Straight Outta Stockton - Anatomy of another Stockton “Deal”

[Chris V.]

Straight Outta Stockton - Anatomy of another Stockton “Deal”

In a previous post I made some bold general statements regarding how hard it is to find an even halfway decent deal on the MLS in Stockton, CA. As a sort of “follow up” I thought I could provide some infotainment to my fellow BPers by backing up my allegations with some analyses of a few Stockton Multifamily properties. While doing so I’ll use the property as an excuse to provide my often colorful and always verbose opinions on the different “types” of multifamily properties that can be found on Stockton’s MLS.

In case you missed my first post, which deals with an over-rehabbed overpriced property on Kelly Drive; you’ll find it: 

Da Straight Dope about “Acapulco Way”. 

Location: 8547 Acapulco Way, Stockton, CA 95210 - Current Price $168K (and dropping rapidly).

Figure 1: Here she is; the Jewel of Acapulco Way! Representing the 209!

Click here to see the listing with interior photos on RedFin.

To create a proper back drop for this review, please open up  in a new window. Trust me it adds more value than a granite counter-top on a house flipping show.

The property we reviewed in the last post was clearly over-rehabbed and overpriced. This one definitely is neither. Judging from the exterior “8547 Acapulco Way” seems in average-for-Stockton-condition. The interior pictures look above average and the numbers look pretty darn good on paper!

So why is the already comparatively low price (currently $168,000!) of this property, which seems to be in pretty decent shape, dropping faster than the brass out of a Glock “for-tay”? And why does the seller seem more motivated than a night-shift 7Eleven clerk who's looking up the barrel of a sawed off 12 gauge? Before we get into that, why don’t we start with ‘da good’:

“Da Good”

This is a Duplex. Most Stockton duplexes are 3 beds and 2 baths, some are 2/2’s. This one however is a weird two story 2 bed, 1.5 baths and 1 car garage type of deal. How one can possibly need two stories to box-in 1000 square feet, two bedroom is beyond me but hey, a two bedroom is a two bedroom!

The building happens to be butt-ugly too. Here is something that would help you get over that: Rents are advertised as being around $800 per side which I feel is pretty reasonable for a small duplex. And being a duplex at $800*2, upwards potential would seem likely!

A total rent of $1600 p/m combined with an asking price of $168,000 brings you as close to the 1% rule as you currently going to get in Stockton a (somewhat) conforming property!

Yes there will probably be some back maintenance but you’ll find that on all these types of properties. With rents at almost 1% of the purchase price, cash flow is all but guaranteed. So this seems like a “righteous” deal right? Actually; I don’t think so.

“Da BAD”

Before I start ripping into this property let me “drop some knowledge” about da 209. Stockton is not exactly a retreat for the rich and famous. Shocker! And while there are better and worse neighborhoods, or more accurately blocks, Stockton as a whole is a little on the rough side. Rough as in: Stockton is usually voted in the top 20 most dangerous cities of the

Figure 2: Stockton, cesspool?

Does this mean that Stockton as a whole is a no-go zone where you need to constantly fear for your live? Where anyone would be crazy to invest? Absolutely not. Or at least I don’t think so. Actually I happen to believe, strongly, that opportunity is found off the beaten path. I think that fortunes are made on the frontier, not safely at home.

Keep in mind that it is this very frontier character that makes that Stockton one of the few places in the general vicinity of the Bay Area where you can, even now, buy properties at prices that would be outrageous in the Bay area, East Bay, or even in Tracy! If a little “rough” upsets you too much I don’t recommend investing in Stockton multifamily properties, period.

My own multifamily properties are in typical cookie cutter neighborhoods in North Stockton. I try to buy in locations that are a bit better than average. However this does not mean that I don’t have multiple properties that had bullet holes in the siding or garage doors. Also I do find the occasional crack-pipe or used condom in the yards. Gunshots can be heard occasionally even in the day time. At night kids will be spinning doughnuts in the intersections with their ’86 Mustang and occasionally lose control and land into one of your lawns:). Garages do get rammed by cars sometimes. One unit had a car end up half way in the living room when someone pulled into a garage that already had a car in itJ.

There was a drive by with 3 injuries around the block from 3 of my buildings and last summer I lend my ladders to police officers who were chasing a dread-locked subject through my yards tacked out with submachine guns and vests. That same day one of my sliders got smashed in.

A few weeks ago I went to do a home inspection and the inspector fished an old .45APC casing out of the yard. And if you want to know, I did end up buying that building. This brings me to my point; there is “not-so-good” and there is “BAD”. Not-so-good is why you get paid, BAD is what they can’t pay you enough for.

So back to the Jewel of Acapulco:). Acapulco Way around a very charming block of fourplexes, which have street addresses on “Santa Paula Way”, “Ponce de Leon” and of course “Acapulco Way”. It is what I consider a bad pocket of Stockton.

Figure 3: Welcome to do hood - The Ponce De Leon, Acapulco, Santa Paula triangle.

Before I became more familiar with that area I once toured one of those fourplexes with a very friendly lady realtor. This was about 3.5 years ago and it was for sale for $175K or so. The units were nice town home style two story buildings. Anywhere else they would have been nice. Not here. The building was in horrible interior shape. There were holes in the security screen door that looked like someone took a fire-axe to the door from the outside. While I was studying those hack marks in the door I noticed lots of little dents and metallicy spots all over the inside of the security door, door frame and wall. It took me a moment to realize that it was a load of 7.5 bird shot. The pattern was about 4½ feet wide while the room from which the shotgun was fired was only about 12 feet deep. That is an enormously wide pattern that I have not seen since Apogee Games released DOOM. I am unsure what went down there but it must have involved someone trying to hack down the security screen door trying to get in while someone from the inside shot at said door with a sawed off shotgun. That property tour really helped to place that area in perspective in my mind. Any look around at the building and the people hanging around should have sufficed but this kind of cemented the feeling. It also helped the nice realtor lady realize that working with investors was not for her and she referred me off the next day:).

However, sometimes I need reminding. Like when the Acapulco property this post is about came on the market a while ago at $175K. I was really dying to buy something with cash flow. I knew better but I just had to drive it... So I did. Sat in front of it for a while and got reacquainted with the surroundings. That helped calm my greed. I invite you to do the same.

Really; go down Santa Paula and around the block a few times. Park for a while somewhere where you can look down the alley. Actually, just drive down the alley between Santa Paula and Acapulco Way. The later in the day the better! That will hopefully cure you of the illusion that numbers on a computer screen in Palo Alto tell you everything you need to know…:)

Figure 4: You wonder what they actually do with the HOA you need to pay...

“But, but, but…” I can hear you say already. “I will hire a great property manager so I don’t have to deal with any drama!” “I will just sit at home and wait for my checks to arrive. Property Management will take care of everything, that’s why I pay them between $64 and $80 per unit right?” Well, again, maybe that will work for you. However, in my experience drama is more contagious than genital warts and should be avoided in equal measure.

While it is highly unlikely that you will have people showing up at your home (Fun fact: unless you use a PO box etc. when buying the property, addresses of property owners are public record and can be found on the internet) their drama will spill over. Into your night’s sleep, into your wallet or, most likely, into both.

But how about tenant screening you ask? “I am just going to pick nice solid people!” To begin with, nice solid people are NOT going to want to pay $800 to live on Acapulco. Now let’s say you do find some great tenants. And they move in. Do you think they will want to stay there? Also, remember you did not screen the people that came with the property…

Final anecdote; this one on tenant screening, which we do a lot of. An applicant: very nice young lady, job young kids, single no records ok credit, not issues of any sorts. Applies and moves into one of my places. No problem at first. Within a few months she starts to see the baby-daddy again. Who turned out to be… Well, let’s just say that he is the type of young man who still has a lot of learning to do. For example where pants are supposed to go and that boxer shorts in general belong underneath the pants etc. He also has a record that would certainly have disqualified him from being on the lease. Anyway, now I have noise complaints of the other tenants, the police was by to settle disputes, all sorts of fun. Oh, and she is all of a sudden a total flake when it comes to paying on time. Can I start procedures to remove them? Yes, and maybe I will, but my point is that whatever happens next, it is going to be drama and it is going to cost me money. My point, screenings only go so far. Also remember that you did not screen the tenants that live in the building when you buy it.

Anyway I hope this explains why new and prospective investors should swipe left on this property. If nothing else you will have learned that if this video https://youtu.be/TMZi25Pq3T8 ever needs a Stockton remake, it can be shot in that alley between Santa Paula and Acapulco way. :)

Figure 5: Free Vehicular Acrobatics Show Every Night out front!

[Chris V.]

Originally posted by @Ryan Fisher:

@Chris V. Hahaha You have to admit to at least not having many dull days while investing and living in Stockton! Good to hear you still finding ways to build your portfolio out in my neck of the woods. Are all of your units SFR?

 Hi Ryan - Yeah Stockton is certainly never dull:). Good thing is that I don't need reality TV shows to make me feel better about myself:), actually I don't even have cable or anything. 

I don't own any SFRs (besides my own:). Just Duplex and Triplexes, I wish I felt I could afford to but SFR's in Stockton, but the CAP rate is just not there right now. Maybe other people can get deals so low that that Buy-and-Hold SFR is viable, but I unfortunately can't.

Even on this last round of multi families that I am closing on next week (two duplexes and a triplex) the numbers look rather dull. I really need to work on getting an off market deal pipeline because I have two mortgages left before I hit the 10 mortgage maximum, but at the rate the market is going up I think I am "out" at "market-prices"...:(