All Forum Posts by: Jason Monroe

@Amy Sommers,

Over the last couple of months I've been a few places around the country. During that time some of the things that you'll also need to put into your calculations.

- Turn costs 

- Vacancy discount

In the SF Bay Area where rents might not rise that sharply for units not owned by larger corps or in rent control areas you're typically not going to see a lot of turn over 

In places like Indianapolis (C class areas) where there is plenty of apartment stock AND prices are low for the working person to find housing (425-525) for a 1bd / 1ba turn over can be higher and finding quality tenants can take longer.

As a result you'll need to factor in turn over costs $75-150 a month per unit on top of maintenance. As well as vacancy that might be more like 12-16% instead of the typical 5-10%. Your mileage may vary.  

These can mess up your "beautiful" cap rate 

ALSO 

Be mindful of debt service. A lot of players in the space will tell you don't buy lower cost properties with a mortgage but that puts it out of reach for many people. 

I've found people that will do sort of creative financing to allow you to purchase 30-70k properties but because you can buy them for 10-20k. I've seen people get a few at once 

If you do that the interest rates vary AND it's NOT likely a "blanket / portfolio" loan so you can quickly run up against the HUD limit of 10. Portfolio loans for amounts less than 750k total value and single entity costs less than 60k each will also come with a penalty interest rate as they are non conforming.

@Account Closed,

I found myself saying perhaps there is something out of area that might be interesting 

So I looked at 595 John St SALINAS, CA 93905

Listed at 1.6 million (13 unit building ) it's currently under contract. They accepted a contract for an all CASH offer. I don't know if it was hard money or not AND the story the agent tells is that there were 8 other offers for the property.

You asked a while ago if people are willing to drive to opportunities that are out of area and the answer emphatically is yes! 

@Jeff Yates,

This market is so annoying. 

There is a LOT of uncertainty in the Sacramento market 

House LISTED at 300k !!!!!!! 

Duplex both 3bd 2ba 

One unit 1100-ish sq ft 

Other 1225-ish sq ft 

I was guesstimating each unit might go for 1400 (with minimal turn per unit ) 

Gross Rent 12 * 2800 = 33600

expenses @ 25% = 8400 (covers taxes, management etc...) 

Vacancy rate @ 5% (likely not needed but included for completeness ) = 1680

Repairs @ 75 dollars per door per month = 1800 

33600 - 8400 - 1680 - 1800 = 21720 

You could get 6.X% return on capital anywhere from 312k - 360 

I offered 335k which was 35k OVER LIST 

I lost to someone paying all cash @ 360k 

It wont appraise for 360k 

THERE WERE 18 offers OVER 340k ALL CASH 

My exit strategy was to sell the place once it hit 1800 a month per unit 

I would be able to offer 6% return instead of proforma and would be able to sell it for 450k

Stupid deals below 1MM everybody has all this cash. 

Stockton / Merced is starting to look real good about now

@Jeff Yates,

Sacramento is crazy I heard about a deal for a duplex near-ish downtown. The problem is that the properties wont appraise for value because the comps don't work. This property is around 300 and presently has 7 all cash offers. No one cares about the fact that property won't appraise. Pro-forma rents has the numbers working out well for the type of configuration it is. 

I was in contract last year for a property 4 plex on Oakmont rd. Seller wanted 465k the appraisal came in at 441 and it needed 9k worth of pest for section 1 and 2. I wasn't into buying a thing in a remote market and having it not be able to make any money on it for the first year. At the time I didn't believe in appreciation in Sacramento people tell me it's a thing. The property was had a very special tenant where if they left it wouldn't perform anywhere near as well. 

The property ended up selling for 460k 

or 19k over appraised value which would mean you or I as an investor would have to cover that gap out of pocket. The financing people will only finance up to the appraised value as over that would increase their risk.

@Jeff Yates,

Yes! Bay Area investors with plenty of cash are coming for your lunch because the cap rates / flip chances are higher than the bay area. 

Another example http://www.loopnet.com/Listing/20090572/132-Ash-St...

Roseville portfolio the guy who owns them is from San Francisco and because they are B class properties at least according to Gabe. The owner self manages them. 

If cap rates are mostly locked at 3-5% and they can get 6 or 7% in Sacramento people will charge up the Tesla initialize auto-pilot to come and eat your lunch.

ALSO 

Price per door is 300-700k+ in the bay area Sacramento seems to generally trade right now at 100-150-ish per door. 

That means that multi family deals 5+ units in the bay area are at least 1.5 excluding some of Oakland and some of Richmond

The down payment for deals that size are usually in the 400-500-ish range 

So if a deal is 500k or less it's often called a "bite sized deal" and rest assured that people from the Bay Area are going to be looking at them

The Downtown Sacramento makes no sense to me as the cap rates are Bay Area like outside of downtown you might need to worry.

If the cap rates are higher or there is a potential for a quick turn people will make the drive as Sacramento is marketed as "Safe" 

Hi @Jeff Yates,

I'm also a millennial. I'm from the Bay Area. I lost out on a place in Sacramento.

8 plex @ 62.5k per door unsure about the details of the property since I wasn't in the area to walk the property. Seemed sort of okay  

Went pending today 2/16/17

All Cash buyer over list with a shorter-ish closing period. There were 9 All cash offers 

So....

The bay area the market is crazy cap rates are awful and so much rent control. Sacramento is the next viable choice. 

Be mindful of your exit strategy Stockton properties generally sit on market for a longer period of time

What is a cap rate? The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value. So, for example, if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.

Cap Rate = Annual Net operating income / cost ( or value)

Most of time class A areas are usually lower and the class C buildings are usually a higher cap rate. 

Class A buildings are more expensive maybe less maintenance, *possibly* less management intensive.

Cap rates vary depending on locality. San Francisco has rent control cap rates are like 3-4.X% you pray for people to leave and you try super hard to evict people for cause. Kansas City Mo has cap rates around 15-20% for 2-4 units and then 6.X-8% for slightly larger multi family.

Phoenix has cap rates of 5.X - 8.X depending on the building class and the area. 

If you're in an area that's trendy where people want to live those buildings are usually more expensive and the cap rates are usually lower. 

Hi @Joey Morsillo, 

Those are nice cars. I was looking at one the other day on cargurus.com basically as of the 2/15/2017 they are something like 200k without a huge number of miles as the maintenance can kill you with those cars. 

With cars you have 

- Maintenance 

- Brakes

- Tires 

- Gas 

- Detailing 

- Payments 

- Depreciation 

All of those things equate to a PER MILE COST http://edbolian.com/how-to-calculate-exotic-car-co...  Calls out that it's about $3.XX - $6.XX  PER MILE 

The payments on 200k is about 3.X - 4.5k per month JUST FOR payments insurance at your age would be a LOT.  

DO you still want the car? 

At 16 you most likely can't enter into legal contracts with anyone until you're 18 unless your emancipated. 

If the answer is yes, go work with a flipper in your area or habitat for humanity so that you can learn a how to do a thing or two. 

2) Go find deals and generate leads to fill investors pipelines so that you can generate the cash needed for the your first deal

3) The above jobs are a slow roll and don't pay that well you likely can't execute the contract by yourself and will have to use someone else and they will want a cut. You'll learn a LOT but it will be sparse. If you get into technology and can program you can turn that skill into many dollars by the time that you're 18 so you can get a gig and turn those gigs into your first deal by 18.5 or 19 years of age. 

People that advocate degrees *might* be wise if you can qualify for LOTS of grant or full scholarship money. If not they only look to push indebtedness onto you. 

The net effect is that you need skills to buy the Lambo so go out there and develop those skills. Sure new skills don't generally pay well until your a moderate to expert level.  

Keep your Lambo visions they are important and help to provide a definitive reason for your hustle.