Input needed on a duplex in Stockton CA

27 Replies

Hello Everyone,

I need everyone's input on a deal that I'm in the process of making.  Here are details:

  • Specs: Duplex built in 1976, each unit with 3 bedrooms and 2 bathroom
  • Purchase price / financing: $199,000 with 20% down
  • Rented: Both units are rented at $950/unit/month = $1900/month
  • P&I:  $770 
  • Insurance: $75
  • Property taxes: $199
  • Maintenance, repairs, reserves: 15% of total rent = $285
  • Utilities: $0
  • Property Management: $0 I will do it myself 
  • Vacancy: 10% of total rent = $190
  • Cash flow:
    • 1900-770-75-199-285-190= $381
  • Tenants are section 8 with roughly 60-40 split between housing authority and tenant (40%)

There are couple of minor issues with the property which would need about $2000 of work but not currently required.  Only because I would like to see my property in a little better shape.

Does this sound like a good deal?  What concerns would you have?  Is it difficult to deal with section 8 tenants then normal?  Are there any pitfalls or things that I'm not accounting for in my assumptions above?

Please note anything else you feel may be helpful to us.  Your input is much appreciated.  Thank you much.

Its not a homerun by any means @Rahul Singh . You should add in 10% for PM even though you are doing it yourself. A bank will likely figure it into their analysis unless you are an experienced landlord. Also I would reduce vacancy to 8% (thats about one month rent). Also you should have about 6 months of reserves in case you lose a tenant since you will then be negative cash flow. Minor stuff but either way $300/mo isn't a very appealing return on $40K. 

Thank you @Rob Beland for your input.

Unfortunately, this is best ROI you can get close to us here for decent property.

What is your rule of them as far as COC return goes?

You can do better than $100k per unit in Stockton if you are willing to deal with Section 8 tenants. Look at 1117 S San Joaquin... 5 unit for $225k with better cash flow. In good condition. I think the Central Valley is great but you need to look at 4+ units.

Thank you @Joe Bertolino

 I don't want to be close to MLK Blvd in south Stockton.  I have friends who lived there and recommended to stay away from those areas.

My property is in North Stockton very close to Madera.  There are numerous new single family home in the area so I'm hoping for better appreciation on the property as well.

@Rahul Singh That's not a bad return for this area right now.  You don't give the exact address, but I'm assuming it's maybe in the Fox Creek area which is close to Morada (as opposed to Madera which no part of Stockton is close to).  If so, the Fox Creek area isn't the best, but it isn't the worst either.  Fortunately the rental market in Stockton is very strong right now, so you should have a fair amount of applicants to choose from.  I just finished a remodel and rent-up of one of my North Stockton properties last week, and I had a TON of calls and applicants on it starting about an hour after I placed my ad.  I ended up finding a tenant after only one day on the market and had it leased and money collected by the next.  One of the applicants told me that they had been looking for 3 months and either they didn't find anything nice enough or they were losing out to other applicants because of all the people out there looking right now.  So it's a good market for landlords right now.  Best of luck to you.

Hi @Rahul Singh, I'm curious how this deal turned out for you.  Did you end up making the purchase?  Have the numbers worked out as you expected so far?  Have you had good luck getting tenants in?

Thanks!

L'aura

Hi @L'aura Bradford No, we decided not to go through as per recommendations from a knowledgeable realtor that we found in the area.  She recommended that maintenance requirements in that area were going to kill our cash flow along with some other concerns.

These duplex only look good in pictures.  Our walk through raised some concerns as well.  We request an inspection contingent deposit but the seller insisted an as-is offer.  We couldn't afford to make any mistakes with our first investment.

Good luck!

@Rahul Singh do you mind sharing some of your experience.  My friend and I are looking at a duplex in North Stockton (east of Morada) that's on the market for $175K and a combined rental of $1600 . I have run the numbers and it's coming out cash flow positive. Haven't really gone out and seen the property yet. Wondering what kind of maintenance requirements in the area dissuaded you from making the move?

I looked up the payment standards for Section 8 in Stockton, and for a 3 bedroom unit, you should have been able to get $1339/month from the housing authority for those units, by getting a new contract at the increased payout rates. 

http://hacsj.com/housing/HCV/Income_Limits%2003282...

For future reference, with Section 8, look at the current "payment standards" for the city or county.  If the current rent isn't the latest max amount, you should be able to enter into a new contract for the new maximums.  It appears from looking this info up for people, that the housing authorities don't volunteer this info to landlords already under contract at an old payment standard.

@Rahul Dutta If we are talking about the same units closer to highway 99 near fox creek, then the units look fine from the outside but pay close attention to the units itself.  Make sure you put in a contingency for home inspection as most seller in the area are usually selling as is.  Another issue that was raised to us was bug infestation there so get that checked out as well.  We were also told that you should be ready to do complete renovation every 5 years or so.

As Sue mentioned, you may be able to get more in rent under new contracts.  Good luck.

Originally posted by @Rahul Singh :

Hello Everyone,

I need everyone's input on a deal that I'm in the process of making.  Here are details:

  • Specs: Duplex built in 1976, each unit with 3 bedrooms and 2 bathroom
  • Purchase price / financing: $199,000 with 20% down
  • Rented: Both units are rented at $950/unit/month = $1900/month
  • P&I:  $770 
  • Insurance: $75
  • Property taxes: $199
  • Maintenance, repairs, reserves: 15% of total rent = $285
  • Utilities: $0
  • Property Management: $0 I will do it myself 
  • Vacancy: 10% of total rent = $190
  • Cash flow:
    • 1900-770-75-199-285-190= $381
  • Tenants are section 8 with roughly 60-40 split between housing authority and tenant (40%)

There are couple of minor issues with the property which would need about $2000 of work but not currently required.  Only because I would like to see my property in a little better shape.

Does this sound like a good deal?  What concerns would you have?  Is it difficult to deal with section 8 tenants then normal?  Are there any pitfalls or things that I'm not accounting for in my assumptions above?

Please note anything else you feel may be helpful to us.  Your input is much appreciated.  Thank you much.

Actually based on my (very recent) Stockton market experience I think this deal is a little better than market or as good a deal you are going to get of the MLS today.

I would be interested in that unless the area was HORRIBLE. That brings me to the following: Those rents ($950X2 seem high for a north Stockton 3/2). How long have those tenants been there? Are they paying? Or were they stuffed in there real quick to make the place look good?

Below some Asking price numbers that I was looking at this week. The "Setup" means Bed/Bath, so a 2/1 /2/1 2/1 is a triplex with each two beds one bath.

By the way, I have looked at a lot of property there recently and I have not seen any that only needs $2000 in repairs / back maintenance if you wanted to do them well:).

Anyway, only you can decide if the deal work for you, just the fact that it's as good as it gets at today's prices does not make it a good deal for you. But again, I'd be very interested (if i was not already in escrow on some other "deals" that by the way are on paper worse than your scenario:)...

Good luck making your decision!

@Chris V. Thank you for the input.  We decided to not pursue that property but @Rahul Dutta is looking to invest in the area.  I'm sure your feedback will help him make his decision.

Good luck!! Rahul Dutta.

Originally posted by @Rahul Singh :

@Chris V. Thank you for the input.  We decided to not pursue that property but @Rahul Dutta is looking to invest in the area.  I'm sure your feedback will help him make his decision.

Good luck!! Rahul Dutta.

 Good that you made a conscious decision based on looking at the property, you are actively looking into potential deals and that's how you will find one that right for you. There are lots of different types of investors and I have realized some time ago that  Stockton-multi-family investing is definitely not for everyone. You have to deal with a lot of "stuff" that you (assuming you made reasonable choices in your life so far:) ) normally would never have to deal with. There is some pay-off yes, but I am sure there are much better opportunities to be found if you look at it nation wide. For me it was the low threshold that got me to go there in the first place and now I feel I have some modest experience in the niche so I am trying to capitalize on that for a bit.:)

Good luck finding your niche!:)

@Rahul Dutta

I have run the numbers and it's coming out cash flow positive.

Considering the fact that you have not seen the property, and neither have I , when I run the numbers I get negative cash flow on the property you are considering. How do you come up with  positive numbers.

Hello @Rahul Dutta and @Rahul Singh did you buy a duplex yet? I bought my first duplex in MN with a Conventional 3%Down and No Mortgage Insurance (its way better than FHA) and it works in CA also. Message me if you need specifics and I can share my story

Originally posted by @Conor Hesch :

Hello @Rahul Dutta and @Rahul Singh did you buy a duplex yet? I bought my first duplex in MN with a Conventional 3%Down and No Mortgage Insurance (its way better than FHA) and it works in CA also. Message me if you need specifics and I can share my story

How were you able to get 3% down with no PMI? Is there a higher interest rate as a trade off?

If you could refer me to your lender that'd be great, thanks. 

nope my rate is really low. You don't have to be a first time buyer but you cannot own other properties at the time of closing.  As this Duplex was my first home it worked perfectly !

Hello Conor ! That's fantastic that you bought a duplex with 3% down and no mortgage insurance!  What type of credit score does someone need for that?  What sort of income level does an applicant need ?

Does it matter if you own another property but it is in another state from where you buy the duplex?

@Tricia O'Brien you don't have to be a first timer but you cannot own other properties at the time of closing and its not in Alaska (I just checked)

Hey @Conor Hesch, What kind of loan is it that works everywhere except Alaska?

@Rahul Singh thanks for all the info. Really appreciate it. We are not pursuing investments in Stockton at this point. Will watch the market a bit more before making the plunge there. 

Hi @Rahul Dutta   - Just kind of curious, what are you watching the Stockton CA market for? Are you expecting things to go down? Or is there another CA market where you see better returns?

@Thomas S. I drove the cash flow numbers as below. 

Price = $175,000

Rent @ 800X2 = $1600/month

Vacancy losses @ 10% = $160/pm

Property tax @ 1% annual = $146/pm

Insurance = $100 /pm

Prop mgmt @ 5% of rent = $80 / pm

HOA = $33 / pm

Maintenance @ 10% = $160 /pm

Mortgage (P&I) @ 3.5% = $510

Total operating expenses = $1189

Cash flow = $1600  - $1189  = $411/pm