Roseville, CA · Member since 2016 · 4 posts · 3 votes
This is my first post on the forum, though I've read most of the threads and I attend most of the webinars and listen to the podcast. Trying to get my brain fully around the many options for REI, and there's a lot to learn!
My goal for getting into real estate is to generate passive income that will allow me to do less consulting work. I already "quit" my job - or more accurately bought it - so I can set my own schedule and all that good stuff. It pays well, but requires travel and I'd like to be able to spend more time at home and be more selective about the projects I take.
With that in mind, I've looked around a bit and I'm having trouble convincing myself that I should be looking locally for rental property. CA taxes, the Sacramento market's price/rent ratios and some of the CA tenant rights all have me a bit scared off and thinking about looking into other markets.
So, is it worth looking for rental properties locally? Are Nevada/Oregon/Arizona potentially better options?
Interested in what the folks on this forum have to say. I appreciate it!
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
9y
There are still deals that cash flow from Day 1, have built in equity and are in solid locations. Here is the key... you have to be ready to perform when they fall in your lap. The reason these deals rarely go to new investors is because they are not ready to go. They are timid and second guess good opportunities when they do pop up. Good deals in Sacramento and surrounding areas, on and off market, get tied up in a matter of hours or days. You need cash or hard money (you can refi later) and you need to do direct marketing or an agent (usually also an investor) that is active with investment grade properties in your target area. Are they mailing, calling and door knocking NOD's, delinquent Taxes, Divorce, FSBO's, code violations... or are they sitting in their office and running a MLS search. When they lose a good deal on the initial offer do they stay in touch with the listing agent to see if it falls out or hits a bump?
I see deals every week as an investor and an agent. If I can't take it down then I get other cash buyers I know involved. I have tried to bring deals to new investors but they are rarely serious and in the position to pull the trigger.
Investor · Sacramento, CA · Member since 2016 · 7 posts · 1 vote
9y
Thanks for posting this question. After a few weeks of looking at Sacramento properties and crunching the numbers, I've been wondering the same this myself. Will be interested to see the responses to your post.
Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes
9y
If you are looking for strict cash flow, with hopes of getting $100/door, then you're right, Sacramento might not be the place for you. You're going to pay 3-4 times per door in Sacramento relative to a similar property in the midwest, but still only get that $100.
Another concept people like is building wealth in real estate through long term principle payments. From that angle, Sacramento looks more appealing. For a similar amount of cash invested, you only have one roof, one furnace, one kitchen, and one tenant, compared to four of each; plus it's all local. This makes the investment more appealing with this model. Plus, if you buy in the right neighborhood, you can increase your likely future equity even more.
Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
9y
@David ZocchiIf your looking for immediate cash flow then Sacramento is a tough place to get it now unless you put 50% down payment and you get a good deal. You can get a little more cash flow with 4plex's compared to single family homes but the price point is 330k and above for those. Now it is even tougher to get cash flow if a person finances the property because mortgage rates just jumped up 1/2% since the election results. I have purchased out of state in the midwest states to get real cash flow. You can find decent homes in the 60k to 80k range in Missouri that rent for 700 to 900 per month to give you an idea on cash flow. A similar home in Sacramento costs 200k and rents for 1100 per month. The tough part about out of state investing is the property management but if you get a good PM then it works well.
Property Manager · Sacramento, CA · Member since 2016 · 91 posts · 34 votes
9y
@David Zocchi welcome to BP! You've definitely gotten a lot of great feedback here and I'd just want to re-iterate those. It really depends on what you immediate goal is. For sure if you are just looking strictly at cash flow, you should almost certainly invest in the midwest as @Gordon Cuffe says because you will get more/equal cash flow for a much lower purchase price.
I think there is something to be said about the long term play of Sacramento and how the equity could play out in Sacramento. We may be nearing the upper end of the market (as some are saying), but in general I am very long on Sacramento and think it has a number of strong aspects which continue to make it be a great long term investment. So if you can find the cash flow that equals something in the midwest, I would argue you'd be better off investing in Sac because of it's potential. There is the new arena, the quickly growing and rising rental market, job opportunities, and anecdotally the many people migrating from the bay area.
Would be happy to chat more if I can help in anyway, just let me know!
Good luck with your decision and remember to just do what is right for you. And congrats for taking this big step, I'm sure you'll do great!
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
If cash flow is your goal (and it's a great goal), anywhere in CA will be tight as will most places on the west coast. The other places won't be as bad as CA, but cash flow isn't much of a thing in any of them. Nevada and Arizona both used to have good cash flow in some areas, but it's faded out. Anywhere in CA that does have it, it will be on the lower end and you still have tenant-friendly issues that can be detrimental.
How far out are you willing to buy? Any idea on your price preferences/budget?
The CA Central Valley just saw 7 years of appreciation following the Great Recession (depends on locale). I would argue it's not the time to buy, at least not at retail price. I suspect that @Chris Kirk is right with regard to the market cycle. I would look for local wholesale properties because the price you pay for that may help offset any potential downturn in the market. Anything local will be easier, and perhaps cheaper to (self) manage.
Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
9y
I prefer out of state. You already own a home in California (presumably) so diversify. AZ and Nevada are similar. Utah seems to be a much more stable real estate market (doesn't go up or down with nearly as wild swings as Ca, AZ and NV do). However, for cash flow you need to go Memphis, most of Ohio, KC, etc.... It's night a day difference.
Simple example: Let's say you have $300k cash to spend and you want no debt. $300k buys one house in Sac that will rent for about $1,500. It's not going to be a great neighborhood but will be a solid B area. Or you can buy 3 nice houses (also B areas) in Memphis and the rents will total $3,300. It's simple math to me. I don't care what the house MIGHT be worth in 10 or 20 years. The cash flow is there in the other cities.
Roseville, CA · Member since 2016 · 4 posts · 3 votes
9y
Thanks for the great input everyone. I'm impressed by how open and thoughtful the responses are. Lots to think about!
At this point, I'm really looking for cash flow vs. appreciation, though I agree that the Sacramento area seems to offer appreciation. We've seen that in our home that we bought in 2010. My goal for cash flow is to replace 50% of my income over the next 5-7 years. That means fewer flights, fewer nights in hotel rooms and more time at home. I love what I do, but would like to be more selective.
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
9y
There are still deals that cash flow from Day 1, have built in equity and are in solid locations. Here is the key... you have to be ready to perform when they fall in your lap. The reason these deals rarely go to new investors is because they are not ready to go. They are timid and second guess good opportunities when they do pop up. Good deals in Sacramento and surrounding areas, on and off market, get tied up in a matter of hours or days. You need cash or hard money (you can refi later) and you need to do direct marketing or an agent (usually also an investor) that is active with investment grade properties in your target area. Are they mailing, calling and door knocking NOD's, delinquent Taxes, Divorce, FSBO's, code violations... or are they sitting in their office and running a MLS search. When they lose a good deal on the initial offer do they stay in touch with the listing agent to see if it falls out or hits a bump?
I see deals every week as an investor and an agent. If I can't take it down then I get other cash buyers I know involved. I have tried to bring deals to new investors but they are rarely serious and in the position to pull the trigger.
Real Estate Agent · Phoenix, AZ · Member since 2016 · 738 posts · 1k+ votes
9y
Hi @David Zocchi! Welcome to Bigger Pockets! Just by being here on this site you're already well on the way to becoming a savvy real estate investor.
I'm a Realtor who's currently working with several other investors who are basically looking for the same thing as you... cash flow.
For one of my investors, I recently compiled a report of every single multi-unit property on the Metrolist MLS and ran the numbers to see what the property's gross cashflow would be if you kept the current tenants, put 20% down and had an interest rate of 4% (easily beatable if you have good credit and that much down, but I used worst-case scenario numbers).
In that report, I sourced 15 properties for sale under $400,000 that would have a gross positive monthly cashflow of $1,000 or more. That means that even after the mortgage payment, you'd be $1,000+ in the black, month after month.
Now, of course you have to take vacancy rates, capital expenditures (repairs), etc. into account, but at $1,000+ every month you're far enough ahead it practically doesn't even matter.
What I've found is that most first-time investors want to start with something they're familiar with (a single family residence) but when it comes to the buy and hold strategies, more units is the name of the game.
It's smarter in the long run as well... think about it...
30 years from now, would you rather have a single family home that rents for $2,000 per month, or a fourplex that has total rents of $4,000? No brainer.
If you want more information on how to make a buy-and-hold investment work in the Sacramento area, just reach out and I'll share all my knowledge and information with you.
Just sent you a colleague request and private message. Anyone else who sees this post and is interested in connecting just send me a colleague request or contact me via the info on my profile.
@David ZocchiIf your looking for immediate cash flow then Sacramento is a tough place to get it now unless you put 50% down payment and you get a good deal. You can get a little more cash flow with 4plex's compared to single family homes but the price point is 330k and above for those. Now it is even tougher to get cash flow if a person finances the property because mortgage rates just jumped up 1/2% since the election results. I have purchased out of state in the midwest states to get real cash flow. You can find decent homes in the 60k to 80k range in Missouri that rent for 700 to 900 per month to give you an idea on cash flow. A similar home in Sacramento costs 200k and rents for 1100 per month. The tough part about out of state investing is the property management but if you get a good PM then it works well.
Sorry to bring up a very old post. I'm new to investing and I'm looking out of state. If someone purchases an out of state property that needs some light reno (paint, floors, etc.) and wants to be a fully remote investor, how does he or she manage the coordination of the rehab? Who greets the contractors when they arrive to paint the walls, or lets the delivery man into the home when the new appliances arrives? Is this the job of a property manager or is there some other title for the person that acts as the "boots on the ground"?
Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
6y
@Paul Saechao If your going to rent it out then a property manager is your best bet for boots on the ground. They will put a contractors lockbox on the front door so they do not have to be there every day. They can check on the progress once a week. They can be the person to meet for an appliance delivery if the contractor is not working at the house anymore.
@Paul Saechao If your going to rent it out then a property manager is your best bet for boots on the ground. They will put a contractors lockbox on the front door so they do not have to be there every day. They can check on the progress once a week. They can be the person to meet for an appliance delivery if the contractor is not working at the house anymore.
@Gordon Cuffe - from your experience, is there a standard payment model for property managers? I've browsed online and there seems to be variation from flat fees to percentage of monthly rental income. Similar to the original poster, I'm considering CA or out-of-state and more knowledge of how property managers are typically compensated (if there is a typical set up you have seen or suggest) would be helpful.
Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
6y
@Hassan KaraouniYou are correct that most charge a percentage of the rents .08 percent for higher rents .10 for lower rents. many of them are changing to a flat fee. Most charge a half months rent to acquire a new tenant at the beginning of the lease.