Bay Area Investors: Tracy v.s. Stockton v.s. Sacramento?

[Yaohua Li]

I am living in the Bay Area (South Bay). I have been researching Sacramento and even been there 2-3 times looking for houses.

Then I noticed that Tracy's rent to price is just a little bit worse than Sac, while being ~1 hour closer to Bay Area by car.

Thoughts on which one to choose? I am looking for something close to cashflow neutral.

[Amit M.]

@Yaohua Li Error #1: your operational expenses WILL NOT be anywhere near 50%! The “50% rule” is very misleading for the CA market. It mainly applies to class C-D fly-over-states lower end rentals. When you rent units for $600-800/month, and profit $100 per door, than yeah replacing a water heater will basically wipeout your profit on that unit for a year. 

Since you plan to manage the home yourself, a 5% vacancy rate and several hundred dollars a year in maintenance (depending on the home’s condition) is what you will typically spend, assuming no significant upfront deferred maintenance. Example: yearly rent of $36,000. Vacancy is -1800, maintenance say -1200, and you’re at a whopping 8.33% operational expenses! More cashflow than you think :)

As for sac vs Tracy it’s a tough call and really your preference. Sac economy is independent, but it’s a real pain to drive 2 hours for minor issues...which will definitely occur. So it’ll either be drive 2 hrs or pay handyman $150 to unclog simple kitchen sink, free up disposal, tweak front door lock, fix a loose tile, or any of a number of small things that can, and will, go wrong. I personally prefer being close in (I can walk to one bldg and am 7 minute drive to my others :) So I personally vote for Tracy, and ride the coattails of the massive South Bay tech economy. One caveat, when thing slow down here, they will be even slower in Tracy. But you’ll always be able to get decent tenants, just make sure that the school district isn’t crap. At the end of the day, it’s hard to argue with the long term appreciation of the Bay Area. 

my2c