Will it be a good property to buy and hold?

[Sejin Kim]

Hello, BP families!

I have a potential property, in Sacramento area. It's duplex 2 bed-2 bath single story ( I am going to buy only one side)  in C category neighborhood. Not a good schools, not very good neighborhood, very diverse neighborhood,  crime rates are okay and decreasing. Median home value is lower than CA average value.  However I think it has potential. It's just a minute away from highway, good shopping mall in few minutes, hotels near by. Owner is moving out of state, and he put in a market in November but no luck so far. So I think there's a lot of space to negotiate. I think it will be hard to sell, however, it will be easier to rent, even though not a quality renter. So what do you guys as expert think? I will appreciate any questions, advice! Thank you! 

[James Peterson]

Hi Sejin, 

No doubt Sacramento is a good place to invest.  There are a lot of good things going for Sacramento,  and there is money pouring in to certain areas.  This sounds like your first investment? Don't buy just because it seems like a good deal.  In the long run, you're better off overpaying for a house in a great area as opposed to getting a good deal in a bad neighborhood for several reasons. Here are the top two...

1. You'll have more financially stable and responsible tenants. (Huge)

2. You'll have better appreciation and more price stability in down markets. (long term wealth building)

Numbers will show better cashflow in crappy neighborhoods, in the beginning, but no amount of cashflow will outperform the rate of return on appreciation over 10+ years unless your putting too much money down.

Ask yourself these questions:

1. What kind of return am I expecting from this property?

2. What kind of discount do I need to make the numbers work?

3. What is my exit strategy?

4. How much am I willing to spend on repairs/prepping for rent?

5. What kind of tenants can I expect from this type of property,  in this neighborhood?

6. What cash flow am I expecting? Am I ok with negative cashflow?

7. Will I have enough reserves for an emergency? 

If you can't answer those with certainty,  you need someone that can help guide you. Finding great neighborhoods that are redeveloping, close to downtown is a good target. Properties with value add possibilities can multiply your returns. 

Best of luck, and great job in taking action!