in California is different too. For example, take a look here at the Top 100 Hottest Metro Markets in the Nation for 2017, and you'll notice that the projected appreciation this year San Francisco is 8.41%, and for San Jose it's 8.26%. So you could go buy the median priced home out there for over $1 million dollars and expect to a growth in equity of over $80k this year. That makes $500 per month cash flow look like mincemeat.
In the rest of the U.S., appreciation is the cherry on top.
In California, appreciation is the entire cake.
So I would ignore nationwide rule of thumb metrics, as they simply don't apply here. I always recommend learning the local market and what kind of returns, expenses, results, etc. investors are having here. Then when you know what to expect on average, and then you will know how to spot a deal when you see one. But taking metrics that work in Kansas where the median home price is $123k and using them here will only lead you astray. Hope this helps :-)
Yes! Bay Area investors with plenty of cash are coming for your lunch because the cap rates / flip chances are higher than the bay area.
Another example http://www.loopnet.com/Listing/20090572/132-Ash-St...
Roseville portfolio the guy who owns them is from San Francisco and because they are B class properties at least according to Gabe. The owner self manages them.
If cap rates are mostly locked at 3-5% and they can get 6 or 7% in Sacramento people will charge up the Tesla initialize auto-pilot to come and eat your lunch.
ALSO
Price per door is 300-700k+ in the bay area Sacramento seems to generally trade right now at 100-150-ish per door.
That means that multi family deals 5+ units in the bay area are at least 1.5 excluding some of Oakland and some of Richmond
The down payment for deals that size are usually in the 400-500-ish range
So if a deal is 500k or less it's often called a "bite sized deal" and rest assured that people from the Bay Area are going to be looking at them
The Downtown Sacramento makes no sense to me as the cap rates are Bay Area like outside of downtown you might need to worry.
If the cap rates are higher or there is a potential for a quick turn people will make the drive as Sacramento is marketed as "Safe"
Good area. Walking distance to Amtrak, old town Roseville and Roseville civic center....
Hi Jeff Yates, I am also new and looking for multifamily properties. I am in the Fair Oaks area and plan to start attending the REIA meetings as well. I wish you much success!!
Welcome, we seem to be in similar positions and interests. Which REIA groups have you been going to? Maybe we can meet up sometime or grab coffee/lunch?
Thanks for the compliments! I put a lot of effort into everything I share here, so it's always nice to hear that people are finding the information helpful.
LOCAL NEWS
One of the most simple and obvious sources for information that everyone tends to forget about is the local news. Simply type "(City Name) Real Estate" and check the news section on Google for a plethora of headlines about the local market.
Here are some recent examples for Sacramento:
Sacramento apartment occupancy rates suggest rents going higher, report finds
Here are some examples for Livermore, CA:
So, how do you interpret these headlines?
Well, for Livermore it means that as an investor you should be wary of subletting and any AirBnB based strategies for rentals, because there may be some potential issues with that strategy, if not for now then maybe down the line.
Where is the historic train depot being moved to? And what's being put in it's place? Will it being a housing development? A shopping center? A casino? How will that affect the home values in the surrounding areas? Should you invest there? These are all great questions to answer.
For the burglary issues in vacant homes you'd know that if you plan on marketing your vacant property for rent, you better be sure you have an alarm system or some other deterrence until this local crime ring stops.
The shopping center and hotel project will likely boost home values nearby, depending on the exact location and scope of the work. Similar to the questions about moving the train station above.
And for Tesla to snap up that huge lease, that means you'll obviously be bringing more jobs to the city, and those people will need a place to live, which are all good signs of a strong local economy and continued rent growth and appreciation.
See how much I was able to learn about your local market just be reading the headlines? I didn't even have to read the articles to learn more about what's going on in the area.
LOCAL REAL ESTATE BLOGS
The next best source for information on the local real estate market are local blogs and websites that have regular articles about the market and where it's at.
For example, one that I absolutely love and read every week for Sacramento is SacramentoAppraisalBlog.com. It's actually run by fellow BP member Ryan Lundquist. Every week he shares his insights into what's going on in the Sacramento market.
Another great one for the California housing market is http://www.doctorhousingbubble.com/. I believe they got started back during the previous bubble burst in 2007, and have been writing great content about the California housing market ever since. Here's one of their latest Bay Area articles that you wouldn't learn about anywhere else:
That's just crazy!
LOCAL INVESTORS AND REAL ESTATE PROFESSIONALS
Lastly, you want to get in touch with local real estate investors and professionals like agents, mortgage brokers, etc. And that's something you can do here on BP, but may even find them on other sites like http://www.city-data.com. You can pop into the local forums and see what the word on the street is from local residents if nothing else.
The thing about having a good agent is they can shortcut the whole learning process for you. If you find someone who's already read all those articles above and regularly works in the market, analyzes all the data, etc. then you're miles ahead of everyone else.
If you find an agent who specializes in the types of properties you're looking for, you'll also get access to all their experience in working with other clients as well. If you get some run-of-the-mill Realtor who doesn't really understand what you're looking for and never helps people buy or sell homes like that, you're not going to get that.
@Wes Blackwell Man I cannot thank you enough! I'm actually meeting with an agent/investor for the first time in about an hour so this has come at a great time... Can't wait to dig deeper into all of this tonight. Thank you
Sacramento is crazy I heard about a deal for a duplex near-ish downtown. The problem is that the properties wont appraise for value because the comps don't work. This property is around 300 and presently has 7 all cash offers. No one cares about the fact that property won't appraise. Pro-forma rents has the numbers working out well for the type of configuration it is.
I was in contract last year for a property 4 plex on Oakmont rd. Seller wanted 465k the appraisal came in at 441 and it needed 9k worth of pest for section 1 and 2. I wasn't into buying a thing in a remote market and having it not be able to make any money on it for the first year. At the time I didn't believe in appreciation in Sacramento people tell me it's a thing. The property was had a very special tenant where if they left it wouldn't perform anywhere near as well.
The property ended up selling for 460k
or 19k over appraised value which would mean you or I as an investor would have to cover that gap out of pocket. The financing people will only finance up to the appraised value as over that would increase their risk.
@Nate Pomeroy, @Jeff Yates, @Wes Blackwell, @Jason Monroe and other local BP'er.
We're also featuring Sacramento's Director of Economic Development. He's going to share the city's plans for investing in various neighborhoods.
Timing is everything. Check out guildsummit.com to learn more.
@Jo-Ann Lapin - Thanks for the advice. I have started attending some of the local meetups. Luckily there are several in the area.
@Wes Blackwell - Thanks again for the insight. I am quickly figuring out that buy-and-hold in CA is a different kind of animal. I appreciate all the recommendations for local RE news. Would you recommend the Sacramento Business Journal as another way to keep a finger on the pulse of economic growth and recent RE development?
@Christine B. - Good luck to you too!
@Tobias Falzone - I've gone to the CCWB meetup by the Arden mall and the one up in Roseville. I was going to check out NorCal REIA next. I'd enjoy getting coffee sometime. I work up in Folsom.
@Jason Monroe - Sounds like an interesting event. Thanks!
my pleasure. All that best