All Forum Posts by: Jeff G.

 A property with a history of ongoing crime/squatters IS material

 Should we look forward to more protests this year?

Renting is negative cashflow too, so even if you are only breakeven with "house hacking" you're still losing less than you would otherwise.

That said, it sounds like the original poster plans to use every last bit of cash on a 3.5% down payment, which is not a sound strategy (there will likely be additional closing costs and you'll need a cushion for repairs, etc). 

For the mortgage, I just google "mortgage calculator" and use their template:

For a insurance on a SFR rental, I generally estimate 0.2% annual premiums (0.002 times the purchase price), but since I suspect the Oak Park area has had a high number of claims (based on the various burnt out properties from squatters) I bumped it up to 0.3%: $250,000 x 0.003 = $750

For taxes I usually use Zillow:

So in most areas, I'd just take 464 and divide by $29116 to get a tax rate of 1.6%   However, some counties have more detailed info online and, fortunately, Sacramento is one of them.  If you click "county website" it'll take you to:

From there, click on "e-PropTax" to get to here:

I don't normally see a "Secured Supplemental" -- I'm betting there was a tax lien from the owners who were foreclosed on before the house was flipped.  Anyway, the tax rate code is 03-002 --click on that to see:

So you'll be taxed 1.1418% of the assessed value (which will probably increase to the purchase price next year).  But if you go back to the previous screen, you'll see a $214.62 "direct levy portion" -- click on that and you'll see additional taxes and/or Mello Roos:

An additional $214/year isn't too bad, but some areas of Sacramento county get pretty crazy with these direct levies.  For example, check out the additional $2,500 levy (on top of the expected $4000+) on this $400,000 house from Elk Grove:

Lots of people in this area are unpleasantly surprised by that additional $2500/year tax bill and wind up selling.

Anyway, for your taxes you'll probably have 1.1418% x $250,000 + $214 = $3070/year.  

For maintenance, you pretty much have to use your best judgement.  A brand new or completely renovated home will have much lower maintenance than a "survivor" time capsule from decades ago.  I'm not a fan of using percentages because you can have the exact same home built in 2 different parts of town collecting wildly different rents, yet having nearly the same maintenance...   From eyeballing the pictures of this property, I'd make a wild-***-guess of $50/month not including cap-ex.

Property Management?  7-12% -- I'd use 10% for calculations and try to negotiate down.

Opportunity cost?  That's whatever rate of return you could comfortably get if you invested your down payment in something else (stocks, bonds, a business, a private loan, etc).

Vacancy?  That'll depend on the area and your rent.  I've found that vacancy rates are very low in the Sacramento area for cheaper housing -- I'd probably assume 5% vacancy.  If this was in a more upmarket part of town, or you were trying to get the top end of the rent range you might use 10-15%.  

Buying a building with a 5.8% cap rate is like buying a stock called Multifamily Inc with a 5.8% dividend yield.  It says that over the prior year the investment paid out 5.8% of the current market price (suggesting that financing this investment with a 6% loan is probably a bad idea unless you're betting on appreciation and/or inflation).

Mortgage: $1267/month

Insurance:  $800/year, $67/month

Taxes:  $3200/year, $267/month

Opportunity Cost (if you had invested your $50k down payment elsewhere @5%): $2560/year, $213/month

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$1814 in monthly costs not including maintenance or management.

You're probably looking at $1400-1500 in rent for this area so, unless you're wanting to generate a tax loss, this looks less like an investment and more like speculation (which is true for almost all Sacramento residential properties in February 2017).

My (limited) understanding is that charging rent on a per person basis opens you up to lawsuits for violating fair housing  laws on familial status.

I use Craigslist for quick comps.  The map view is especially helpful for getting neighborhood-specific comps:

Heuristics are great for quickly weeding out terrible investments, but they should only be the first step when considering the merits of any individual property.

Imagine 2 identical homes built at the same time across town from each other.  The one in the nice neighborhood rents for $2000, while the one in the slum grosses $1000.  Do you think maintenance for the home in the nice neighborhood is going to be twice what it costs that same structure in a slum?  

Another example:  Around here, it is common to find two comparable neighborhoods separated by some imaginary district line.  One neighborhood will have Mello-Roos that effectively doubles property taxes, while the other does not.  Since it makes no difference to the renter on which side of the line he lives, rents are equal.  Since most home buyers pay little attention to property taxes, home prices are equal.  On which side of the line would you rather invest?

It really helps to know your area -- the less you know, the larger the margin of safety you need to factor into your purchase price.  

And stay patient.  Clearly you've been frustrated so far by the valuations in your market, but you're not alone.  Depressed interest rates have left investors across the globe searching outside their circles of competence for better yields.  Don't try to justify high prices with rosy assumptions, you'll find deals if you stick to your guns and keep turning over stones.  In time, you may find your best deals come from properties where previous investors paid way too much and failed.

PS:  It's a personal crusade of mine, but don't feel like you have to pay percentage-based fees for work that bears zero correlation with asset value.  This goes for hedge fund fees, realtor commissions, property management fees, etc.  It just doesn't take twice as much work to list a $400,000 home as a $200,000 home, so shop around for competent professionals charging fees commensurate with the work.  

The property won't even cash flow before counting maintenance, repairs, management fees, or vacancy.

It is a 1962 ranch 2/1 with under 800 sqft (less likely to appreciate than a larger 3/2+ or even 2/1.5)

It was flipped at the height of the bubble (generally meaning lower quality work)

IMO I don't think you would even consider holding on to this property if you had zero emotional attachment (including having that 2008 purchase price anchored in your mind).   From a business perspective, A all the way...