I prefer houses (if the cash flow proposition is nearly equivalent) for exit strategy reasons.
When it is time for you to sell, houses will be more attractive to owner occupant buyers, who are usually the majority of the buying population.
While I appreciate the points of view given by others in their answers to your question... I thought Iâ€™d drop in here and give you my opinion as well.
Let's start with the fact that just about any residential property in this area is going to be a good thing for you to invest in. Mortgage interest rates are low, prices are reasonable and the rental market is pretty good with demand being high for well maintained and located properties.
Now while I know your investment decision could be either a Single Family Home or a Multi-residential type of property..? My opinion leans towards Duplexes.
While I know Jim thinks you might want to start with a single family home, Duplexes are just about the same.
The reason why I say that is because they have much, if not most, of the "amenities" of a Single Family Home, such as; Garages, Back yards, sometimes Fireplaces, washer/dryer hook ups, central heat and air, dishwashersâ€¦ and they are often located very close to single family neighborhoods.
We've had Duplex tenants stay for several years like many folks do in Single Family Homes.
May I point out that it's very rare that you would have both units in a duplex vacant at the same time. So when one unit is vacant you'll have the other unit bringing in some income. A Single Family Home will be a 100% vacant until it's re-rented..!
In addition, I don't think a single family home can beat the cash flow that a duplex will bring. If you would like to get an idea of what you might get, I have profiled a Duplex I saw a few days ago located in Rancho Cordova. If you click on the link below, youâ€™ll get a pro-forma cash flow analysis of what I think is a â€œsleeperâ€ duplex.
I havenâ€™t seen the interior of this property, but it does show on the listing itâ€™s occupied. You can catch a short video of the exterior of that property by going to the link below here:
It's not a bad area is it...? Let us know what you decide to doâ€¦
I hope this helps.
Make it a Great Dayâ€¦
That being the case, I agree with Nancy's suggestions. Start with a single family home, not a duplex.
Roseville, Rocklin and other towns with top notched schools and top notch real estate prices are too pricey for you. Also, your down payment should be at least 25%, even on a lower priced house. So you need have at least $35,000 for down payment, closing costs, repairs to make the house safe and attractive to prospective renters, advertising expenses (low) and holding time until an approved renter moves in. (For a $100,000 house) For a $200,000 house, you should have twice as much of your own investment cash available. To reformulate the math, you can simply use a one fifth fraction of the numbers I used in my first post: Figure the $200,000 house at $1500 per month to return $18,000 in gross rent. cost $5,400 in yearly expenses, $7,600 in interest expense , projecting a $5,000 annual profit on your $50,000 down payment. Lower your profit expectations on higher priced homes and higher priced neighborhoods. Raise your profit expectation in poor neighborhoods. If you have less than 25% down, don't do it. Make sure you have serious money for reserves -repairs, start-up costs, vacancy until the first tenants move in.
Based on research, I have found that elk grove has good schools. Other areas I am interested in are Rancho Cordova and Natomas. I find Roseville is little more expensive to elk grove, rancho Cordova and natomas.
Look for properties that have immediate income, then the appreciation. These areas you can almost get $1 a sq ft. I tend to look at craigslist or rentometer.com for potential rental prices. If you are a first time investor, you may want to consider to start small like a house with a tenant already in place. Then move up to a 4plex or apartment building. You may want to consider a property management. They tend to charge from 6% to 10% of the monthly rental income.
As a new investor, I would look for a single family house for under a $125K with a mortgage around $600 PITI and rent it for $1100. There is an additional $150ish a month for water/sewer/trash/lawn. That's your positive cash flow right there! In fact, I had a client that was looking for a property a few weeks ago in a perfectly decent area for $105k, 4 bed, 2 bath 1/4 acre -- rents in the area were around $1100 - $1300.
You can also find a decent duplex in Rancho Cordova, So Sacramento or in Elk Grove. These are decent areas for rental property with cash flow.
If you are looking for a house, try to find a 3 or 4 bedroom. The more rooms, the more rent.
If you are looking for a duplex, try to get a 2/1 or 3/2 on each side. A 1/1 will have less stable tenants.
Every district has it good and not so good schools.
Check out the schools by looking at www/greatschools.com.
Good luck in your search!
I would be happy to help.
Lyon Real Estate - Downtown
with $250K down on investment purchase of 1 million dollars, you could finance 75% of the sale price.
To achieve the 10% ROI you will need at least $25,000 net annual profit after expenses and interest payments. Your cash flow might be different from your profit, depending on how much depreciation you account for, how much interest you pay, and what the effect income tax accounting has on your profit.
I calculate operating profit for the ROI. When we calculate the future appreciation in addition to the operating profit, we get the IRR : Internal Rate of Return.
To choose good schools: Since this is an investment and not for you and your own kids, you can use the state API scores and school rankings to help locate neighborhoods near schools using the map on this link:
http://school-ratings.com/cities/Sacramento.html The green markers designate schools with above average #5 ranking.
A million dollar rental building investment that brings in $90,000 in yearly rent, costs 27,000 in yearly expenses, interest cost at $38,000 per year would return $25,000 in expected operating profit per year a 10% ROI. There are dozens of suitable properties to meet your criteria in areas near the schools with API scores over 800.
I suggest starting the search in Roseville (3 high schools over 800) and expanding to Rocklin, Newcastle Penryn, Folsom and El Dorado Hills.