Is it possible to brrrr in Sacromento, CA 2021?

Question

Is it possible to Brrr in Sacramento, CA? I've been looking at the housing market in that area for the past year and ran some Brrrr analysis' with poor results. One of which recently was:

7709 Jarvis Ln, Sacramento CA (I posted so someone could eyeball it real quick and see if there's something I'm missing, although I ran the analysis 4 or 5 times so I don't think I'm too far off. However, the ARV estimate and Annual growth assumptions might need work: Added repair cost to purchase price, expense growth 1.5%, income growth 3%, property value growth 6%.

I picked this property because I could add value with repairs and thought it was a good deal compared to comps.

I ended the deal analysis with poor outputs like -$122 monthly cashflow, -173 after refi, 3.43 purchase cap rate, -15% annualized return on first year with only %10 annualized return on year 30.

These are the kind of results I'm finding in that area. I live in Santa Cruz, CA (near San Jose) and would like to Brrrr somewhere drivable if possible. Do I need to wait for a better deal or should I look in another area. Also, do I need to look somewhere more remote...

Pavan Sandhu · Answer

Look for a property with a dettached garage so you can turn that into a rental. With the new ADU laws you can turn any single family home into a small apartment building.

Dan H. · Answer

How do you figure you get better returns?  The value of any rehab will be greater in Coastal CA than the midwest.  Once I extract all or almost all of the investment out, my appreciation will far exceed the midwest.

Questions:

• Why do you think so many of the flipping shows are based in CA? A: Because the profits from the rehab is superior to other locations.
• What cities do you think Case Shiller has as top 3 buy n hold returns for this century?  A: 3 coastal CA cities (San Fran, LA, San Diego).
• Where do you think NeighborhoodScout ranks those 3 cities for appreciation for this century? A: Each has a 10 out of 10 in nation score.

Simple fact is rehabs product greater returns in higher value areas (NYC, coastal CA (San Fran, San Jose, LA, OC, San Diego), boston, Seattle, etc.).   Therefore, the rehab in coastal CA will be worth more than a rehab in the a Midwest city.

Kevin Summer · Answer

@Joshua Hayes, great response. I'll try and brush up on Long distance RE. I have a feeling you'll go far in life...

Had a great talk with Jon on the phone as well. @Jon Catterson Thanks for all the info and insight on the Sacramento area. I Look forward to hearing about your project as well. Looking forward to updates on your progress!

Joshua Haynes · Answer

Why BRRRR in CA when you could BRRRR long distance and get better returns somewhere else

Kevin Summer · Answer

Thanks for all the input guys. I like the ADU idea and thinking about converting a garage into an office. That way the tenant can have separation from distractions or children during zoom calls and it would be cheaper than making an additional living space. Less red tape too. I estimated that I could be the GC and convert it for around 13k:

floor-3kdry wall - 2K

Recessed lighting - 1k

Electrical - 1k

Paint - $250

Insulation - 1k (fiber glass)

Floors - 1k

Hvac/vent - $1500

Baseboard crown molding - 2k

What are your thoughts. I really appreciate all the feedback. Do you think this would increase the rent even tho I’m eliminating the garage?

Jon Catterson · Answer

@Kevin Summer This property? https://www.realtor.com/reales... I gotta say it doesn't look like a typical BRRRR property pre-rehab to me. What repairs did you project into it? I was going to do a BRRRR calculation on it but I couldn't see what to put for rehab.

Joshua Haynes · Answer

I have 0 experience in investing in general so don't believe everything I say. I have just been studying for 2 years (waiting to turn 18).

If I were to long-distance invest I would probably try to find someone to partner with who lives in that area. You could also find a good RE agent in the area you are interested in and ask them for help. They will know a ton more about the location than you will so I recommend having multiple agents to rely on to get the most info.

One of the key components of Long Distance is you have to have good communication and systems in place so that everything runs smoothly when you're not around. Finding a Great partner or Property management company would be one of the best things you could do for a Long-Distance Investment. Even in normal Close Distance investing I would recommend doing this. Having these systems and people in place would help you make money from Thousands of miles away stress-free and have the possibility of making a lot more with your money (or a lot less stress).

Do your research into Long-Distance RE (in my opinion, CA is a low ROI state with Super high initial investment). Anyways I hoped this helped you in some way :D

Account Closed · Answer

I think it makes better sense to find a property to add an ADU versus converting a garage into an office. The panasonic won't be here forever and I can't imagine a tenant paying you more money than a similar home simply because there's an added office. Don't think the juice is worth the squeeze with that approach.

Kevin Summer · Answer

The 3k flool item is fake floor*. In case I need to have level ground.

Is it possible to brrrr in Sacromento, CA 2021?

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