Invest in Tracy vs Rancho Cordova vs Folsom

[Priyanka B.]

Hi ,

We have a single family home in Bay area and are planning to invest in Sacremento area. I am inclined towards new construction homes(SFR) in Rancho Cordova or in Folsom.

My husband is more leaning towards Tracy. His reasons are for Tracy you have more access from bay area and given how Mountain House has developed in last few years he expects to see something similar happening in Tracy. 

I incline towards Sacramento particularly Folsom may be Rancho Cordova too . Good schools and growing city with lot of potential. You get a brand new homes with lesser price range(600K) where as in Tracy it might be more expensive(700K). Also I think if we go with Rancho Cordova we might find something around 550K with good schools.So we have low risk and might be able to hold even if things go bad.

What do you guys think. Chime in your opinions. Our goal is to maximize cash flow with decent appreciation over 10 years. Is it better to wait and watch for prices to drop?

Our goal neutral or positive cash flow both ok but should have some decent appreciation in 10 years. 

[Greg Lieberman]

@Priyanka B.

Hi there! I’m an agent here in Sacramento, and know the area pretty well. This a market that generally won’t have cash flow (on year one) unless you are putting a lot more than 20% down. But it is definitely a market that has had lot of appreciation historically.

When we look at numbers, we look at how the property performs over its first three to five years. For those putting 20% down, it's pretty common to see negative monthly cash flow of about 150-200 on year one. That's with 5% vacancy, 5% for CapEx and about 6% for property management.

Right now the max rent increase is 6%. So if your property is charging market rents, it’s usually negative 150-200 the first year and then neutral to low cash flow in year two or three. If it’s already tenant occupied, they are rarely charging market rate, so the figures will be worse.

You still get all the tax benefits of depreciation, interest write offs, etc. and the value of the home likely increasing.

Usually when you see areas that have higher cash flow than that, they are the areas that tend to have more headaches or require more attention. So generally, we look at it like a spectrum: one side is more passive and less headaches, but has less cash flow. The other side requires more attention, but the ROI and cash flow are better.

If you want the less work and less cash flow option, I would look at areas like Folsom, Roseville, Rocklin and some neighborhoods in Sacramento.

The areas that are likely more work, but higher cash flow would be most of Citrus Heights, Antelope and some parts of Rancho Cordova and Sacramento.

Sorry this was long winded, but hopefully it helps. Good luck!