Trending Sacramento Areas for Rentals

[James Peterson]

The MLS has really tightened up over the last year with SFR income producing and multi-family homes. Investors are coming out of the woodwork and migrating from the Bay Area and beyond to snatch up property in one of the hottest markets in the country... Sacramento.

There are trendy areas of Sacramento close to downtown and recovering areas like @Al Williamson always mentions...Oak Park.  My preference is East Sacramento, Land Park, Curtis Park and even Hollywood park.  

With the downtown area vibe right now it's hard not to focus on Sacramento, but I see major growth in areas of Elk Grove, Roseville and Folsom with Red Hot real estate markets.  Any other investors having success in these areas or other areas near Sacramento?

[Wes Blackwell]

@James Peterson

I agree with you that Sacramento is a great market for multifamily rental properties, however it is my opinion that the neighborhoods you mentioned near the city's core are simply way over-inflated in value and the prices are too high compared to the rents.

For example, here's a fourplex near midtown that wasn't even on the market a day before it went pending. Who is buying this stuff?:

http://www.realtor.com/realestateandhomes-detail/2019-18th-St_Sacramento_CA_95818_M20449-94413

$740k for a fourplex with gross monthly rents of only $4,065 when the PITI mortgage payment at 5% interest and 25% down is $3,966. So if you're never vacant, don't pay any utilities, and never have to fix anything you'll make a whopping $99 per month in cash flow. It would take you 155 years to get your down payment back, as you cash-on-cash return based on gross rents and PITI is only 0.64%.

Uhm no thanks, I'll pass.

Even if you bought this property all cash, you COC return wouldn't even break 5% (4.99%), so why buy it when you can find double digit returns on properties between $200-350k in value?

That's where the real deals are, not in downtown, midtown, curtis park, land park, or some other fancy schmancy neighborhood. The prices there are simply too high. Unless it's some sort of appreciation play, I'd bet the people buying those properties either have no idea what they're doing or are so loaded they don't care about getting the best bang for their buck.

As far as Elk Grove, Folsom, and Roseville go, they are essentially all suburbs of Sacramento, and therefore contain little multifamily property. And that's because when people move to those areas they don't want the hustle and bustle and nightlife you'd find in Sacramento, they want a quiet neighborhood with low crime and great school districts. And buyers like that want SFR, not multifamily. I've written more about this here:

https://www.biggerpockets.com/forums/55/topics/383365-newbie-from-san-jose-ca?page=2

Also, those markets are too pricey to find good deals as well. If you've got a boatload of cash and don't mind putting more than 25% down and getting lower returns just so you can have a rental property in the nice part of town, have at it.

But for the average investor on here, those areas are way too overpriced for the rents they demand, and are therefore what I'd consider a bad investment.

Here's another look at the difference between North Oak Park and Curtis Park / East Sac for an example of why buying in those fancy areas makes no financial sense:

3115 42nd St - North Oak Park
Price: $429,000
Gross Rents: $36,360

2680-2686 Franklin Blvd - Curtis Park
Price: $518,000
Gross Rents: $26,100

1355 32nd St - East Sac
Price: $665,000
Gross Rents: $31,800

So, why pay more for less? Honestly, I think people paying these outrageous prices for properties that don't even cash flow either have no idea what a deal looks like or are being sweet-talked by their agent into believing it is one so they can get a fat commission check.