All Forum Posts by: Chris Vail

Curious if anyone has any recommendations for Estate Planners in the Sacramento area that have a good understanding around Real Estate Investments and how to structure an estate accordingly. 

Thanks in Advance,

Chris

@Brennen Cook that link was supposed to be for a rehabbed 3/2 that was very similar to your target property, about a block away and it sold for 410k.

I would say this is a good judge give or take 10k

https://www.redfin.com/city/16409/CA/Sacramento/filter#!sold_within_days=90&status=131&v=8&sst=&lat=38.56090819716683&long=-121.49552035287638&zoomLevel=17

@Minka Sha What kind of questions do you have?  Yes I had that form on my last property but it was a single family home which was not being rented at the time so a majority of the form did not pertain to my situation at the time of the sale.

@Nathan Galvan If this is going to be an investment I would start learning all you can about the numbers side of REI, and start practicing what will make sense when it comes to calculating costs. The more familiar you get with the numbers the more solidified you should be in your decision making when that time comes. Like what @Michael Noto said above your finances will need to be in order and part of that will be what kind of loan you can get qualified for assuming that is the route you head down.

Food for thought here... If 500 makes this a bad deal you are walking away from then it was not a deal to begin with. On the other hand I get the "it's principle" argument but I would still defer to the thought of 500 killing a deal, maybe it's just the area out here in California where I look at houses but 500 should never kill the deal on a purchase by itself.

@Jesse Gebauer

 Hello Fellow North Natomas homeowner.  I can tell you from first hand experience when I listed my rental property back in March that I was receiving 7-8 phone calls a day and all told I think I had about 60-70 either phone calls or emails which turned into 2 qualified candidates.  If you did your home work right and set your pricing correctly you should get a lot of interest, that does not mean you will get a lot of qualified applicants (with actual applications turned in).  Keep us updated on how your open house goes and the future after.

@Stephanie Garcia 

Carrying costs are going to be the money you need to pay the mortgage, utilities, insurance, and anything else that is directly related to owning that piece of property before you get it rent ready and filled with tenants.  Basicly from the time you own the property to the time you get it rented there are going to be costs associated with that piece of property every month, you need to account for these in your cash reserves for the project.

 Closing costs are your title insurance, escrow fees, appraisal, recording fees, fees, fees, fees.  There are lots of them and you want to make sure you are accounting for them in your numbers.  Don't think that 15% down means all you have to bring to the table because you will have all of the closing costs on top of that number just to get the property in your name.  Generally the loan servicer will give you an estimate of what you can expect in the way of fees up front.

@Stephanie Garcia Something that I forgot to mention in all of my calculations up above is what kind of cash you will need to make this work, I only spoke to the down payment on the loan briefly.  This is not the only money you will need, can't forget about closing costs, carrying costs, and rehab costs when formulating what is and is not a feasible plan of attack on an investment.

Like I said Cap Rate does not really apply to anything smaller than a fourplex, people bend the rules and like to use it as a shortcut for figuring out value, however small multifamily and SFH fall under a different valuation generally. Cap rate is still a good way to look at deals but it generally does not drive the market price on these type of units like it does for property that has 5+ units on it. Just something to keep in mind.

@Stephanie Garcia Couple of things.

You say that you would offer 238,000 in your original post, how did you come to this number?  I know that is what the property is listed at but what calculations lead you to think about paying this amount?  What numbers did you use to come to this purchase price?  What return would this give you after factoring in all expenses?  I would say that the 850 for the 2/2 seems low, comps in the area look like to be in the average between 950-1000.  the 3/2 should be able to rent in the 1200 range +/- 50-75.  Which on the low side would give you ~ 950+1125 =2075 in rent lets take this as your starting point Gross income for the year 24,900

Now that we have an estimated rent / Gross Income lets start accounting for things...

Gross Income (GI): 24,900

Vacancy: -1,494 (6%)

Total Gross Operating Income (GOI): 23,406

Expenses...

Property management: -2,490 (assuming 10%)

Repairs and maintenance: -1,245 (assuming 5%)

CapEx: -2,490 (assuming 10%, I generally do a calculation for this on the age of every CapEx item for a property and it is generally around 5%, but this is a duplex so I am taking a short cut and doubling it since you have two of everything except the roof)

Taxes: -2,512 (From the eprop tax site for Sac)

Water / Sewer / Garbage: -2,880 (Approximate, generally around 120 per month per house, again doubled for duplex, you could pass this on to the tenant potentially but accounting for it for now)

Insurance:  -1,400 (this is a pure guess here)

Total Expenses: -13,017 ~55.6% of GOI or 52.3% of GI 

Net Operating Income (NOI): 10,389

Now that we have an expected NOI we need to figure out how much you can pay for this property and still make the return you are looking for. We can use cape rate as a short cut here even though it is not appropriate for a duplex generally.

Lets say you were looking for a 7% cap rate well you would take the NOI and divide it by your cap rate 10,389 / .07 = 148,4114 (this is what this property is worth to someone looking for a 7% cap rate. The purchase price you have listed above of 238,000 also has a cap rate associated it with it NOI / PP = Cap Rate or 10,389 / 238,000 = .0437 or 4.37%.

This is assuming you are paying cash for the full purchase price for this property to get this return, but we know you are not so you are going to have debt service costs. At your purchase price of 238,000 after your 15% down you are looking at a loan of about 195,500 which at a 30 year 4.75% loan your monthly payment is going to be -1,015.8 or -12,189.6 per year.

NOI: 10,389

Debt Service: -12,190 (Rounded)

Cash Flow: -1,801 per year :(

This is the cold hard truth of math.  Now you can manipulate the numbers all you want, for instance you can self manage the property so you will pick up 2,490 (but then you are saying your time is worth 0, Cash flow becomes 689 for the year. You could pass on the cost of the Water Sewer and Garbage to the tenant and pick up another 2,880 or bring your cash flow to 3,569 for the year.

If I was going to offer on this property with out walking it and really seeing what needs to be replaced and fixed prior to raising rent to command the higher end of rent I would offer in the 160,000 range for this property, but that is me and I am not you, so you need to really look at all of the numbers and calculate what your price for the property is and what it is listed at has no bearing on that decision. 

I hope this helps some, feel free to PM me or tag me here if you have more questions.  Happy hunting.