All Forum Posts by: Wes Blackwell

@Oron Subayi

So, here's probably what's happening. Sometimes instead of all of the units being attached to each other, you might find three duplexes all on the same lot and being sold together, essentially making it a 6-unit property. Or, each duplex might be on a separate lot, but the investor owns all three and would like to sell them as a package deal.

I did a transaction like this recently where there were two triplexes on two adjacent lots, but they shared a common driveway and by all means designed to operate as a 6-unit property. But because they were on two separate lots, there were two separate listings and the buyer got two separate loans to purchase them. 

So that's the real question when it comes to your financing... how many units are on the individual parcel? 4 or less = residential. 5 or more = commercial. If it's a package deal of two fourplexes each on a separate parcel then you would get two residential loans. Four duplexes on four parcels? Four residential loans. 

Granted, you may be able to find a portfolio lender willing to do something a little more creative, but generally this is what you're looking at. Sometimes you'll see package deals of 16 single family homes, and finding a lender to give you 16 individual residential loans would be a nightmare, so a portfolio lender or creative financing would be a better approach.

Income and expenses mentioned in the listing are a good starting point, but the information will need to be verified. Especially if it is less than 5 units. Those more often tend to be mom and pop investors who may not always track those sorts of things. 5+ units you're more likely to find experienced investors and professionally managed properties. 

For example, it may say it generates $4,000/month in income, but that might only be a pro-forma guess by the listing agent, or maybe that's with the vacant unit generating more income than the others because everyone else is renting at undermarket rates. Or, maybe it would generate $4,000/mo in income, but one of the tenants is a month behind and has been late several times in the past year. You'd want to know that going in. Rent rolls, proof of deposit, or bank statements can verify the income.

For expenses, utility bills make it real easy to determine electric, gas, water / sewer / garbage, if it's managed the property manager has their fee obviously but also probably tracks most of the other expenses. HOA dues are easy to determine. Be careful of deals made with tenants where one of them maintains the grounds or does repairs and gets some sort of deal on rent or something, because that's essentially an expense.

The hardest part to determine is repairs / maintenance, because it's easy for things to slip through the cracks, paid with cash, lost receipts, fixed directly by the owner, etc.

If you message me the address I can probably find out some more information for you and help you look at the numbers.

@Adam E.

Here's some posts I've written in the past that will show you just about everything you need to know about Sacramento:

https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush

https://www.biggerpockets.com/forums/621/topics/664159-sacramento-2019-state-of-the-city-address

https://www.biggerpockets.com/forums/621/topics/586279-investing-in-sacramento-or-stockton-which-one-is-better

https://www.biggerpockets.com/forums/621/topics/590913-rent-growth-in-sacramento-is-triple-the-national-average

If you have any further questions, don't hesitate to reach out. Here to help! :-)

@Steven Roux

If the buyer googles your name and finds this post, and you didn't disclose the mold on the SPDS (Seller Property Disclosure Statement), you're screwed like you wouldn't believe.

@Pamela Sandberg nailed it. You must disclose this, so you better take the necessary steps to have it professionally removed, otherwise buyers will do an inspection for it (which they may do anyway), find it and ask you to repair it a second time, and do it professionally.

@Nick Clurman

Since you have the option, probably better to sell the property vacant so that the new owner can do their own screening. But be sure to advertise the property for rent after you renovate so you could actually provide some decent pro-forma figures and what the new rents could potentially be. 

Although, as others mentioned, sometimes you can pack the rental with under-qualified, yet able to pay higher rent tenants for the short term to make the property seem more valuable. Most inexperienced agents and buyers won't catch this, but it'll be a red flag to anyone who knows what they are doing.

If you're going to do higher-end renovations, do it because the property will show nicer, attract better quality tenants, and rent for more. That's what the buyer will care about, and I think it's far more likely to be an investor than an owner-occupant. Investors are all over Sacramento right now. And a dishwasher is a selling feature, both to owners and tenants, so I'd include it.

When it's ready let me know before it hits the market because I have lots of Bay Area investors looking in Sacramento who would love to get the early scoop on a deal. 

@Natalie Hahn

I think you've kinda missed the boat for the Bay Area to be honest... people are moving OUT of the Bay Area into the Central Valley (Stockton) and Sacramento.

Sacramento is #7 in the nation for Rent Growth in the country:

https://www.bizjournals.com/sacramento/news/2019/01/10/sacramento-is-7th-on-list-of-top-rent-growth.html

Makes sense, as everyone coming from the Bay Area is used to paying WAY more for housing, so everything in the central valley looks like a screaming deal. 

Overall, my 2 cents is to get in front of the growth (like how is Phoenix is projected to almost DOUBLE it's population in the next 30 years)... WHY? People are sick of the high prices in California.

https://qz.com/1599150/californias-population-could-start-shrinking-very-soon/

"Where are people going? Mostly cheaper states nearby, like Arizona, Nevada, and Oregon, as well as Texas, according to an analysis from the Sacramento Bee. As housing in California continues to skyrocket in expense, it increasingly makes sense to leave. According to the real estate company Zillow, the average house in California has risen from about $300,000 in 2012, to about $550,000 in 2019. Those numbers have scared many a family out of the state."

Cheaper... nearby... like Sacramento, Stockton, and Phoenix. 

Maybe if you had some kind of value ad play... but buying brand new and hoping values and rents go up in the Bay Area seems like a bad strategy to me. Pure speculation.

@Allison Meggison

I would strongly suggest working with a local real estate agent, as they will have access to a great deal of information that will be of use to you (comps, previous sales, rental rates in the area, etc.) when it comes to apartments. 

@Dalton Riep

The main issue you have here is income (lack of it due to college hours, still working on degree to get higher paying job, and not able to save up down payment, perhaps not enough work history, etc.)

So, how could you fix that? With a co-signer.

Perhaps one of your parents, uncles, cousins, etc. can go in on this deal with you. They provide the missing funds from down payment and use their income to help you qualify for the loan, and get a proportionate amount of the proceeds when you sell. 

Barring that, just about the only option you have is seller-financing, but be sure you know what you're doing... and you'll still have the down payment issue as you'll have to find the right seller willing to work with you. 

Have a client right now who would like to buy a home, but is self-employed and less than a year into his new business so he can't get a loan. His dad is going to co-sign with him so he can. Perhaps you can too.

For every market, you have to compare apples to apples. Numbers can vary wildly in just a two hour drive. What you have to do is compare the subject property to previously sold and currently available inventory and compare the averages. If the average % rule is 0.6% and you come across a deal that is 0.85%, then you've found a deal even though you didn't hit the 1% mark because the property offers greater returns than other comparable properties in the same area.

As Paul Choi said, Stockton is block by block, so best to at least spend an afternoon driving around the area you're considering investing in if you're not working with someone who's intimately familiar with the area and lived in the area for over 10 years...

Ahem... *COUGH*COUGH*WES BLACKWELL* COUGH* COUGH* ;-)

@Mike Gi

Sending you a message to see if this is the right move for you to make :-)

@Sanjeev Advani

Hey Sanjeev! Great question. Here are my thoughts on Sacramento long term:

First and foremost, the thing that is STILL driving demand in Sacramento 2 years later after writing this post is all of the migration from the Bay Area. People are fleeing in droves for more affordable housing, and the Central Valley (Yuba, Sacramento, Stockton, Modesto) is the last place to find it. 

Just look at the map below of SFR priced $250k or lower:

This pattern was originally predicted to continue through 2020, and doesn't seem to be slowing down. Just listed a $275k home in Stockton and got 3 offers the first weekend, one being all cash... and two being Bay Area buyers.

Sacramento offers the big city feel without the big city price. People from the Bay Area could move to Modesto or Merced and get even lower prices... but no one from an area with a population of 7 million is going to move to a cow town out in the boonies with 83,000 people.

Those that can afford to move to Sacramento will, and those that are on a limited budget and need more inventory will head to Stockton. Where else are they going to find homes at those prices?

Further, Sacramento is a 2 hour drive up 80, which makes it super easy to get back on the weekends to see family, friends, a baseball game, etc. 

I'm getting tons of tech employees at big companies in the Bay messaging me and saying they've got an annual salary of $200k per year and can work remotely, and don't see any reason to pay $15 for a cocktail in San Francisco. You can get the entire entree out here for that.

Longer term, if California doesn't bankrupt itself trying to give citizens of other countries free health care or provide cell phones to the homeless, and actually makes the vision of the California High Speed Rail a reality, or self-driving cars become mainstream and allow commuters to work on the road to work, then Sacramento will absolutely fricking explode with Bay Area commuters.

But then again, we may have FAR bigger problems on the horizon, with automation, robots and AI set to replace as much as 73 million jobs by 2030. That's almost 20% of the workforce. And 47% of ALL jobs are projected to be replaced by 2034.

Winter is coming... and it's not white walkers or climate control... it's automation. What a helluva time to be alive. 

As for recessions, hard to predict timing and impact. We won't have a 2008 repeat for quite some time though, because underwriting is far more strict than ever before. So it's not like if you invest now your property is suddenly going to be worth 50% of the purchase value in 5 years.

But then again, maybe North Korea nukes us. I say that in jest, but want to emphasize the point that nobody has a crystal ball, and anything can happen, and while it looks like Trump will landslide in 2020... you can expect an absolute blood bath in 2024. Who knows what will happen and how policies and economies will change by then.

But for now, Sacramento is getting immigrants and Bay Area transplants by the boatload:

"If you look at our population growth, we need about 200,000 housing units to be built every year just to keep up with the growth. In 2017 we only built 113,00." -- Click to watch vid

15,000 to 18,000 new jobs paying in the $90k range over the next two years. HELLO!

So, do I think a recession will matter. No. But there's no telling what can happen. We'll see how well this post ages, as the original post from two years ago aged quite nicely ;-)