All Forum Posts by: Derek Daun

How did they violate the lease if the lease doesn't say anything about pets?

Overall, not worth it to evict.

@Zachary A.

I just closed on a duplex for 250k that I'll rent to the current occupants for total of 1800 without doing much work, so .72%. That's giving the current occupants a discount as I could easily rent for 2000 if I wanted to put it on the market, probably more. So that's easily potential of .8%. (That is with me paying water/sewer though). But this is in a neighborhood with excellent appreciation potential.

The one thing I should add is that I look for specific deals on the MLS, intentionally buying in the Fall by picking through the properties that fell out of escrow during the peak season, usually due to the buyer not having their act together. So I am buying a little better pricing than straight up MLS purchases. For example, the place I just bought for 250k could have sold for 300k if they had taken proper pictures, didn't let the tenant drive away buyers, and had a more hands on realtor/property management company.

The more I think about, the more I see your deal as not being bad if the tenant is covering all utilities. It depends on the neighborhood though. I wouldn't want that slim of margins in North Sac, but I'd consider it in Oak Park.

In general, I like tweener properties that are too expensive for the flippers, but also not nice enough for a home owner looker for turnkey. I've bought three properties like this off the MLS in the last three years.

With that being said, though, that property by the numbers is not really investment grade, even for me. 1200/188k = .64%. I can find better deals than that on the MLS. You also didn't include water/garbage which a lot of landlords still pay around here, so that's another $150 cost. (Unless you're confident that 1200 rent is with the tenant paying).

When do I see people buying for that rent ratio, it's often in nicer areas, where they will high grade tenants to at least keep the vacancy and repair numbers lower.

@Mike H.

I can easily imagine a situation where it's predatory lending even if they just charge extra rent in exchange for the option. 

If the owner does a credit check and only agrees to contracts with people he has high certainty will not be able to qualify for a loan come contract expiration.

@Pavan Sandhu 

The regulation is only in Sacramento CITY, not county, so most of the greater Sacramento area is not subject to the law. Most of Oak Park is in Sac city though.

@Escott Anderson

I have no idea if the city grants the conditional use permits; I haven't heard of anyone trying to get one. I assume there's a notable cost to go along with it, and being in a residential neighborhood you probably have to go through the whole shebang of having neighborhood meetings and allowing others to protest.

@Pavan Sandhu

You can't legally air bnb a property full time in Sacramento proper. It's a max of 90 calendar days a year if it's not your primary residence. 

https://www.cityofsacramento.org/Finance/Revenue/S...

What are the actual numbers on refinance vs HELOC. I wasn't expecting a HELOC to come out better.

The 50% rule is really just a ballpark, and has less meaning in high cost of living areas. In most high cost areas most of the property price (and rent) goes to the cost of the land, not the house. A 2bed 1bath house that rents for 2k a month isn't going to cost 1000/month in maintenance. 

There is also the option of what most of landlords are doing around here. Raise the rent to 1400. If he stays, then you get the benefit of the new rates while deferring the capital improvements. If he leaves, problem solved. I don't necessarily advocate that though.

@Gordon Cuffe

We're actually in escrow on a duplex in Sacramento from the MLS in a C neighborhood that could hit 1% if we wanted it to. We'd have to evict the tenants, raise the rents to market, and probably touch up the kitchen a bit. There are couple of caveats though that allowed us to get it cheaper.

1.  The tenants have potential to be difficult. They've driven off the previous buyer who was likely inexperienced with the neighborhood, where as our agent and us are more touch with the community. 
2. The property was surprisingly under marketed, which is rare in this market. I suspect the owner has never actually been to the place (from San Francisco) and the agent seems clueless as well. The property is cluttered with junk in the pictures, but when we walked through we were surprised at how good it is underneath. 

We offered list price 250k, pending inspection, but if the seller vacated and cleaned, they could probably list at 300k and sell in a day. 

This is our third year in a row purchasing a property in Fall, and our strategy seems to work fairly well. We scan the listings for all the properties in our target area all summer long, and tour a couple. Come fall, we wait to see which ones come back on the market, indicating there's usually something difficult with the seller. With seasonal demand dropping, we pounce, using our expertise in the area to identify the best tweener properties. (Too expensive for the pros, but just right for us).

Granted, we probably won't make 1% right now; for the time being we'll be favoring the stability of the current tenants (with small rent increases) over accelerated cash flow.