Thoughts On A First Investment Property?

Question

Hello REI gurus! I am looking at my first property that I would be buying as an actual investment, and need some help evaluating it, as the price point is way higher than what I was hoping for. Still, I feel that this is good investment for Vallejo, which is one of the hottest markets currently. It is still recovering from the bankruptcy, but many are moving there from the SF Bay Area for cheaper rents. There are 2 properties on a lot: duplex with 3 bedrooms (1 bath), and another property is also 3 bedrooms (1 bath). They are listing it for $635k, and are collecting about $4500 rent currently (monthly). So not close to the 1% rule, but it can still can flow in my calculations. Plus, I might be able to increase the rents in the future. Sounds like the current owner did some remodeling including new roofs, which is pretty major from what I understand as most houses in Vallejo are over 100 years old. The prop management companies around here charge 8%-10%. If I put down 25%, it would still cash flow, assuming the price doesn't grow due to other offers, which is common in Vallejo currently. I am planning to go see it this weekend, but I am a bit worried about buying this size of a property for this high of a price point as my first investment. I also have a 1 bedroom condo that I have been self managing, which is way different since I have amazing tenants. I live 1 hour away from Vallejo, so this is one of the reasons why I am looking in that area. Also, most areas here don't cash flow:). Any general thoughts? Things to watch out for?

Hope the moderator allows this link, since its just zillow:

https://www.zillow.com/homes/for_sale/2092902148_zpid/38.099929,-122.248368,38.09738,-122.252231_rect/17_zm/

Hope the moderator allows this link, since its just zillow:

https://www.zillow.com/homes/for_sale/2092902148_zpid/38.099929,-122.248368,38.09738,-122.252231_rect/17_zm/

Paul Choi · Answer

Looks like a decent deal.  After a quick look, the price/SF is lower than what the homes are selling around that area.

If you wanted, would you be able to sell 1 house and keep the other? Or not because they are on 1 lot?

All permits up to date?

Always think about exit strategy before investing, even long term investing.

Good luck!

Antoine Martel · Answer

Roman.

I grew up in the bay area and buying rental properties around there just don't make sense cash flow wise. If you are looking for cash flow then have you thought about investing out of state instead? Vallejo is a good market but was burned in the 2008 recession as well.

Account Closed · Answer

Roman,

I've been investing in TX for years and I think cash flow wise it makes much more sense than

Bay Area/CA. Also, you need to keep in mind that the laws and regulations are typically tenants friendly in CA.

There are many ways to invest out of state and you can find a better product out there. You are right about the property management it is hard to find a good one but it is doable. There are good property management companies...

You can also consider investing passively into someone syndication (apartment complex, storage facility etc).

If you want to learn more about out of state investing feel free to check out this meet up group -

meetup.com/Los-Gatos-Real-Estate-Networking-Meetup/

Roman S. · Answer

Yes, I have been thinking that too, but thanks for reminder Paul.

Paul Choi · Answer

@Roman S. sucks to hear that but there was a reason why the price was adjusted downward from the comps :)  deferred maintenance?  how much immediate improvements in $$ are you looking at?

Once you make those major improvements, your capex % could be slightly lower when running the rental numbers since those typically have long use cycles.

Roman S. · Answer

Yes, the numbers looks good, but there is another problem. The property is pretty old, so it would likely have lots of issues down the road... just finding this out now.

Antoine Martel · Answer

Understood. I just don't think you'll be able to get steady cash flow in Vallejo. Have you ran the numbers and the cash flow is there?

Roman S. · Answer

@Paul Choi thanks for the advice. I will have to check with the city to see if its possible to make them separate properties, probably not easy or not possible, as the current seller would have done it :). Definitely a good idea to make sure all permits are up to date, I will be sure to ask about that.

Roman S. · Answer

@Antoine Martel Thanks for a reply Antonine. Yes, I looked into investing out of state, but I feel like its too far away for me to have any real control of the property... its so hard to find a good PM that you can trust, and I also have no clue about any of those markets. I looked into turn keys in TX and pulled out last minute, when the property didn't upraise, and I was faced with making up the difference in extra downpayment. My hope for Vallejo is a) steady cash flow that can grow as the area develops and the rents grow and b) some appreciation in time as the Vallejo prices are still pretty low for SF Bay area.

Thoughts On A First Investment Property?

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