Jason Yeh, Home Buyer in San Francisco, CA

Looking for cash flow investment properties (SFR or multi-unit)

Asked by Jason Yeh, San Francisco, CA Wed Jun 27, 2012

I am looking for positive cash flow and appreciation investment property in Sactown. I've been a landlord for a few other homes in SF, OC and East Coast with different mgmt companies. Its a lot of work, but the goal is that all the diligence and headaches will pay off dividends in the end.



I am debating between a SFR or a duplex or 3-4 unit investment property in Sacramento. I am thinking downtown may be good area for renters. But then, I am not familiar with the downtown areas to know which are safe and have good and consistent renters. I am looking to stay under $250k with a 20% down. Any advice?

I've heard Rocklin is good, but I'm not sure a SFR will produce most cash flow and appreciation. Would a multi unit in downtown Sacramento be better?



Here is one I found

http://www.ziprealty.com/property/521-7TH-ST-SACRA​ME…



Can you really rent each unit (2 bed 1 bath) for $1500/month? If so, thats $3000/month rental.

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Answers

10
Ed Favinger’s answer
Jason...

I'm a little late to the party... but I do agree with Jim somewhat.

However I think you can buy a duplex in a decent area and you will get a cash flow higher than a single family and you'll get the appreciation over time as well.

Here's a link to a duplex in Rancho Cordova that has excellent cash flow. It's going to close escrow sometime next week at full price. We've rented up the 3 bedroom side at $1,150 and have applications for the 2 bedroom side at $975. And best of all...? it's all fixed up.

Go to the link below and you'll get the cash flow figures and a video so you can see what a duplex can look like.

http://bit.ly/KxDANd

I hope this helps...

Make it a Great Day...!!!
1 vote Thank Flag Link Thu Jun 28, 2012
You were searching in the higher price zip codes. Willow Creek is in Folsom - the priciest town in Sacramento county. That is why you get no hits.

Try 95842 - 19 listings, / 95841: - 7 listings, 95843 / 10 listings, 95660 47 listings. / 95838: 24 listings / 95815: 22 listings , / 95833: - 19 listings.

Yes there are zero in Folsom, Granite Bay, and only one each in Roseville and Rocklin. Forget those towns on your budget.

You want cash flow? Put 30 or 40% down. You are putting only 20% down so you can leverage to the max. That is 4 to 1 leverage. I'll explain the benefit of that at the bottom.

You are asking for the world when you expect a large positive cash flow in a high price zip code with maximum leverage. Some other agents might give you the snow and let you believe you can do it cause they want your business. I just had two shots of Tequila so I am just going to tell you the truth. The heck with kissing up to what you want to hear. I am just going give you what you need to hear.

You see, other investors are calculating in advantages such as being able to pay down the principal on the mortgage with the tenants rent money. That is not cash flow, but it does increase the investors net worth, --- with someone else's money!!.

Next. You mentioned appreciation. We have had the opposite of that from 2005 through 2011. Just as it was stoopid in 2005 to think that 25% appreciation was going to continue year after year, it strikes me as being nearly as dumb to think that prices will always go down, never increase. Forever.

If you have a five to ten year hold strategy, I believe that whatever you buy, house or duplex will be worth more in ten years than it is now, unless you allow the property to waste through deferred maintenance.

So what appreciates? just your 20%? NOOO the whole enchilada appreciates. You buy a house for $150,000 tomorrow it appreciates to $200,000 by the end of year ten (average 3.3% appreciation for the whole property works out to 16.5% annualized return on your $30,000) from appreciation alone.

No wonder smart investors are willing to buy houses with break even cash flow!

Add that 16.5% to the principal reduction off your mortgage and your total return is approaching 20% annually.

Refine your goal to a break even cash flow, or be prepared to either buy in the poorest zip codes. or increase your down pay to 30% - or listen to someone who just tells you what you'd like to hear.
1 vote Thank Flag Link Wed Jun 27, 2012
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Thank you , for your interest in Sacramento there are safe areas in downtown Sacramento and throughout the city. Now is a great to for investment properties as interest rates are low ; including this being a buyers market. For further assistance , you may contact me at :
Office 916-683-6695 or Cell: 916-896-9721.
Sheryl Rowe
DRE # 01912572
Lyon RE Elk Grove
9591 laguna Springs Drive
Elk Grove, Ca. 95758
916-896-9721
srowe@golyon.com
0 votes Thank Flag Link Wed Jun 27, 2012
a Quick search does not show anything in the $150k range. Even in the $200k range, homes are smaller (1000-1300 sq ft) With a 20% down, assuming 1.1% property tax rate, there won't be much cash flow. This is based on $1/sq ft house. I'm assuming I can rent for $1000-1300/month. Minus 10% or so for the cost of property mgmt company.
0 votes Thank Flag Link Wed Jun 27, 2012
OK, so it sounds like a SFR will be a better overall investment. I'd like to stay around $150k or so. But it seems like prices have started to soar since 6 months ago. Where are the most desireable homes in this price range with highest appreciation? My buddy bought in Elk Grove told me not to buy there. I've heard Rocklin or Roseville, although they do seem far from downtown.

What about Willow Creek?
0 votes Thank Flag Link Wed Jun 27, 2012
When the numbers are nearly identical for single family purchase versus a duplex purchase, I vote for single family for the solitary reason that the exit strategy gives more exits. I can sell my single family houses to another investor, to one of my tenants, or to an new owner occupant buyer. A multi-unit property is only going to appeal to other investors which limits my buyer pool when the time comes for me to liquidate.

$1500 for small 2 bedroom apartments is about 50% higher than one would expect. I don't know where to get tenants to pay that much for that small a place. 765 sq ft and 819 sq ft These units are vacant so the owner and listing agent can project any fantasy figure that they want. But no one believes them.

Maybe these units are super incredibly beautiful. But still,: $1500??? This isn't San Francisco.
0 votes Thank Flag Link Wed Jun 27, 2012
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
As a local real estate agent in Sacramento and someone who has rental properties, the best suggestion is multi-units, you get a better return for your money. However, the SFR are less of a headache. What I have seen and heard, Sacramento rentals are in high demand now; however, most of Sacramento, rents across the board is about a $1 per sq ft and that depends on the neighborhood. I have seen some rental as much as $1.20 a sq ft to as low as .75cents per sq ft. It depends on the street and location. I sold a 4plex for $190K in a high rent area and each unit was going for $800 / $850 . So, the ROI was quite good. If you are looking for a nice area with some nice units, I would check out Carmichael, Fair Oaks, midtown, Arden, and Roseville.
FYI... Sacramento's inventory is very low, so when these units whether it is a duplex, triplex, etc. they go very fast. In fact, I had a client looking for a duplex and on day two had over 8 offers. Not to mention when we viewed the property, about 3 people came by asking if the place was already available to rent. It was amazing!
A good way to check Sacramento's rental comps are craigslist.com or rentometer.com!
If you have any questions, or need additional advice. Let me know.
Nancy

Nancy S Bergman
Realtor - LSSC
DRE # 01893550
Lyon RE Downtown
2801 J Street
Sacramento, CA 95816
Primary: 916-400-1355
nbergman1@live.com
http://www.sachomesbynancy.com
0 votes Thank Flag Link Wed Jun 27, 2012
Rents are basically .90 - 1.20 per sqft. this is for avg. SFR 1000 - 1700 sqft. in Sacramento County. We are selling a lot of SFR and Multi and almost all will cash flow right away.

First thing you need to do is get with your Lender. (if you do not have one call Glenn Olsson 916-276-6236) They should be able to give you an accurate figure of what your monthly payment will be. (Everyone does not receive the same rate) Then your Realtor should be able to pull up the avg. rents for the area in which you are looking.

You just need to work wit a good team. Lender, Relator, Ins. agent and property manager if needed.

Hope this helps.

Jamie Collins
Realty Services
Sales/Mortgage Training and Assistance and Insurance
916-257-3799
0 votes Thank Flag Link Wed Jun 27, 2012
Hi Jason.
I think your analysis is correct, $1500 p/m is too high, and $800-$900 is probably more realistic. I have represented many investors the past few years, and they are doing extremely well with SFR, and one has a 4-plex that has done very well. In my opinion, if you are handy or have the funds to rehab a home that needs cosmetic repairs and some updating, this will be your best value. The Sacramento rental market is very vibrant right now, and I would be happy to talk to you about your investment goals. I can be reached at 916-996-4500 or TRBergen@comcast.net.
Good Luck

TR Bergen
Fusion Real Estate
916-996-4500
TRBergen.com
0 votes Thank Flag Link Wed Jun 27, 2012
Research shows that one bed rents for $400-500/month and two bed rents for $900-1000/month in Sacramento. Of course, it varies which area. I'm looking around downtown because it seems like it will be easier to rent out (higher rents maybe?) and higher demand.

But I don't know if I want to go SFR or multi-unit. SFRs appreciate more, but you wont get cash flow every month with a 20% down. Multi-units like duplex do not appreciate much, but can give extra cash flow. I'd like some help.

The one I found above is a flip, so right off the bat, I am paying a premium. REOs might be better?
0 votes Thank Flag Link Wed Jun 27, 2012
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