Hey Brian! I am an agent in Sacramento and have worked with many investors such as yourself. Some costs to account for at acquisition: down payment, closing costs and moving costs (if needed). Down payments are typically about 3% for an FHA loan, or as low as 5% down for a conventional loan.
Closing costs are generally 2-3% of the purchase price. There are a lot of variables to calculate this. One of the big ones is the front loading of property taxes. The title/escrow companies have tools to help calculate it, but 2-3% is a fair rule of thumb in our market.
So if you bought a home that was $500k... 5% down conventional loan is $25,000. 3% for closing costs is an additional $15,000. For a total of $40,000 cash needed to acquire the property.
Sacramento is a very aggressive market where we commonly see multiple offers, homes getting in contract in less than a week and they end up selling for roughly 10% over the list price. So to win the bidding war, you need a strong offer.
Ways to write a strong offer: (1.) Use a conventional loan vs. FHA loan. (2.) The faster you can close, the stronger you look (the lender I use closes conventional loans 15 days and it is a super smooth process). (3.) Shorten the contingency periods (inspection, appraisal and loan). (4.) Increase your earnest money deposit (EMD) (5.) Offer an appraisal gap
Appraisal gap: This is where you pay cash to offset a low appraisal. If you write an offer for $500k, but the appraisal comes back at $480k, then you have to pay $20k cash to bridge the gap between what the lender will let you borrow and the offered purchase price. This is essentially an extra $20k you would need to buy the property in this scenario. Having limited funds will certainly prevent you from offering an appraisal gap, which will make buying in this already aggressive market more difficult. However, there are strategies to bypass a lot of those headaches in this market.
The very short version of one of the strategies is to target properties that have higher days on market (DOM). If a Seller has been sitting on the market for 25 days, they have realized that there will not be a bidding war for their home, which moves some leverage to you as the buyer. Which in this market if very hard to come by!