All Forum Posts by: Derek Daun

@Wes Blackwell has posted a lot of great analyses on the subject recently; search the forum and check them out.

Cliffnotes version is that Sacramento has gone through a cultural transformation such that it has become a very desirable place to live. Ten years ago most young people did their best to get the hell out of here to the coastal cities as quick as they could. Now a measurable percentage of those people are deciding to stay. Additionally we now have people moving from the Bay Area to here because they can work remotely. These two things have created a larger supply of skilled workers, so jobs might start coming here as well. And all this while housing starts have been significantly lower. 

Primary residence is the place that you live in, plain and simple.

Sounds like you should discuss this with your fiance and verify they would be willing to live there for a couple of years.

I like using http://www.mortgagecalculator.org/ for calculating mortgage costs.

Home value : 250k

Mortgage: 200k

Interest 4.5%

Property tax 1.22%

Home insurance $750

=$1330 Monthly payment

Keep in mind that because of prop 13, the mortgage company will likely underestimate property tax in the good will statement. This happens when they look at the tax rolls for the tax amount which uses the current evaluation, and not the new evaluation after the property changes hands. This can be a significant difference for flips in this neighborhood. 

I used to a live a couple of blocks from there. In general, it's "nice" part of the neighborhood assuming you know what to expect living in Oak Park. (Not as nice as North of Broadway though) There will be lower income neighbors. You're bound to have a slumlord some where around there that rents to crappy tenants and doesn't keep the property clean. I haven't been on that specific street in a year or so, but there's been a lot of investing activity on 38th Ave in the last two years, and it is starting to clean up really nice.

Like @Jeff Gore mentioned, this isn't really investing grade; although I calculate PITI as about 1330/month compared to his numbers. Figure another 150 for sewer/water/garbage, which means you're break even at 1500/month. That's more risky than I would like.

It sounds like you are in a "want to buy now before prices go up and we'll figure it out later" mindset since you aren't sure if you're looking for investment or primary. You might want to figure that out before going further. Specifically decide if you want to live in that neighborhood. At these number you don't have good guaranteed exit strategies, and risk being stuck with a negative cash flow house if you don't want to live there. That could stand in the way of buying a house to live in if it's not there.

It's important to note that the current issues with Oak Park in that area are strictly cosmetic. Even six years ago when we lived there (and it was much worse), it still felt safer than midtown. Comparing it where we live in East Sac now, the difference is strictly feel. There are almost just as many homeless in East Sac. Property crime is probably worse here, since there are more people around during the day in Oak Park. Like I said cosmetic. If you're comfortable with that, then it's good buy. Cheaper than renting, great appreciation, and a good neighborhood.

That's right in my area. I haven't been in that one, but it looks like a fairly nice rehab job. The neighborhood quality varies a lot block by block there though. It has been transitioning, but it's still going to be important to make sure there aren't any problem houses immediately adjacent.

At that price you should be able to be just above cash neutral, at least for the first 5 years assuming everything was done correctly.

What I don't like about that property is the fact that you're paying retail price. You're competing with lots of families when you see 3 bedrooms fully remodeled. They're coming with FHA loans at 3.5% down, so the down payment difference between asking price and 215k is just a couple hundred dollars. This also means a lot of the day 1 value has already been taken out of the property, and you will have fewer exit strategies. With that being said, though, you'll probably be okay if the market continues like many of us expect it will in that area.

I don't think it's that much over priced. Depending on the seller's holding costs, they might be better off waiting, as they should be able to get that price by Spring.

In summary, there might be better deals out there, and this property is higher risk. However, if you're looking for turnkey, and are okay with the risk, you'll probably be fine. Assuming the seller takes it.

Hey @Wes Blackwell I've really been liking the analyses you've been posting. 

The one thing I'd add is that I'd really want to see the description of that 275k comp. If it had all the similar upgrades the case study property, than I'd completely agree with the conclusion. If it didn't, then I'd think the "true" price for this property would be a little higher, some where in the $290 range. Additionally, we don't know what kind of offers the seller might have been turning down, so they might not be ready for a reasonable offer.

I learned my lesson in not taking chances with termite evidence. 

I bought a property in November where the inspection showed evidence of drywood termites. We got a seller credit towards treating the issue at closing, but figured we'd play it by ear before springing for the cost of tenting.

During remodel we found more evidence of termites extending up from the foundation, but the rehab exposed all the affected area in the main house. I chipped away at any soft wood and found no actual termites. The one caveat was a small addition to the house that also showed evidence, but the crawl space was not accessible to inspect. This area was not rehabbed, but the siding needs to get replaced there, so I figured I'd inspect it when I did that project. Unfortunately the rain came before I got to that, and my friends wanted to move in before Christmas, so residing got delayed. In the end, we decided not to tent, knowing there was risk the termites could still be active in the addition, or could have fully migrated to another location, but I felt okay with a 90% inspection.

Well, I lost on that gamble. It turns out the termites were active in the addition, and are suddenly in full on exploration mode. In one night they burrowed through the drywall in multiple locations of a corner of the addition. We suspect it has to do with the tenants getting an Orkin treatment, which possibly led the termites to decide it was time to find a better home.

So now I will need to call in the professionals. Even if we take all the siding off the addition and see evidence of just a local infestation, I assume we'll likely tent it. Who knows where the little buggers could have spread out to now.

Any recommendations on a good local company?

Congrats on the saving. There two things you need to consider.

1. Doing BRRR and buying "rent ready" are usually not compatible strategies. In order to refinance to get your money out, the property will need to be worth more than what you paid for it. The most common way to do that is by buying properties that require work. It's possible to just get such a stellar deal, but not likely in today's market.
2. You don't have to limit yourself to cash purchases. You could also use part of your money as a down payment with a conventional loan, then do the rehab, and then refinance to get your money out. The disadvantage to this method is slightly higher costs, and not being able to get as big of deals. 

It really depends on the work. Labor is a higher percentage of the total bill in different fields. Plumbers and electricians charge a lot per hour, but they are also more regulated, and the cost of failure (flooding or burning down the house) are higher. In my opinion, drywall mudding is more of a skill than plumbing, but the field is less regulated, and more accessible, so the labor cost is less.

It's a good idea to try out doing some jobs yourself as you'll learn crucial skills useful for when you pay people to do it in the future. Additionally, those skills are great to have when it comes to doing repairs. I'll switch up what jobs I do. We did the full kitchen installation, plumbing, painting, and part of the electrical in the last project, and paid people to do the flooring, drywall, and the rest of the electrical. In a previous job we paid someone to do painting, but did the flooring ourselves. 

If you can't afford it, then you kind of have to do it yourself. It's a great way to get started. Once you can afford it, it's great to know enough to choose what to pay for and not get ripped of doing it.

I said 5-10% on the primary as a way to stretch out your dollars, and have more cash left over for improvements and investing. It's the cheapest money you'll get anywhere. Yes, you'll have to pay PMI, but if you buy right with a good renovation plan, you'll be able to refi out of the PMI in a couple years.

Overall, you have to balance out where the best place to have your debt and cash at any given time.