All Forum Posts by: Keith Torsen

@Derek Jones

Thank you for the insight. It seems like Sacramento isnt a very beginner-friendly market. I live here, though, and I'm determined to learn how the market works here before deciding to look elsewhere.

The deals that *are* out there are going to be worth the effort.

@Wes Blackwell

Thank you for the detailed response. I'm currently analyzing for practice to get used to the process and actually discover what's out there, and how the math is supposed to work. I was hoping for a general guideline to weed out properties faster, but for now, I'm pretty much just taking a listing from my realtor, running the numbers, trying to hammer my numbers down, and seeing how the Sacramento market actually plays out.

For example, one of my first properties I ran numbers through had a 0.6% cap rate, but I was factoring in 10% cap ex, repairs, and vacancy. That was a triplex with 20% down.

A quick Google search showed that Sacramento vacancy, on average, is 2.88%, so the next couple of "deals" I'll look at I'll use a 5% vacancy rate. Is this the right thinking for this? Property management needs to be included, whether I'm managing myself or not. (Which I'm definitely doing at the beginning. I can pay myself and turn around and reinvest into the company. )

I will be house hacking it, so I'd like to start with a triplex, minimum, but it's looking like I may have to turn to duplex or SFRs to get my foot in the door and work my way up. I've already been told by several lenders in my area that I can treat up to 4 units as residential, so I could even qualify for FHA loans at a ridiculously low down payment. I ran the numbers for 3.5% down and 20% down, and just the estimated mortgage payment had a $700 difference on one property, and a $600 difference on the second... So cash flowing an FHA funded 4plex in Sac is pretty much futile. Possible, legally, but futile from an investment standpoint.

My metric for a "good" first deal, is if on paper it could cash flow $50 per month. That seems like a decent starting point. If im looking at it the wrong way, please correct me, but an extra $50 per month seems like a solid, reasonable goal for me to attain as a new investor.

Again, thank you so much for the detailed reply

@Philip Sparks

Thanks. I'm currently using $1,150-$1,250 in my expected rents, depending on area, because that's what rentals in my neighborhood go for, for multi family and apartments. I havent bothered to look up SFR rents yet, because I didnt want to start with single family. I just might just because inventory is heavier. If these rent rates look a little off, I'd love some help.

Thank you for replying

@Adam Engle-Sorrell

Yes, I would love to work up to two deals per day. I've had the same thought, and next week I'll introduce a second analysis to my daily routine. I've already thought of checking out single family homes, just for the practice. I also have only been using the ask price. I havent gone through and figured out how these places will work if I lowball their offers. For example, could I get a positive cash flow at $250k instead of $275k, which was the list price for yesterday's deal. Thanks for the input! Really appreciate it.

@Jarrod Frankum this is awesome! Great story, great deal. Really love the lesson of paying it forward. Congratulations!

Hey, BP peeps.

So for practice, I've been attempting to analyzing one deal per day. I'm still a few months away financially from pulling the trigger.

It's been three days, and three deals analyzed. So far so good, right? Trust the process and all that.

My issue is: in Sacramento, the three properties I've run the numbers through are all cash flowing negative at conventional 20% down loans. It's not in the negative too much, but three properties and three negative cash flows, therefore three negative ROI. Today's property, for example, only lost about $18 per month for two separate buildings, and the lot is zoned for 5 more units. Could be a good deal for someone.

My question therefore is: going forward, can anyone give me a rule of thumb for quickly vetting potential deals? Like the "X% rule" for Sacramento and surrounding areas.

Specifically I'm looking for small multi-family in the $350,000 to $400,000 range.

With these within three, I'm thinking the 1% rule will suffice from now on, but I would love the input of other local investors.

Thanks!

@Bill Goodland

Thank you. Its definitely a foot in the door property. It wouldnt be for buy and hold immediately.

@Kenneth Mooney

Vacancy in my market right now is low. I dont have solid numbers, but apartments sit vacant for no more than two weeks on average. I rarely see vacant units in multi family when driving around, unless the whole property is vacant and left to rot. Plus, every time I watch Brandon Turner analyze a deal on YouTube or webinars, he uses 10% as his base. I understand I need more solid numbers for my specific market, but until I know those, 5%-10% is what I will be ball parking.

@Steve Vaughan

Good point. Cash flow isnt everything, and paying myself $1,000 per month for "rent" at this property is better than the $1,200 I'm paying rent right now in my apartment.

Numbers look okay still, considering that. There are a lot of things to consider that I wasnt thinking about, and I appreciate your input.

@Frank Wong

Yes I probably do need to slow down and get a little more savings so I can get my foot in the door properly without trying to force anything.

@Joe Villeneuve

Thank you for the practical reasoning behind this and the reality check.

The only upside is it would potentially reduce my living expenses while I'm living in it.

Other than that, at ask price, my numbers dont work. I really appreciate your insights, and I am getting lost in percentages. I'm new to t

his, and despite reading about it for years, this is the first property I've sat down to analyze, and I knew I had to be missing something. Practice will make me better, and I'll use 10% for cap ex, repairs, and vacancy from now on.

What is a good starting point for property management? I havent talked to any landlords or property managers at this point, for my market, so I'm guessing 5%-10% to start with?

@Ken Bailey

Thanks!! I was definitely off on taxes, and I'm still in the dark on what repair costs could be like, but I think $5k is a decent start. Offering asking price wouldn't work at these numbers, because of the new taxes I would be charged.

@Steven Ko

I dont plan on moving from Sac for at least five years. Part of why my gf and I are in Cali is to get a cheaper education. We wont be leaving until that happens.

This was a stellar find, and the only thing I havent mentioned yet is the house is old old old. Like 80 years old. So I could definitely run into issues during the inspection or rehab processes.

I am going to keep looking just for the practice of finding deals, and analyzing this one was really fun.

@Steven Ko

Yeah, my realtor helped me with the ACTUAL taxes, because they change after the purchase, which I was unaware of.

Putting in more realistic taxes brought the cash on cash return down from 12% to 3%, so it's not as great of a deal as I initially thought at ask price. I'll have to play with the numbers until I find the sweet spot on price.