Investor · Sunnyvale, CA · Member since 2014 · 15 posts · 5 votes
Hey Fellow BP'ers,
I've started working with a RE agent in the Sacramento area to help identify possible buy and hold properties <$150k to be rented out. I've even expanded the search to condos with lower HOA fees <$150/month as the cash flow doesn't seem to be there at all. Our search has been primarily around the Natomas - Downtown areas, but there just don't seem to be any properties that make sense...like 2% cap rate kind of deals are what I'm seeing after crunching the numbers :(
My question is - are there any investors out there in the Sacramento area seeing deals over a 5% cap rate? What neighborhoods seem to make sense if a low cap rate is incurred...meaning is that a growing/great neighborhood with values expected to rise?
I'm willing to take a hit on cap rate if there are undervalued neighborhoods worth looking at that can grow in the next few years...or are being gentrified.
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
Hi Ahmed,
Well, I can't give you current activity but we bought a few properties in 2009 in Sacramento. We still own one in the 95838 zip, on Municipal Drive. We bought it for $125k, it's a 3/2 and we put a good amount of work into it. We've had the same renters there since 2010 and are getting $1350 per month, we haven't raised the rent. I think the 1% rule is harder to find these days. We have taken the rest of our investing outside of California.
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
Hi Ahmed,
Well, I can't give you current activity but we bought a few properties in 2009 in Sacramento. We still own one in the 95838 zip, on Municipal Drive. We bought it for $125k, it's a 3/2 and we put a good amount of work into it. We've had the same renters there since 2010 and are getting $1350 per month, we haven't raised the rent. I think the 1% rule is harder to find these days. We have taken the rest of our investing outside of California.
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
I agree, we know the prices have gone up since '09, I was just trying to give my perspective. Again, this is part of the reason we've taken our investing out of state, because we know we can't get these kinds of deals anymore.
Investor · Sunnyvale, CA · Member since 2014 · 15 posts · 5 votes
12y
Thanks @Eric Black and @Jason Flynn . I think this is what we're finding. Wanted to see if there were any areas I'm missing in my search...but man, it's tough to find a deal that makes sense in CA for buy and hold.
Hope your property has appreciated nicely since 09!
Thanks @Eric Black and @Jason Flynn . I think this is what we're finding. Wanted to see if there were any areas I'm missing in my search...but man, it's tough to find a deal that makes sense in CA for buy and hold.
Hope your property has appreciated nicely since 09!
Have you tried Porterville, CA? The fact the home prices are going up almost everywhere, I decided to stay local. I feel I get more value for the dollar investing at home. Gasp!!!
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
@Jason Flynn I'm a native Californian and would love to be able to own more property here but the numbers just don't make sense. PM me if you have questions or want to hear our experience. Just remember, it's not as scary as it seems!
Actually, closer to $1.5M - $3M range, but I'm talking about apartment buildings. I just sent out an all cash offer for a 13-unit building for $1.7M a couple of days ago. Hope to hear back on Monday. 4 units are vacant. Building needs about $350k in rehab due to extensive deferred maintenance. Fingers crossed.
J Martin picked up his 4plex up for under $400k in Oakland. Average rents are about $1,400/month/unit. Rehab is about $40k. His property was financed at about 4.5% with 25% down.
Actually, closer to $1.5M - $3M range, but I'm talking about apartment buildings. I just sent out an all cash offer for a 13-unit building for $1.7M a couple of days ago. Hope to hear back on Monday. 4 units are vacant. Building needs about $350k in rehab due to extensive deferred maintenance. Fingers crossed.
J Martin picked up his 4plex up for under $400k in Oakland. Average rents are about $1,400/month/unit. Rehab is about $40k. His property was financed at about 4.5% with 25% down.
Well that's all fine and dandy however in his post he mentions he's looking in the $150k range. Good to know though if he comes across $1.5M!
Amed, why not think bigger? Lenders will count 75% of rents making qualifying very easy. With homepath, you can buy for as little as 10% down with no PMI. This is for 1-4 units.
If you're keen on Sacramento, you might want to get in touch with @James Peterson and some local brokers there. James sent me a $35k condo deal in Sacramento several months ago. Rent comps were $700 - $750/month. I passed on it because ........ it was in Sacramento. With that said, you may not be looking at the right place.
There's so much money to be made in the Bay Area IMO, but it's not easy for newbies to break into this network. Like water, people tend to find the path of least resistance. Unfortunately, the path of least resistance has its price. If it were easy, everyone would be doing it, wouldn't agree?
If you want to expand your learning horizon a little bit, I recommend reading From Janitor to Multi-Millionaire by Rich Weese and the Millionaire Real Estate Investor by Gary Keller. These book will make you look for deals where you haven't thought about before.
Rental Property Investor · Where we are parked · Member since 2013 · 584 posts · 178 votes
12y
Careful @Account Closed. True, lenders will count 75% of rent as income, IF, you have already been a landlord/investor for at least 2 years. If it's less than that then they'll consider 0% as income and you'll have to qualify on your own.
Great recommendations on the books. I'm just finishing up Millionaire RE Investor and will look for the other one. Thanks also for the reference for the broker in Sac.
It's my understanding that some lenders have loosened up their underwriting standards since 2012. No need for 2 years of landlording experience fortunately. If the property is vacant, the lender will order a rental comps and use 75% of the projected rental income toward your qualification. Maybe my loan officer is just good. I'm more than happy to refer him to anyone.
I had a meetup in Sacramento with some good folks, so you may consider reaching out to some of them on the forum below to ask about the Sac market specifically.. Maybe just a link to this posting on my meetup posting, and tag a few people on there, since you are probably not colleagues with them yet.
I bought a beat-up 4plex in East Oakland (82nd Ave) a couple weeks ago w/ 3 vacant units, and projecting a cap rate of about 8-9% and GRM about 7X, w/ CF just over 10% on all-in investment, after it's leased up. About $150K in capital.. to answer your question @Eric Black . I don't have the numbers in front of me but about $425K total cost, $150K invested, and $5k/mo in gross rents. This is NOT for sale or offering anything. just my numbers on a deal I'm holding. Btw, Eric, I saw you're in Santa Maria. I grew up in Nipomo.. Have a steak for me at Jocko's!
Thanks for the shout-out at @Account Closed . Although I do have to correct you on one thing.. You cannot do the Homepath for 10% down non-owner occupied on 4 units. It's at least 20%, but I believe 25% down. Correct w/ no MI, but the rate is higher, so a but if a push - except that the extra rate never rolls off once you hit 78% LTV on the amortization schedule.
Can't remember the number down for the duplexes, but its higher than SFH. My understanding is you can only do 10% down on single-unit properties for non-owner occ Homepath financing. Even with owner-occ, you can't do 5% or 10% down on a 4plex w/ the Homepath financing. If I am incorrect on this, please slap me now, so I can go buy a few more Homepath properties! (have closed on 2 Homepath 4plexes so far) - one with FHA and one conventional 25% down..
I had a meetup in Sacramento with some good folks, so you may consider reaching out to some of them on the forum below to ask about the Sac market specifically.. Maybe just a link to this posting on my meetup posting, and tag a few people on there, since you are probably not colleagues with them yet.
I bought a beat-up 4plex in East Oakland (82nd Ave) a couple weeks ago w/ 3 vacant units, and projecting a cap rate of about 8-9% and GRM about 7X, w/ CF just over 10% on all-in investment, after it's leased up. About $150K in capital.. to answer your question @Eric Black . I don't have the numbers in front of me but about $425K total cost, $150K invested, and $5k/mo in gross rents. This is NOT for sale or offering anything. just my numbers on a deal I'm holding. Btw, Eric, I saw you're in Santa Maria. I grew up in Nipomo.. Have a steak for me at Jocko's!
Thanks for the shout-out at @Account Closed . Although I do have to correct you on one thing.. You cannot do the Homepath for 10% down non-owner occupied on 4 units. It's at least 20%, but I believe 25% down. Correct w/ no MI, but the rate is higher, so a but if a push - except that the extra rate never rolls off once you hit 78% LTV on the amortization schedule.
Can't remember the number down for the duplexes, but its higher than SFH. My understanding is you can only do 10% down on single-unit properties for non-owner occ Homepath financing. Even with owner-occ, you can't do 5% or 10% down on a 4plex w/ the Homepath financing. If I am incorrect on this, please slap me now, so I can go buy a few more Homepath properties! (have closed on 2 Homepath 4plexes so far) - one with FHA and one conventional 25% down..
I agree that $150k in capital can easily be used to purchase a much larger/more expensive property. He didn't post however that he had $150k in cash to purchase a $150k property. I can't speak for him but I am assuming he is trying to finance a $150k property since he can't seem to find anything where the numbers make sense. If he could pay $150k cash for a $150k property then making the number work wouldn't be as difficult. Again, this is just an assumption on my part.
You are partially correct in that Homepath financing can be "as low as" 10% for NOO but it can be as high as 20% also. I can't speak to the multi-unit as I have not explored those, but would be interested to know.
Real Estate Agent · West Sacramento, CA · Member since 2014 · 39 posts · 14 votes
12y
There are deals to be found in Sacramento. You need someone who gets out there and finds them. A property was sold for cash buyers only for 120 a few months ago. Investor bought it, cleaned up (literally just cleaned it up and painted it only) put back on the market for 180. Sold in a month. They are out there. I just got hold of a bunch of properties which wont be on the mls. PM me and we can talk.
Rental Property Investor · Tampa, FL · Member since 2013 · 404 posts · 421 votes
12y
I own and manage several homes in the Sacramento area and I am always looking for more to buy. I can tell you there are very few deals under $150k that do not need a LOT of work or are not in a war zone (unless it is a condo or studio, and those are hard to find and will allow investors to purchase). This is why I have moved to purchasing in another state.
I have lived here for 30 years and am very familiar with all of Sac. I know that if you want to stay under $150k, and don't live locally, you need to find agent who deals with investors and you need to either have cash or be ready to move very quickly. I'd also start making friends with people here and the REIAs that may be able to tip you off to a deal that isn't in MLS. I think it will be tough though. Good luck.
Thanks for pointing out Eric. I forget not everyone uses leverage lol. A good colleague and friend now working for the Federal Reserve Bank once told me:
"If cash is king, then leverage is god."
I'm a fan myself, but like it giveth, it can taketh away..
Investor · Sunnyvale, CA · Member since 2014 · 15 posts · 5 votes
12y
Wow, this has been a great thread for learning on my end so far. Keep the thoughts coming!
@Account Closed I'm leaning towards out of state. Any cities/states you are investing in which have been worth the effort? Sounds like Milwaukee, WI has some buzz right now and the numbers look good. Also see a lot of Chicago, Philly, Indy, Houston,...as the numbers look good there as well.
I was talking to my wife last night about how the old adage in real estate was that it's all about being local. I think that's a great notion for the obvious reasons of being down the street from your properties. But, it's a dated notion imho. Now there's Zillow, Google Maps, Rentometer, and a whole ton of tools that cut the barrier drastically. I don't see the difference in catching a flight if I have to drive 2+ hours.
Anywho, a lot of good food for thought right now. I'm staying the course on acquiring a lower purchase price place out of state if need be. Forcing myself to stay the course and commit to the first purchase. Hope to have updates as I go along!
Check out my website in my signature to get the link to the meetup group, to get notified, if you want to come. At least one each month. Btw, the classic real estate adage is:
LOCATION, LOCATION, LOCATION
I believe the "all real estate is local" was not referring to investing in something nearby where you live. It was referring to the fact that all real estate markets are different, and following.. the employment, income, demographics, supply of land & housing, desirability, demand, etc. in that particular local market will determine what happens there.. At least that is my understanding.
I think that is still true. But it doesn't mean you have to invest locally.. Just to understand the dynamics in whatever market you choose to invest in.. Some people find that easier to do in areas they are more familiar with already (closeby). Many others do their homework on other areas out of state. And many others leave all of that to someone else.. I recommend one of the first two ;)
I think you nailed it there going a bit deeper with the real estate is local saying. I'm definitely going to be looking at other cities in the same way I would my own neighborhood when looking for a home - schools, jobs, industry, outlook, incomes, etc. I think it comes in handy to have friends or even coworkers who are homeowners in that prospective city.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
12y
just keep in mind, those fly over states properties with higher cash flows, A- give you almost zero future appreciation, B- higher risk of vacancies and repairs because you are not there and do not know the neighborhoods well. These are nothing like the reliability and quality of tenants in the Bay Area!
My suggestion: consider slightly more expensive homes, like low $200k, to get into decent hoods with appreciation potential being as important as immediate cash flow. Or look into 2-4 units. I'd also look into slightly more sketch areas of San Jose or further down south, or Oakland, Fremont, San Leandro, as they're all closer to Sunnyvale, before jumping into Sacramento. Your cash flow may be small or non existent at first, but if there is some upside in repositioning or renovations, you'll build equity back in and probably get better cash flow in 1-2 years. Then watch your appreciation grow! Chasing after the highest cash flow (and disregarding the above) is a fool's errand IMO.
just keep in mind, those fly over states properties with higher cash flows, A- give you almost zero future appreciation, B- higher risk of vacancies and repairs because you are not there and do not know the neighborhoods well. These are nothing like the reliability and quality of tenants in the Bay Area!
My suggestion: consider slightly more expensive homes, like low $200k, to get into decent hoods with appreciation potential being as important as immediate cash flow. Or look into 2-4 units. I'd also look into slightly more sketch areas of San Jose or further down south, or Oakland, Fremont, San Leandro, as they're all closer to Sunnyvale, before jumping into Sacramento. Your cash flow may be small or non existent at first, but if there is some upside in repositioning or renovations, you'll build equity back in and probably get better cash flow in 1-2 years. Then watch your appreciation grow! Chasing after the highest cash flow (and disregarding the above) is a fool's errand IMO.
I have to respectfully disagree with your post. So finding good cash flow is more foolish than speculating for appreciation? With cash flow you at least get some return on your investment from day one. Chasing appreciation is what got us into this mess, and great market for investors, in the first place. One part of your post is relatively accurate, that the appreciation is much less in those states. On the other hand, when your properties in Oakland and the Bay Area dropped by 50% and your appreciation suddenly disappeared, those properties in the fly-over states dropped slightly but still had positive cash flow paying the bills every month. And they don't have rent control either like San Francisco.
Going into Oakland over Sacramento, really? Besides the hope for appreciation, high crime and high unemployment, what else makes Oakland that much better of a market? And if he lives near Sacramento, is he really going to know the neighborhoods in Oakland better than in another state? One's a 2-hour drive, one's a 2-hour flight.
Why does the property being located further away have a higher risk of vacancy and repairs? Do things break more frequently when the owner lives further away? Vacancy and repairs have absolutely zero to do with the distance from the owner.
I hope you and other investors who are able to invest in the Bay Area make great money with appreciation over the next few years. I would be cautious however to advise new investors to choose speculation as their strategy on their first investment. IMO.