All Forum Posts by: Derek Daun

@Ryan Rogers

If the market crashes, then rents will likely go up even more, so maybe I will make some cash. If it takes 10  years to reach my preferred exit value instead of 5, then I'm making 10% year over year on cash invested compared to 40% on those properties, but then any properties purchased during the crash should do even better!

I don't like the phrase "below market value". What people really mean is "below intrinsic value".

The market value of a house, the amount of money people are willing to pay, is function of many things:

• The intrinsic value
• how well it is staged
• the cosmetic condition
• How well it is marketed
• How easy is the seller/realtor to deal with
• How long are they willing to keep it on the market
• countless other factors

Imagine two architecturally similar houses for sale on the same block. 

• House A has new paint, fresh landscaping, and is staged immaculately. The realtor holds an open house every weekend, and responds effectively to all inquiries.
• House B needs new paint, looks boring from the curb, has a hole in the fence, and isn't staged at all. In fact, in order to view the house, you have to set up a time for owner to leave, since they still live there and they have stuff all over the house.

The market value of house B, i.e. the amount someone is willing to pay for it, may be 30k less than House A. 

The cost to make House B look like House A (including time and money) may only be 3k though. ($1500 for a rental grade painter. $300 for landscaping supplies, $200 for fence supplies, and $1000 for new carpet) I would consider this cost difference to be the intrinsic value difference.  So even if you pay list/market cost, you are paying below the intrinsic cost.

As a California investor, I admit that for all practical purposes, my properties are break even. Especially by the standards most people on Bigger Pockets use.

After using the rent to cover the mortgage (which includes property taxes and insurance) and water/sewer, I only expect to have $200 left. That money will slowly get eaten up by miscellaneous maintenance and vacancy costs. Even if there is money left over, it's a very low return on a 200k property.

However, there are a lot of caveats as to why I believe this will work for me.

• Self managing = zero management costs
• Properties start in good condition, so I can minimize maintenance costs
• I plan on selling properties in less than 5 years after purchase to further decrease likelihood of large capital improvements becoming necessary.
• I have reserves in case large costs come up, as well as a 30k credit card if stuff were to really hit the fan
• I invest in a transitioning neighborhood, in a transitioning city, in a high appreciation state.
• I start with added value on day one.

During my daily Redfin log in this afternoon I noticed they're advertising 1.5% commission to sell a property. I'm not sure if this is a new price or just new advertising. 

Does anyone have experience with this rate? Is it legitimate? Are there other fees? Could this have an impact on what RE agents charge?

I haven't gone to the auctions myself, but I have followed a handful of auction based deals over the years.

In 2011, 30k could have gotten you some great deals. I can't imagine those deals existing in 2016 though. I would assume that any property going for 30k would be in the shape that it would require at least that much additional money in rehab (probably a lot more). Maybe I'm wrong though.

30k does give you enough money to buy a 150k property at 20% down. Those deals do still exist around here.

This is the first time I've seen that site, and this awesome!

It may not list the owner, but it does list the legal square footage and where it comes from. I work in the old neighborhoods, and this is really useful to determine what additions have been permitted/grandfathered as living space and what hasn't!

Most landlords still pay water/sewer/garbage in Sacramento. A lot of central Sacramento still doesn't have water meters, so it's an easy fixed cost to just build into the rent. Personally, I prefer doing that as those bills end up getting stuck to the property as compared to the tenant if they are left unpaid. With water meters slowly being turned on, charging water to the tenants is becoming more common; I've heard there ways to have the tenants direct billed for just the water portion.

As far as the best cities around Sacramento, I still prefer transitional neighborhoods in Sacramento itself. But that's partly because I'm too lazy to go out of town.

@Joe Bertolino

Rental inventory in Oak Park is the lowest I've seen it. (Assuming Craigslist is a good indicator).  I think Oak Park is taking in a lot of refugees from the great Midtown rent increase of 2015. Surprisingly, I haven't noticed that big of rent increases in Oak park....yet.

Sacramento investor here.

Cost of renting is going up due to lack of inventory. I suspect this is due to a lot of the shadow inventory having finally worked its way out, and construction not having picked up yet to compensate. The same inventory shortage is causing a price increase to owner occupy though, so I'd be surprised if this caused more people to decide to buy vs rent (for most areas). 

This is still a pretty good time to invest in rental grade neighborhoods. The forces driving prices up in owner occupier neighborhoods lag affecting the rental neighborhoods as much. Renters are more willing to move to adjacent neighborhood for a small decrease in rent. They are much more selective when buying a home though, and may not move to the adjacent neighborhood except for a much larger discount. Raises in rent will affect the selling price of rental properties eventually though.

Bonus points if you can buy in a rental grade neighborhood that is transitioning to an owner occupier neighborhood. 

Regarding your comment to Sacramento being the cheapest place in CA. California is a really big place, but very generally you have two very different areas; the extremely expensive coastal areas, and the more rural inland central valley area with cities like Bakersfield, Fresno, Modesto, Stockton, ect. 'Rural' isn't exactly the correct word, since some of these cities are the largest in CA, but the industry is primary agriculture. Prices can literally be a magnitude cheaper going inland. Sacramento is technically a central valley city, and up until recently everyone on the coast still considered it one from a cultural perspective. (Many probably still do.) The last 10 years has changed a lot in Sacramento though, and the city now sports a very cosmopolitan urban environment, so it's now more of a tweener city. Property values are significantly cheaper than the San Francisco Bay area, although it offers many similar cultural amenities with walk-able neighborhoods. Additionally jobs aren't as good as the Bay Area, and weather isn't as nice. 

@Jorge Soto I didn't receive the notice of an inspection in the mail until about a year after I returned the form to fill out. So if you just returned the form now, you probably have a bit of time.