All Forum Posts by: James Peterson

Interesting Keith,

What neighborhood is this house located?  I've heard of several colleagues doing the same around Sac State mostly for college students though.

-James

Hey Ricky, good for you putting it out there and connecting with folks here on BP.  Getting started can seem overwhelming.  You're probably pretty excited to get the ball rolling but having a little to no nest egg or great income for when things go wrong can spell disaster. If I were you, I'd try to find a way to earn more money quickly to build your savings.  Find an investor you can work with or something within Real Estate sales, wholesaling etc.  This will help you learn the game, and find opportunities that may work for your situation in the near future. House hacking would be a great first acquisition, but have a plan where you want your investment business to be in 5 years and 10 years and what you need to do to get there.  Share your vision with local experts and go to meetups.  You'll find a mentor that can help guide you.  Go get em!

-James

Hi Patty, 

It really depends on what you're trying to accomplish.  If you're looking to just get it Rent ready, or a major remodel to increase income or beautify and repair termite/pest issues for selling or a combination of those.  Typically it's best to hire Subs directly for specific jobs, ie. Plumbing, electric, roofing, flooring, paint etc. 

A good handyman can take care of most small items inexpensively $40-75, per hour typically. 

Happy to give you some guidance and a few contacts to get started.  

Leanna, good for you to make this decision! When I started my RE investment journey I did the same. Your scenario doesn't really sound like a house hack if you aren't renting a unit while living there. Am I wrong? Location, within Sacramento, is extremely important, not only for return on investment, but local regulations on renting ADUs etc. The city has permit ready plans that can shorten the timeframe to build a new ADU and staying under 750sf will keep permitting costs lower. Expect to pay $300/per sf +/- to build new. There are some areas that command $2500+ per month for small 1 bedroom ADU mid-term rentals. There is a ton of info available on costs, regulations etc. that you should get familiar with.

Not an expert, but definitely do what others recommended, get the professional advice.  Your agent was right to get the engineer involved. Although costly, if the inspection shows you need $X to repair it.  Assuming you have an inspection contingency,  ask for every bit of that but before you do, ask other foundation contractors how much they might make that repair for.  If the sellers don't agree, back out and find something else.

Hi Sejin, 

No doubt Sacramento is a good place to invest.  There are a lot of good things going for Sacramento,  and there is money pouring in to certain areas.  This sounds like your first investment? Don't buy just because it seems like a good deal.  In the long run, you're better off overpaying for a house in a great area as opposed to getting a good deal in a bad neighborhood for several reasons. Here are the top two...

1. You'll have more financially stable and responsible tenants. (Huge)

2. You'll have better appreciation and more price stability in down markets. (long term wealth building)

Numbers will show better cashflow in crappy neighborhoods, in the beginning, but no amount of cashflow will outperform the rate of return on appreciation over 10+ years unless your putting too much money down.

Ask yourself these questions:

1. What kind of return am I expecting from this property?

2. What kind of discount do I need to make the numbers work?

3. What is my exit strategy?

4. How much am I willing to spend on repairs/prepping for rent?

5. What kind of tenants can I expect from this type of property,  in this neighborhood?

6. What cash flow am I expecting? Am I ok with negative cashflow?

7. Will I have enough reserves for an emergency? 

If you can't answer those with certainty,  you need someone that can help guide you. Finding great neighborhoods that are redeveloping, close to downtown is a good target. Properties with value add possibilities can multiply your returns. 

Best of luck, and great job in taking action!

Elk Grove is a good location for appreciation and typically good tenants.  Why not find something that can be more profitable over the long run and build a larger portfolio using the brrrr method, force appreciation by adding units, rehabbing etc?  I would consider B and A neighborhoods in Sacramento,  close to downtown, homes with 80% of the buyer pool demand will be the most stable, Folsom and Roseville are also excellent choices, good schools, growth etc.  A negative in cashflow would be the least of my worries,  finding something that does cashflow right away signals low appreciation and bad areas/problem tenants etc.  If you can financially support that small negative,  you'll be in a great place in 10 years as you'll capture a much higher rate of return than cheap areas. If your goal is to build wealth.

Matthew, 

I commend your strategy to buy and pay down.  Everyone looking for cash flow now, is not considering the equity gain and appreciation over time.  Listen to the last BP podcast...

Beyond Cash on Cash: How Thinking Like an Investor Unlocks More Deals

David Greene and company nails it and hones in on all the advantages of real estate over-looked by investors.  My philosophy is you should be earning a 40-60% rate of return on your real estate investments. This is over 15-30 years. Find a strategy to buy as many properties as you can afford in great areas where you don't have to worry about bad tenants and appreciation.

Rule of thumb - If prices are really low now, it's probably going to be that way in 15-20 years... those areas have low appreciation for a reason.

History teaches us a lot.  I bought a house in Santa Clara, CA in 2005 for $535k when I could have bought 2 or 3 homes in Louisiana for that price.  Now that home is worth $1,750,000.  No amount of 'cash-flow' could have earned that kind of equity, and it rents for nearly $4000/per month. 

History WILL repeat itself.  

No amount of cash-flow can beat the appreciation and that was prior to the crash.  

Find a strategy that will help you achieve your goals in the future, don't just focus on cash-flow.

Here's what we are doing...We are finding off-market 'flip' type opportunities in A-class areas where we can purchase for 25%+ below ARV making repairs and adding additional units just to achieve cash-flow even status once cash out refinanced. We may not be able to recover all the $ invested to achieve the cash flow requirements but we are maximizing the return on cash invested.

Air BNB is very labor or cost to manage intensive, and takes time to earn good returns.  In my opinion it's not as safe with changing regulations all the time and should be a one-off to building your real estate portfolio.

Just my 2 cents.  

Best of luck in your investing.

 @Jon Lindley

He's missing several major advantages of real estate investing. Plus you have 3 years to sell without losing the homeowner tax exemption.  

Debt Paydown - in 10 years how much will your tenant pay down the mortgage.

Major Tax advantages - Depreciation and write-offs.  

If you do keep it, why sell and pay the taxes in 10 years?  You can do a tax differed exchange(1031) into a better investment, double down on your equity.

If the numbers make sense I would hold on to it.

There are some great areas not far from Sac that have very successful STRs.  I don't want to give away my honey holes, but think of wine country (not Napa), lakes, vacation type areas.  PM me if you want details.