investment in Stockton or Sacramento under 500k cash flow

[Kevin Zhang]

Dead Fellow Investors,

I would like to get your thoughts on this property which is a Stockton triplex that has been on the market for 102 days.  3871 Ryde Ave . Stockton, CA 95204 .    Asking price is around $400K and currently tenant occupied. Do you think this is a good investment property as I am just getting my foot in this. What are things I should be looking for knowing that this has been in the market for an extended period of time? Are there areas in Stockton that I should stay away from? 

I think they saying renters are paying $950 each. 

Thanks in advance, 

Kevin

[Wes Blackwell]

@Kevin Zhang

As a former resident of both Stockton and Sacramento, here is my full detailed advice on this one:

3871 Ryde Ave . Stockton, CA 95204

Gross rents are currently $2,800/mo. Two are rented at $950 and one is rented for $900. They are each 2/1's with 879 sq ft. That's about market rent, but you could possibly bump it up to $1,000 each depending on how nice the interior is. It says they were all renovated in 2009, so it really depends on how the upkeep has been over time.

If you purchased the property at asking price ($400k) with 25% down and a 5% interest rate, your PITI would be $2,143/mo. That leaves a spread between gross rents and base expense of $657/mo.

Tenant pays electric, so you'd be paying water/sewer/garbage (typical) and gas if there is any. When the current leases are up, you'd want to switch that to make the tenant pay for everything, or raise the rents according and market the property as water/sewer/garbage included (perceived savings).

Here's a list of the triplexes that sold nearby within the last year (triplexes are rare, so generally you have to go back further than 6 months):

• 1769 Oxford Way, Stockton, CA 95204 - $290k
• 2008 Buena Vista Ave, Stockton, CA 95204 - $365k
• 1302 Holt St, Stockton, CA 95203 - $255k
• 2158 Monte Diablo Ave, Stockton, CA 95203 - $335k
• 2619 W Acacia St, Stockton, CA 95203 - $225k
• 2879 Pixie Dr, Stockton, CA 95203 - $325k

Not all those triplexes are the same, but it just goes to show that this property is likely $25-50k overpriced, which is why it has been on the market for 81 days (anything that's priced rent would've sold much sooner).

At $375k your PITI would be $2,010/mo and at $350k it would be $1,876/mo. That's more the range that the property would appraise for, so that saves you several hundred dollars right off the top.

Taking a look at the crime map for this area the past 6 months, besides some petty theft and home burglaries, it's pretty much free from violent crime (which is what you should worry about):

Whereas the 6-plex posted above is riddled with crime. Notice the density of red fist icons:

Here's a map of both areas at once, with only violent crime displayed for past 6 months:

Which area would rather live in?

The thing to know about Stockton is that the area gets much harder south of Harding Way. That's an easy way to remember it. Notice how much more dense the violent crime is in that area. It's truly street by street.

If you take a look at the average rents on rentcafe:

https://www.rentcafe.com/average-rent-market-trends/us/ca/san-joaquin-county/stockton/

At $500-700/mo you're renting to the bottom end of the renter market. Plus with 1/1's being a lot less stable, prepare for your property manager to eat you alive when replacing tenants. People don't live in 1/1's very long. Have a child or get a girlfriend and suddenly you need more space. 2/1's are far more stable, with 3/2's allowing tenants to stay for years (but they are a lot more rare in multifamily).

So I'd highly advise going for the triplex rather than the 6-unit building. An asking price is just an ask... 

...

In sum, on paper one deal looks great and one not so great, but upon further inspection they totally change positions.