Thoughts on buy & hold in Sacramento?

Question

Hi everyone,

I've got about 100K to invest in a downpayment and am looking for long term buy and hold opportunities in Northern California. The Bay Area is expensive, and although you might have a better chance finding renters there due to the population and employment opportunities, it doesn't seem like there is much potential anymore in finding a reasonably priced "up and coming" area where long term you can might get lucky.

I've heard on the news that downtown Sacramento, midtown Sacramento, and East Sacramento may have some construction projects in the near future to revitalize some of the areas. It's a sort of a gamble still because the economy is mostly bolstered by State employees, and prices are relatively high still for decent properties. However, the potential for long term growth and the rents to purchase price ratio seems much better than the Bay Area (and much less risky than being a economically depressed place like Stockton where prices are much cheaper).

Anyone have any experience or thoughts about these areas of Sacramento?

Thanks in advance!

J. Martin · Answer

Hi @Raymond C. , and welcome! I own and manage in Richmond, and am in contract on a 4plex in Oakland right now 50/50 with a partner. You might want to talk to @Al Williamson or another Sac investor about that area.. I've always found his landlording and other advice useful. Here's the rough numbers on my current deal I should close in about 2 weeks in E Oakland: $390K Purchase price. $100K Downpayment $30-40K in rehab $420-$430K total cost $130-140K total investment ~ 7GRM & 8-9% cap rate on out-of-pocket investment 10-12% CF return on investment before principal paydown, appreciation, and laundry income. ~$60-100K projected built-in equity if all goes well. Not too bad for a super-competitive market that's "too expensive!" Send me a colleague request with your email so I can keep you up to date on my monthly Bay Area meetups (next one will be planned at my rehab 4plex!), and my big Summit later this year! And thanks for the shout-out @Minh L. !

Jerry Zhou · Answer

Minh L. Are there properties in Oakland that can still generate positive cash flow?

Joe Bertolino · Answer

I have a 4 plex in midtown. I have owned it for 6 years and have never had a vacant month. The rental demand in the grid is as high as anywhere. A craigslist ad will net you a dozen qualified tenants within 24 hours.

Account Closed · Answer

Hi Raymond, Like everything in life, it's expensive for a reason, and the same is true for why something is cheap. I want to buy a brand new Tesla for the price of a Leaf or a Prius, but the dealer said no. So I took my business elsewhere and went to a Lexus dealership. I asked them nicely to sell me their LS460 for the price of a Corrolla and they laughed me out of the dealership. Kidding aside, we've been analyzing why we couldn't find a 5% cap rate in Palo Alto so we started looking in Mountain View hoping to find a diamond in the rough. Unfortunately, we still couldn't find anything so we started looking in Sunnyvale. Guess what? Still couldn't find anything for a 5% cap rate so we moved our search to San Jose, and BAMMMM..... I guess we can go to Gilroy to get a slightly higher cap rate. No doubt we should be able to find higher cap rate if we go to Fresno, Visalia and Bakersfield. You get the picture. Everything in life has a price. When you put a lot of well compensated employees in a desirable living area, they drive real estate prices to max pain. Who would have thought that people are willing to pay $2k/month to rent a 2/1 condo in Evergreen, and $3k/month for a 3/2.5 bath townhouse also in Evergreen. Both were rented out to qualified tenants on the first weekend of open house. Apparently, plenty of people can afford these ridiculous rent prices. Interestingly, these condos were selling for $150k-$175k and these townhouses were selling for $260k - $300k between 2009-2012. They don't meet the 2% rule my a mile, but it's somewhat bearable when you can finance them between 4% - 4.5% fixed for 30 years. Some people could believe real estate prices crashed that hard in the Bay Area during the mortgage meltdown. You can say that opportunity typically doesn't exist for people that are not looking. At thus point, the window of opportunity is apparently way behind us. If I have to place a bet now, it would be Oakland, wouldn't you agree J. Martin Happy hunting!!!

Jordan Thibodeau · Answer

@Raymond C. I bought my first property in Sacramento last December. Being that I didn't know that many contractors in the area and I didn't have the time to get involved in a rehab. I found a duplex that required minimal work that allowed me to rent the property quickly. Depending on your experiences with rehabs, it might be better to start with something that doesn't require a ton of work so you can focus on learning the landlording business, developing relationships with contractors, so when you're ready to do a full rehab you have the pieces in place. Best of luck!

Jeff Weissman · Answer

Oakland is HOT and about to bust wide open. I believe critical mass has been achieved, finally, and Oakland will be where everyone wishes they were a month ago. It is critical to be working with an investor-friendly, hyper-local, Top Producing Realtor who knows the neighborhoods and the trends. I invite anyone interested in buy/hold or fix/flip in Oakland to sit down with me for a chat. Coffee's on me!

Jerry Zhou · Answer

J Mar tin I would say that is not a bad deal! Not bad at all. Minh L. Agree. Gentrification is the buzz word these days, and will only create upward pressure on home prices near and around SF.

J. Martin · Answer

@Jerry Zhou , I hear there are not any properties in the Bay area generating positive cash flow.. but the Bay only consists of the Peninsula, SF, the Oakland/Berkeley Hills, and beyond.. ..but check my post above..

Peter Myers · Answer

Hi, Raymond. I've been in SacTown since 1989 doing real estate. Happy to give you my 2cents worth. PM me. Thx

Account Closed · Answer

J Martin is closing on a 4plex in Oakland on 5/21. It should have a GRM of 7.5 after stabilizing the building. I'd take that any day than going to Sac. Oakland is not as bad as people make it out to be. Where do you think people will go when they can't afford SF prices? For this reason, I like the Oakland bet.