Sacramento Market SFH Reconnaissance

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This weekend I took an adventure with my investing partners out to Sacramento to look at some SFH properties at $300k and less. It started with a list that we had crunched the numbers on that looked like they could be profitable. Some more than others, but we did not expect to buy our first time out. The initial list I sent our realtor had ten properties on it that we analyzed from the MLS. By the time the list got to him to review and back to us, only two were still on the market. (By the time we arrived in Sacramento, only one was on the market).

Getting our realtors response about most of the properties with detailed analysis being off market, I quickly went back to the MLS. I exported the most recent batch of listings to excel and ran some quick numbers on 23 properties. With conservative estimates, only one of the properties cash flowed on paper, and not well. We sorted them out by highest to lowest prospects based on our realtor's review.

The team met with our realtor and discussed our plans for the day. We looked at five properties and learned some interesting things. First, the competition for SFHs was high, and people were paying well above list price, likely above the value of the house. The competition was coming from families who wanted to live in the houses. Second thing we learned, is the DOM was often less than 5-10 days for any real deal. The market is moving quick, and us being new to the game, we are slow. Thirdly, driving all over Sacramento, while educational, is not the way for us to learn the market. We have decided to redouble our efforts to the Southern Sacramento area. 

After a grueling day looking at houses, and a meetup with @David Hutson , I concluded that maybe in Sacramento the SFH market cannot really be gotten into easily using solely the MLS. It may be easier if I was a a cash buyer. Considering that the team is going conventional with 20% down, we are also not going to be entertained as well when we offer lower than asking price.

We are now opening up to MFHs. Curious if others out there share in my experience, have guidance, a deal or comments.  

The sub $300k market if very hot right now. Any desirable home will have multiple offers and timing is a must. It's a sellers market right now and the days of submitting lowball or under asking aren't gonna fly. I have a client doing conventional financing looking between 200k-240k and we've submitted multiple offers 10-20k over asking and still got outbid. Multifamily is a little different but from what I've noticed sellers of multifamily homes are thinking are thinking their market is appreciating like the sfr market and pricing too high to make economical sense. I've seen duplexes bringing in only $1600/m but asking $350k. SFR can happen but you have to move quick as in within 1-2 days.

@Derek Jones I've noticed overpriced multifamilies as well. Judging by some of the MFH I've seen in the Sac region it seems they're only good for those interested in house hacking. Even then the numbers aren't great.

Thanks for the comments. Any suggestions on moving quicker other than monitoring the MLS everyday?

Watching the mls throughout the day is only part of it. My routine is to check the mls throughout the day to see what's new or back on market. Out of those I'll quickly run numbers and comps to narrow it down. Then check them out that day if possible. Have a local member of your team or your agent preview the property and either send you additional pics or video. Since you don't plan to live in it this system should work and allow you to have offers submitted within 1-2 days. 

As another agent here in Sacramento, I can also verify the extreme competition for homes under $300,000. Last several I sold were all in less than a week.

As far as getting the jump on the market, one way would be to friend a bunch of agents in the market on Facebook. Often they will make a post for properties "coming soon" and you may be able to get at them prior to them hitting the MLS.

I am doing direct mail and knocking on doors. If anything attractive hits MLS you need to offer immediately and come in very strong.

Originally posted by @Derek Jones :

 I've seen duplexes bringing in only $1600/m but asking $350k. 

Then you're seeing better than I am - the last few that have come across my radar are more like $2k/mo for $550k. and I'm sitting here wondering if these guys have been spending time in Colorado (or Humbolt) recently..

What kind of returns are you folks looking for in Sac? 

I bought a duplex here a year ago almost and I'm cash-flow positive, but it's nothing to write home about. I guess appreciation should help me out when I sell.

Well when I was looking at SFHs, even with discounts I am barely getting flow. I'd like to get enough to help build a reserve and fund future investments. Maybe I am naive (probably because I am new), but I was hoping for at least $2,400 in cash flow a year. 

Most of the guys I know buying in Sac are not buying off the MLS, but are instead approaching owners directly. Absentee, low assessed value, HAMP loan mods (2009 or 2010 foreclosure that was cancelled), etc. Very hot market still.

@Alexander Price Yes, we do it from a combination of public records, and for that last one, daily updates from the trustee sales back in that time frame.

We own properties in Sacramento and Elk Grove and have successfully bought of the MLS and working with a realtor. Its not necessarily a question of having a list of properties, though that is a reasonable approach. It is more about having a very clear view of what you want to purchase and executing very quickly when you see the opportunity. Take the time to get comfortable with what you want to purchase so when it appears on the MLS you can quickly make a competitive offer to get into the deal ideally in the first position, but also second if your offer is not selected.

With respect to competitive, my view is that I am not competing with other investors. More often it is a family interested in moving to a SFH. The last deal I closed my offer was third in line and I was able to close the deal as the first two fell out for various reasons.

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