Multi family investment in Sacramento?

27 Replies

Hi all-

So I have been extensively looking at multifamily properties in Sacramento. Does anyone know the best A/B neighbors to focus on? Also, the HOA's seem like they can be hefty?

Hi Joseph, please pardon my ignorance, but what are "A/B neighbors"?  And yes, HOAs can be very high.  They've definitely knocked properties out of consideration for me.

Like most things, complexes of multi's can be garbage in a NICE neighborhood... each is their own animal.  A good neighborhood doesnt guarantee a nice complex.  Yelp it.


As for HOA. it isnt so much the amount... they can be reasonable.. the issue is YOU dont control it. it could be $250 a month for a fourplex, yard, pool, garbage, parking lots etc... which isnt bad... Until they vote to double it. ouch

Hi @Joseph King ! Maybe I can help!

I'm currently working with several other investors who are looking for the exact same thing you are... cash flow.

My advice would be to look for properties that can make the numbers work first, and then decide whether or not the area the property is located in is one you want to invest in.

If you focus on neighborhood first, you'll have blinders on and probably end up disappointed when any property that comes on the market in that area is so expensive it takes all the cash-flow right out of the deal.

What you'll want is a local real estate agent who not only understands your investing goals and property requirements, but can also properly analyze the area and inform you about each individual neighborhood. You'd be amazed how many agents don't even know how to look up crime data or neighborhood demographics. It's appalling. 

I've recently created a report of every property in the Sacramento area analyzing it's cash flow, and can further expand on each property and provide you with further information and neighborhood analysis. I'd love to grab a coffee sometime and see how I may be of value to you and assist your investing goals in this area. 

@Wes Blackwell @Joseph King Hi Wes, I feel like I need to just ad something, I hope this doesn't come off nasty I really don't intend it to. I'm sure you're a nice guy & very good at what you do. I have to say though, when I read that it felt like you were throwing other agents under the bus. Remember the Golden Rule in Code of Ethics. The Golden Rule, as quoted in the Preamble to the Code states, "Whatsoever ye would that others should do to you, do ye even so to them." There are many great Realtors out here that know their numbers, neighborhoods, trends, crime rate data, etc. You were a newbie at one time too.         

Hey @Kelli D. , not nasty at all! I appreciate the feedback!

Thing is, the National Association of Realtors published a "Danger Report" in May of 2015 that said the #1 threat to Real Estate Agents is "Masses of Marginal Agents Destroy Reputation: The real estate industry is saddled with a large number of part-time, untrained, unethical, and/or incompetent agents. This knowledge gap threatens the credibility of the industry.You can read the report for yourself right here.

5 of the Top 10 most expensive cities in the US are here in California, so this state is flooded with people looking to make a quick buck as a real estate agent. We have TV shows like Million Dollar Listing San Francisco and Los Angeles or Flip or Flop that show people just how much money can be made in real estate here. And when you consider you can become a real estate agent from home for less than $100 and you only have to get a 70% score on the exam to pass as an agent and only 75% to pass as a broker, unfortunately it means there are a lot of C students in this industry.

Plus, when you throw all the scams and shenanigans into the mix, it gets a million times worse. I just had one of my neighbors, and 82 year old woman, tell me that her agent (a team-member of one of the most well-known agents in the Sacramento area) told her that if he didn't sell her home in 10 days, he'd buy it himself... the old Craig Proctor bait and switch

Well guess what, it's been over a month now and she still doesn't have an offer from him, or from anyone else for her property! And he's only shown the property once! Inexcusable in this kind of market loaded with buyers. AND, this is after she listed with another agent before who listed it for $30,000 more than it was worth (roughly 10%) and that hurt the price of her home too since we all know days on market is like acid to the price of a home. Unbelievable. 

Sorry I got all worked up, but poor, unprofessional tactics like these make me mad because it affects my business by affecting the reputation of our industry, which is why we're on the list of the most distrusted professions, right behind contractors, politicians, and psychics! It SHOULD NOT be like that.

But the truth is, there are a lot of bad real estate agents out there, new and experienced. And they should be called out for their lack of professionalism and sellers should be warned of their existence. There's nothing wrong with being a new agent, the problem is that most new agents (or even agents in general) treat this industry more like a hobby or a side hustle than a profession, and that is why our reputation as a whole suffers. 

I might've been new once too, but I acted as a professional since day 1 and always sought to educate myself on my profession, be honest to all I work with, and perform for my clients above all else. Some people who have been agents for a decade still don't do any of those things.

I simply wanted to warn Joseph that just because someone is licensed by the state of California to sell real estate, doesn't necessarily they're a qualified candidate for the job, and that he should do some basic due diligence in selecting an agent to work with, which is good advice for anybody. But those agents who are true professionals, I have nothing but the most sincere and deepest respect, because I too am a professional and know what it takes to become one. 

Your concern my previous comments shows me that you're a professional too, and certainly care about your clients and their relationship with you just as much. And for that I thank you! :-) We need more agents like that in this industry!

Haha-- SO, I don't know what all the agent rage up there is about but, back to your multifamily investing.

DEFINITELY watch out for those HOAs. I was just looking at a rental with a friend on the MLS. The unit in San Mateo / Burlingame was going for a "steal" but, upon further inspection, they were trying to get the tenant to pay for the HOA. That's one option... And, that very idea had that particular rental sitting on the market for 1 full month. Which, is crazy for its location (right next to caltrain).

As far as Sacramento, although I don't operate there, often you can tell a bit about the neighborhood by getting into Trulia and looking at the crime rate map overlay.
They also tend to have lower cap rates (as you probably know well).

I would avoid the reds myself.

Cheers!

~Alice

Originally posted by @Michael Harold :

Hi Joseph, please pardon my ignorance, but what are "A/B neighbors"?  And yes, HOAs can be very high.  They've definitely knocked properties out of consideration for me.

He probably means "class A / B". Usually white collar workers / theoretical higher/middle-income folks that theoretically are easier to manage. C / D are lower income / some are called "war zones".

E.g.: Where do you live now, is it safe? Is it a fortune to live there? That would probably be a B+ or A. 

California is currently a balloon, bound to bust. I would avoid California , New York , Washington, Orgon ,Alaska , and Hawaii completely while there markets are so high. They will all bust within 10 years 

Originally posted by @Christopher Neeson :

California is currently a balloon, bound to bust. I would avoid California , New York , Washington, Orgon ,Alaska , and Hawaii completely while there markets are so high. They will all bust within 10 years 

 Look at a curve for SFHs or MFH for sales price over time in Alaska. Its been barely keeping up with inflation. That's not a "bubble" and its not "high".

@Andrey Y. The proof is in the facts. https://www.google.com/amp/www.cbsnews.com/amp/med...

I'll put in in perspective.

$527,000 on a 4 plex that yields $55,000 annual profit 

Or $80,000 on a 5 unit that yields $61,000 annual profit 

One is mine in Alaska and the other is elsewhere stateside.

31 years in Alaska and 5 years now investing with 23 units total and roughly 2 properties a year closed regularly I can definitely say as a recently new investor 5 years ago and lifelong Alaskan that not only is it over inflated at minimum 40% what it should be, but that it's a bad investment state as are many others on the most expensive states list. Numbers start to work better with 100 unit purchase or larger in these states. But duplexes to 10 unit complexes won't yield the results do to the ballooned prices.

Hi Joseph. 

To answer your question about A/B neighborhoods in Sacramento. Google the "Pocket/Greenhaven, Land Park, Oak Park, Midtown, the 40s, East Sac, Elmhurst District, Elk Grove and Roseville, Rocklin"  Those are the nicest areas in the greater Sacramento Metro Market.  I'm sure you can find properties and make the numbers work. 

I personally live in one of those area. If you need help putting eyes on a property just let me know. 

Good luck on your hunt. 

Rick 

Originally posted by @Christopher Neeson :

@Andrey Y. The proof is in the facts. https://www.google.com/amp/www.cbsnews.com/amp/med...

I'll put in in perspective.

$527,000 on a 4 plex that yields $55,000 annual profit 

Or $80,000 on a 5 unit that yields $61,000 annual profit 

One is mine in Alaska and the other is elsewhere stateside.

31 years in Alaska and 5 years now investing with 23 units total and roughly 2 properties a year closed regularly I can definitely say as a recently new investor 5 years ago and lifelong Alaskan that not only is it over inflated at minimum 40% what it should be, but that it's a bad investment state as are many others on the most expensive states list. Numbers start to work better with 100 unit purchase or larger in these states. But duplexes to 10 unit complexes won't yield the results do to the ballooned prices.

Dude, you are not netting $61,000 annual profit on a 5-unit, if you are properly underwriting for CapEx, repairs, etc. That's a fairy tale. How many buy and holds have you seen in your life or posted on BP, which generate 60%+ cash on cash return? No one would ever buy 10-30 unit properties if they can make $61k real profit on a 5-plex in the ghetto.

EDIT: Your link has nothing to do with the point I made, brother! Read my post again, where I discussed real estate trends. Anyone knows Alaska has high home prices, that's irrelevant to presence/absence of a bubble and highly obvious.

@Andrey Y. My fairy tale then, I'm just suggesting that there are better prices in towns with pharmaceutical industries as well as universities. Just remember those same trends couldn't predict a Michigan , Nevada, or Florida.

Sometimes it's better to look at other figures to predict the ups and downs.

We each have our areas, I know what I'm doing is working well. Properties that are on 5 year lending and pay for themselves in 2 to 3 years including repairs and 30% vacancy.

In these areas I'm targeting there are larger properties for sale as well and would produce these same numbers.

With history back to 1800 and 1900 these are historic areas with good history to track.

Originally posted by @Christopher Neeson :

@Andrey Y. My fairy tale then, I'm just suggesting that there are better prices in towns with pharmaceutical industries as well as universities. Just remember those same trends couldn't predict a Michigan , Nevada, or Florida.

Sometimes it's better to look at other figures to predict the ups and downs.

We each have our areas, I know what I'm doing is working well. Properties that are on 5 year lending and pay for themselves in 2 to 3 years including repairs and 30% vacancy.

In these areas I'm targeting there are larger properties for sale as well and would produce these same numbers.

With history back to 1800 and 1900 these are historic areas with good history to track.

Now you're being awfully vague. That's my point. If you are predicting a Detroit for Anchorage, you'll be waiting a loooonnnnng time. No one is making 50%+ CoC return in the first year, if they know their maths. That's the point. Even the Grant Cardones underwrite to a 10-15% CoC return at the most, because they are actually realistic with their expenses.

I make 100% of my money invested in the first year. More like 6 to 7 months actually. Limiting yourself to already talked about areas is where you get trapped.

To really find the potential in areas you have to research state to state, city to city, and it also helps to have contacts in those areas.

In current motion my wife and I will be rolling over equity from our current investments stateside as well as purchases over the next 3 years into a larger mid rise or high rise investment property. We have found 4 potential properties that have between 90 to 215 units.

By finding these early investment opportunities we understand what can be accomplished.  My wife has multiple degrees to her name and she is a CPA working for a top ranking international firm.

I work out of 2 unions doing oilfield work operating equipment and sub contacting to companies like ConocoPhillips and British Patrolium BP.

I am vague because I don't need a bunch of people racing into these markets inflating prices. I'm working on my book which will hopefully be released next fall that will outline the steps I've started and taken and every deal I've made during those steps.

I'm just trying to share advice to help others, that's all. 

Reaseching nationwide demographics and economy can really show these investments.

By the way Grant Cardone and Robert Kiyosaki as well at Trump all share what has happened, not necessarily what is happening in there books. Each one also leans away from investing in up or balloon markets.

Grant Cardone himself just picked up a property in Florida that is in a declined Market outside of the normal hot spots. It was a very large purchase and it shows how targeting under inflated markets is more profitable.

I would hold off on multifamily in Sacramento and save your cash until things make sense again. They will make sense again... Right now, the yield is too low, or perhaps nonexistent, and there are too many Bay Area exchange investors that continue to drive prices up so they can defer taxes. I have analyzed over 60 properties (5 units or more) in the last year in the midtown/downtown, east sac, and even Oak Park, Carmichael, Auburn, and Citrus Heights areas and I would not put my money in any of them. I have inspected them inside and out, and run financial pro formas, and its tough to find a good deal, unless you just need to avoid taxation and need a spot to place your money.  That's just my take...

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Hi @Christopher Neeson

     Thanks for sharing your ideas.   Just probably a language thing, but to be clear when you talk about the 4 plex in Anchorage the $55K is the gross income, not the net right?

thanks

Brett

Originally posted by @Brett Roth :

Hi @Christopher Neeson

     Thanks for sharing your ideas.   Just probably a language thing, but to be clear when you talk about the 4 plex in Anchorage the $55K is the gross income, not the net right?

thanks

Brett

Yes I Net averaged $64,000 annually on my 4 plex. Gross about $55,000 which is what I call my profit. Cashflow is slim but it's doing enough that I won't be selling it any time soon. I bring in about $800 a month cashflow give or take. That's not a lot when you consider turn over costs and repairs. It's more of a break even scenario. Since I have gotten rid of property management I have been able to option that cashflow. So about a year and a half now. Prior to that it was a $300 a month out of pocket average which still isn't bad for a first time property purchase.

My wife and myself have learned our lesson on investing in balloon market. If you look at these properties they should be getting Triple the rents in the Anchorage market for the price. 

We have since moved to other areas that share the same average rental rates with 1/4 the cost of purchase thus yielding much higher bang for our buck.  I can say this , the area we are currently targeting has one of the best college tennis programs, and very sought after neighborhoods. It is definitely a B class neighborhood not a B- or C. We rent to the likes of military and professionals.

We paid $137,000 on a house and a duplex on the same property lot. The house yields us $1500 a month and the duplex gets $1,150 per unit. That's a net of $45,600 with a gross of $38,000 on average. Property management is only $50 a door and is amazing in comparison to the Anchorage market. They do everything including snow removal and lawn maintenance. Average renovation has costed us about $4,000 per unit with this property management company and that's new bathroom, new kitchen, rebuilt historic siding, windows, and floor planning and re staining and sealing. 

I've found over 15 other potential markets just like this one nationwide and I'm looking to chase 2 to 3 properties a year with a minimum of 4 units per property. 

We just picked up a 5 unit and an 8 unit that closed in September. Both those properties together had a sale price of $217,000. Property management says we can easily get over $900 per unit. So that's our base, estimates per unit go as high as $1,500. So that's a minimum annual net of $140,400 with a gross of around $95,000. We do expect between $30,000 and $60,000 in repairs but still predict all our properties in this area will pay themselves off in 5 years.

That's why I do this, to replace my oilfield income with passive income. I'm away from home 10 months out of the year. I work very very very hard 7 days a week 12 to 16 hour shifts for 10 months of the year.

With the price of oil doing what it is I see only a gurenteed 2 more years of work then nothing on the projected forecast. Normally oilfield construction is up to 5 years ahead, so ya the signs are here in this Alaskan market that it's going to get hit again with a recession waiting for the next big oilfield boom.

My suggestion to anyone is avoid the big high priced markets. Focus on rust belt, pharmaceutical, military, and university and college towns. Small towns with population of 180,000 to 500,000.  You want a market large enough to self sustain but not too big that it creates a inflated demand and market price.

I'm writing a book on the step by steps I've taken with my wife to find these investment opportunities and how we approached each deal.  If I finish it this winter I'm hoping to publish by fall. If anything it will help someone in the future and that's all I can ask.

Feel free to ask more questions, I'm guarded with my investing markets but I'm very open on what I've done. Listening to bigger pockets podcasts has also helped. I just found out about them this summer. Better late then never I guess, they have been super helpful.

Thanks for inquiring 

Regards Chris Neeson 

@Christopher Neeson

That is helpful info. I'm new at this but seems like the prices in Anchorage (probably other higher priced markets as well) aren't sustainable with the economy the way it is. Makes me hesitant to invest here further.  

Originally posted by @Christina Brown :

@Christopher Neeson

That is helpful info. I'm new at this but seems like the prices in Anchorage (probably other higher priced markets as well) aren't sustainable with the economy the way it is. Makes me hesitant to invest here further.  

 Don't remove yourself from the possibility of investing. Just research where steady demographics are and where future businesses might set up shop to create a lower cost of living for their professionals. It's happening all throughout the mid west, rust belt, and Mid East. You even see Florida cities rotating wealth from one ballon market to other growing markets.

In my eyes you should never stop investing in investment properties, you should just relocate your assets to newly growing economies.

I mean look at Trump, he bankrupted many times relocating assets to another state or even another country that had potential for growth. It doesn't only work for big money , it works for the working class too.

@Joseph King Hi Joseph, it seems as though this thread went a bit haywire. I'll answer your question in regards to 5+ units. Sacramento as a whole has done well, but East Sac (as a whole) has seen healthy appreciation, and investors continue to close on deals with renovation plans to force appreciation. However, East Sac is a large area and there are neighborhoods and areas that are tougher than others. For example, multifamily will invariably trade for higher prices next to the university due to reduced risk of vacancy. However, I find it interesting that no one mentioned downtown and midtown. These markets have incredible walkability, amenities, and a vibe/culture that many young professionals are seeking. The arena has gone in, the Ice Blocks mixed-use project is being constructed at 18th and R, the railyards project is making progress, a 250-room luxury hotel is going in across from the arena, etc. This is a good website to take a look at for upcoming Sacramento projects.

https://downtownsac.org/developments/emerging-proj...

That being said, each and every market will have good and bad deals. The deal is only as strong as the deal is, not the neighborhood.

Also, please don't believe anything that sounds too good, or bad, to be true. While I understand why some people believe we are in a "bubble," make sure you probe them to break down their train of thought. There is money to be made in every market, and adhering to strict underwriting is paramount to operational success throughout the holding period of your deal. While we are definitely in a good market, how much longer we have before it softens is the true question. When people say, "hold off until it softens," they've given you advice without knowing your situation. For example, a high earner with a few million of exchange money in a 1031 exchange has extreme tax implications if the money isn't placed somewhere. Therefore, this hypothetical investor will have much different motivations than someone looking to take down their first property. All in all, do your due diligence on the markets that you've found the numbers to make sense, and underwrite the deal to weather a potential softening of the market.

Kenny Reimer

Yes, sometimes questions can take different tangents- I guess lol. Thanks for all that answered my question. I have been off BP for a bit educating myself. And still plan for MF 5 units or greater. I recently "found" more cash. Now let the search begin. Need to turn on my alerts again.

Joe 

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