Sacramento Area Monthly Estimates for SFH/Duplex Rentals

[Samir Pathak]

Hey fellow investors!

I'm a new investor living in San Francisco, but am looking to purchase my first investment property in the Sacramento metro area. I'm looking at SFH and duplexes at this point, but would be open up to four-plexes since the lending criteria is around the same. I'm also open to paying cash, too, but only if it makes a competitive offer.

I've been perusing the main listing sites (redfin, realtor.com, zillow) as well as getting some listings from my agent. I know the Sac market is hot right now, which is why most of the numbers I'm crunching aren't really green in my analysis: I'm looking for 10%+ CoC and CF of $300+.

I've been using the following estimates for my calcs and am looking for some help validating the assumptions or reel me in where I'm way off base.  Any feedback would be much appreciated!

• Large CapEx - 8%
• HOI - 0.25%
• CA LLC - $80/mo
• Prop Taxes - 1.25%
• Prop Mgmt - 8%
• Vacancy Rate - 8%
• Maintenance/minor repair - 8%

Have I missed any key estimates and/or how do the %'s and $ values look? How are my CoC and CF requirements? These were numbers I put down on paper, but I've been seeing some rates close to 8% with my estimates, but not with the $300+ CF. Also, I know that the LLC price is the minimum I'm liable for and will also decrease as more properties are added, but for now, it would only be one LLC in the property.

Cheers,
Samir

[Jeremy Brown]

I can help a bit on neighborhoods. 

"Sacramento" is pretty broad. I tend to break it into several broad areas. I'll give my take as someone who has lived in the area my whole life and has spent a few years trying to break into the investment/rental market.

The city itself. I don't even go there anymore. :-) It seems pretty specialized and is not what I'm used to. Pretty urban, dense, with lots of older houses and fairly large multi-family. Weird, big-city politics that I don't pay attention to. Arena deals, mayor scandals, etc. So many distractions.

North of the city - mainly Natomas. It's an odd area. It was over-built, then construction completely stopped. It was hit HARD in the crash.

The north-east - North of 80 between Natomas and Roseville. Some potential warzone areas out there. Some of it is not an area I like to drive through, let alone buy in.

Roseville/Rocklin - Another over-built area, hit hard in the crash. It seems to have recovered pretty well. Construction has started up again, but prices on exiting homes still haven't made it back to where they were at the peak. Interestingly, some neighborhoods out there made mass-conversions to investment/rentals during the downturn because their value went down so much. We lived in one and it was eerie to watch foreclosure signs going up by the truckload.

Folsom - HOT rental market, but it's hard to buy something to rent out.

Rancho Cordova - an interesting mix of borderline-warzone (between the river and hwy 50) and new stuff (south of 50). It includes some fairly new, but quite inexpensive developments that somehow went from straight from brand new to looking like 20-year-old rentals. The south-of-50 market is something I'd actually like to explore more, myself. Overall, the city has really gotten its sh!t together in the last 10-15 years and seems to be on the right track for the future.

The middle - Carmichael, Fair Oaks, Orangevale, and Citrus Heights have a mix of everything from old, run-down houses to fully-custom mansions. There are lots of pockets of this and that, but in general the area seems like a pretty good mid-range rental market.

West Sac - once you cross the river, you're in a different city, but you can still see Sacramento. It's pretty small, but worth looking at. Just make sure you remember it's not technically Sacramento. It's not even the same county. But, they have a baseball stadium and an Ikea, so that's pretty cool. The top employers are the state and UPS/USPS, so probably a solid long-term rental market.

The south - I'm not too familiar with things west of Rancho and south of the city of Sacramento. Pocket/Greenhaven is older and most seems like pretty low-income. Elk Grove/Laguna was another overbuilt market crash victim. It might have been the worst in the area, but I haven't watched it very closely. I heard they're making a comeback, too.

So, to your original question, we pay sewer and garbage at our rentals. Tenants pay electricity, water, and gas. Water can be a big deal. Our SFR has BIG lawns and it's not cheap to keep it green.