All Forum Posts by: Eric Hamm

What are you trying to do? What kind of IRR or returns are you after? Or are you looking to hold forever?@Juan Carlos Venegas

@Juan Carlos Venegas is right, North Merced is the "nicer" (more expensive) part of town. However, there are great little pockets of neighborhoods in some of the older areas of town that are worth exploring. 

Having said that....almost NOTHING pencils right now in Merced (for most types of investments). There is a housing shortage, but rents haven't caught up with what it costs to buy. 

It's possible. You won't find anything on the MLS. Your best shot at finding something reasonable to work with would be through marketing (direct mail, phone calls, etc). There seems to be be pretty good demand for short term rentals and not a lot of supply…especially in some of the better located neighborhoods.

Not sure if you’d be interested it there seems to be pretty good demand and not enough supply of short term rentals in better located neighborhoods.  You wouldn’t think if Merced as a tourist destination, but with the UC and the proximity of Yosemite, I’ve heard there’s strong demand.

Hi Caroline!  I've lived in Merced most of my life and invest here.  However, I invest primarily in commercial & multifamily.

Finding a SFH in a Class B neighborhood that generates cashflow right now isn't going to happen if you are financing. If you are looking to pay cash, you might see a 4-5% return. The average home in Merced is $400K+ (maybe higher in a B neighborhood) and rents for a 3 or 4 bedroom are roughly $2k per month. Those are ballpark numbers, but you get the picture.

As far as neighborhoods go...Merced is growing fast.  North Merced is considered the A/B part of town.  The UC is in North East Merced so a lot of the future growth will be in that direction.  However, growth is really everywhere.  I like our downtown (17th Street > 24th-ish).  There are older homes that are in various states of repair.  Some very nice...some not so much, but quaint.  If you can find a small multifamily there, it might cashflow with some appreciation potential.

I'm happy to help if you have a specific property you are looking at.

Best of luck!

Thank you guys!  I'm looking to do more...I'll keep BP posted.

BTW....the photos I posted are BEFORE photos.  I'll try to get some AFTER photos posted soon.

Investment Info:

Retail commercial investment investment.

Purchase price: $840,000

I bought a run down, nearly vacant commercial property. The property consists of 3 Retail units and 3 Office units. I initially invested $250K of my own money (through a HELOC on my home) and borrowed $800K from a private lender. Once I'd rehabbed and rented out the units, I refinanced the property 100%, pulling all of my initial investment out. Net cashflow is around $4500 per month after all expenses including my mortgage and reserves.

What made you interested in investing in this type of deal?

I saw an opportunity in our fast growing downtown and wanted to be a part of the beautification and vitality of my hometown.

How did you find this deal and how did you negotiate it?

It was brought to me by a broker. The property was bank owned and in poor repair. The bank was a small bank back East. They were having trouble getting it leased and just wanted it off their books. It was listed at $1.4 Million originally. They'd dropped the price to $1.2M. I offered $700K and we eventually agreed to $840K. During due diligence, I negotiated a $40K concession because the HVAC and electrical needed about that much work. So, net I really paid $800K.

How did you finance this deal?

I used $250K from a HELOC on my personal residence and borrowed $800K from a private lender. It turned out to be a commercial BRRRR deal in that I was able to refinance the entire amount, leaving me "in the deal" with $0.

How did you add value to the deal?

The building needed a LOT of work:
New roof
New electrical
New windows (more for visual appeal)
All new interiors
New HVAC

What was the outcome?

It's completely leased! And generating roughly $4500 per month in passive income after reserves and mortgage are paid.

Lessons learned? Challenges?

Keep looking! It took me 4 or 5 months of calling brokers, searching loopnet, running numbers....

Then it took me about 6 months to get my first tenant. That time period was nerve racking. But once I got my first tenant, the rest came fairly quickly.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

The broker I worked with is no longer in the business. However, I've used Eddie Laplante at Next Door Real Estate for the majority of my leasing. He's the best commercial realtor in Merced!

Investment Info:

Retail commercial investment investment.

Purchase price: $840,000

I bought a run down, nearly vacant commercial property. The property consists of 3 Retail units and 3 Office units. I initially invested $250K of my own money (through a HELOC on my home) and borrowed $800K from a private lender. Once I'd rehabbed and rented out the units, I refinanced the property 100%, pulling all of my initial investment out. Net cashflow is around $4500 per month after all expenses including my mortgage and reserves.

I was scared to death...this being my first commercial deal. But it's worked out great!

What made you interested in investing in this type of deal?

I saw an opportunity in our fast growing downtown and wanted to be a part of the beautification and vitality of my hometown.

How did you find this deal and how did you negotiate it?

It was brought to me by a broker. The property was bank owned and in poor repair. The bank was a small bank back East. They were having trouble getting it leased and just wanted it off their books. It was listed at $1.4 Million originally. They'd dropped the price to $1.2M. I offered $700K and we eventually agreed to $840K. During due diligence, I negotiated a $40K concession because the HVAC and electrical needed about that much work. So, net I really paid $800K.

How did you finance this deal?

I used $250K from a HELOC on my personal residence and borrowed $800K from a private lender. It turned out to be a commercial BRRRR deal in that I was able to refinance the entire amount, leaving me "in the deal" with $0.

How did you add value to the deal?

The building needed a LOT of work:
New roof
New electrical
New windows (more for visual appeal)
All new interiors
New HVAC

What was the outcome?

It's completely leased! And generating roughly $4500 per month in passive income after reserves and mortgage are paid.

Lessons learned? Challenges?

Keep looking! It took me 4 or 5 months of calling brokers, searching loopnet, running numbers....

Then it took me about 6 months to get my first tenant. That time period was nerve racking. But once I got my first tenant, the rest came fairly quickly.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

The broker I worked with is no longer in the business. However, I've used Eddie Laplante at Next Door Real Estate for the majority of my leasing. He's the best commercial realtor in Merced!

It may sound crazy, but I learned a lot when I was starting out by reading "Commercial Real Estate for Dummies".  It goes over the basics and gets into some of the nuances as well.

@Suman Kumar...I own Next Door Real Estate in Merced, a family/locally owned brokerage.  I've lived in Merced my entire life (except for 4 years at Cal Berkeley for college) and know the area very well.  My wife and I also invest here. 

I'd be happy to talk to you if you are interested.  Let me know!

@Julian Pulido it sounds like you guys are doing all the right things!  Congratulations!

I would approach the purchase of your first home with "investor eyes".  By that I mean, look for something you can be happy in, but that in a couple of years you can move out of and rent out.  

Downtown Merced is a great place to look - there are many homes and neighborhoods that have ADU's (granny units) or detached garages that can be converted into an ADU. You can rent out the ADU (or the house for that matter) and live in the other unit now. Or, you can buy the house and live in it while fix up the 2nd unit then rent them both in a couple of years.

The reason I say a couple of years is, one of the benefits of owning the home you live in is the fact that you can take advantage of not having to pay capital gains tax if you sell it within 5 years.  I know I just told you to rent it out, but having that option is very nice.

I own Next Door Real Estate in Merced and would be happy to talk with you more about your options here in Merced if you are interested.  

Good luck and keep up the good work!

Merced is a great market for First Time Buyers & House Hackers.  For $500K you can buy in a very nice neighborhood.  

Or, you can purchase a house with an ADU - live in one and rent out the other. Then, when the time comes to move yourself, you have two units to rent.

Merced has typically enjoyed nice price appreciation with rising rents.

I own Next Door Real Estate, an independent brokerage with strong local knowledge.  I know this entire post probably sounds self-serving now that I've mentioned that.  However, I would be happy to assist you with gathering information about the market so you can make an informed decision on your own - even if that means, ultimately, you rule Merced out.  Message me if you are interested!