All Forum Posts by: Rafael Gallardo

I am looking to take on my first investment property EVER. I dont want to be stuck on analysis paralysis so I came here to hopefully get some insight on what I should be looking to expect from all kinds of perspectives.

I'm looking at a place in Merced, CA.

Some of the facts:

Has 3bd/1bth unit with 896 sqft built in 1983 and a lot of 7,405 sqft.

The ADU is 3bd/1bth, has 1450 sqft, and was built in 1987.

Closest comp sold at about $192k.

I plan to give them an offer @ $160k but dont mind negotiating up a bit.

Average rent in the area looks to be about $1250.

Tenants currently occupy both units. (Would like for them to reapply to be keep tenancy.)

The worries:

Am I seeing a possible $2500 in monthly income for rent?

Tax assessed value is less then half of their asking price. Would this be worrisome?

What precautions can I take on this kind of investment?

I don't know if the ADU is permitted by the city.

I ran some rough numbers through the brrrr strategy calculator and showed some cash flow potential.
Any kind of advice is welcomed. Would love any kind of guidance through this process.

Thanks,

Rafael Gallardo Jr

Verify the ADU is permitted. Hands off build of just the ADU would be higher than your offer price assuming it is permitted and built to code.

I like 3/1 for long term rental. I like 3/2 better but 3/1 is good. I like that both are old enough to likely have max value lost, but not so old as to be likely to have a ton of unexpected items. Both built in the 1980s likely means no asbestos and no lead paint. I recently placed an offer on a large house that my contractor estimated the abatement at $40K to $50K. I also, in the last year, had an abatement problem where we fired our initial abatement contractor at a time after all abatement was expected to have been completed. It put us a month behind right at the start. Then Covid. We will finish at around double our initial projected timeline. It would be nice to have a property where abatement is not likely to be a big issue.

In CA, the property tax assessment is often more a function of length of time owned than the current value. This should not bother you at all.

Your rent values look fairly close. Rentometer has a scaled down free version. Use it to see what the 50th percentile projects. Your rent to value ratio if purchased near your initial offer and the rents are accurate will be outstanding for CA. This would indicate likely cash flow, but still run a more accurate pro forma using an established calculator (BP has some that are OK, but make sure you allocate enough for maintenance/cap ex).

Get an inspection. Do not have the seller or their agent provide the inspector. Your agent recommendation would be fine. A good inspector will be a better precaution than anything I could tell you other than checking the rent via Rentometer.

Know the vacancy rate. Know the PM fees. I suspect total PM fees will be ~10%, base fee may be lower but then there will be more upcharges (inspection fees, contractor fee, etc.).

I know the Merced recent income growth. Do you? I think if you did, it would alleviate some of your concerns. Look it up if you do not know it.

Realize Merced growth is in significant part due to UC Merced. Covid is impacting all of the universities in CA. Take this into account. Past vacancy could be significantly less than current vacancy.

Good luck

Wow awesome info!

I'm sorry to hear about the hold-back with the abatement issue. I will be looking to avoid issues relating to abatement!

One of my big reasons for choosing a rental property in Merced is because of UC Merced. That is true about the students doing online training as of now because of Covid-19 so vacancy will more than likely be higher throughout the rest of the year and maybe well into next year.

As of now the previous owner has two tenants currently occupying the two units. ADU is bringing in $950 while the main unit brings in $850. These numbers are giving me a rough estimate of income from rent which is $700 less per month than i expected. Would also like to have tenants reapply for tenancy.

Excited to see if this is a play to make.

Thank you Dan,

Rafael

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Hey Biggerpockets peeps,

I'm looking at a place in Merced, CA.

Some of the facts:

Has 3bd/1bth unit with 896 sqft built in 1983 and a lot of 7,405 sqft.

The ADU is 3bd/1bth, has 1450 sqft, and was built in 1987.

Closest comp sold at about $192k.

I plan to give them an offer @ $160k but dont mind negotiating up a bit.

Average rent in the area looks to be about $1250.

Tenants currently occupy both units. (Would like for them to reapply to be keep tenancy.)

The worries:

Am I seeing a possible $2500 in monthly income for rent?

Tax assessed value is less then half of their asking price. Would this be worrisome?

What precautions can I take on this kind of investment?

I don't know if the ADU is permitted by the city.

I ran some rough numbers through the brrrr strategy calculator and showed some cash flow potential.
Any kind of advice is welcomed. Would love any kind of guidance through this process.

Thanks,

Rafael Gallardo Jr

0 Votes

Originally posted by @Ryan Kelly:

@Angela Reyna As Angela said, Texas and California are two very different states, yet many Californians have made the move here for jobs, business climate, and lower taxes. Build you network and reach out to those in these forums for one-on-one discussions. Good luck!

Thanks Ryan! Best of luck out there!

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Originally posted by @Angela Reyna:

@Rafael Gallardo I say you do it! I moved to Austin back in 2012 and I was making about $30k/yr at entry level marketing job at a software company back then. I wish I would have had the education and boldness to be open to real estate back then or even years later when my income doubled and then tripled. It wasn't until last year that I finally bought a home. Needless to say, I missed perhaps a better window of buying a home and REI. You have to consider that Austin and the metro area will continue to grow. There are many job opportunities here too. Perhaps it's less about the taxes, income, etc and more about the possibilities. The only thing I would add is to level your California expectations when moving to Texas. I'm not one to hate on Californias at all (many of my neighbors, colleagues, and friends are from CA) , but just keep in mind we are two very different states.

A huge motivation for me to move over to Texas is exactly that! The opportunities for growth not only for the city but for me as well! If I can find a way to do it while keeping my expenses as low possible while making the best use of my dollar then I want in.

0 Votes

Originally posted by @Will Dixon:

@Rafael Gallardo

If you want to get more exposure to the real estate industry, consider taking the leap and starting to work as an agent. It may not have a guaranteed paycheck (although I’ve heard of agent positions with hourly or fixed income, I believe Redfin is one). It may start slow but once you get some experience you could greatly outpace the earnings from your current job. At that point you can see if buying in CA might be feasible and you’ll know much more about your local market and buying and selling.

If you have your heart set on Austin, maybe consider saving up for an extra year. During that time, study up on the Austin market and figure out where you would want to live, hopefully a neighborhood that would be good for a rental down the road. The extra year of savings could help you afford a place closer to the city. Don’t forget to set some money aside for reserves!

Definitely considering taking the leap as an agent before heading out to Texas. Just afraid of failing :( The rewards are much sweeter here as a successful real estate agent, but with that comes a very high level of competition. Thanks for crunching the numbers. I didn't know that you only get taxed a certain percentage until earnings cross over to the new tax bracket! Really appreciate the golden info!!

1 Vote

@Aaron Gordy Duplex sounds like it can definitely be an option! I can definitely push for more on the preapproval by getting someone else(like my gf) co-sign. Was just hoping to be able to pull the loan on my own.

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@Brandi T. Awesome insight! Really appreciate that info that I would not have known otherwise!

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@Pete Harper Sounds like the awesome benefits of Real Estate! Congrats on early retirement!

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@Tim Hendricks Thank you for breaking down some math! Although we are only estimating an extra $1200 in my pocket can go a long way for me in my current position. Plus, Ill finally be out of on my own :D

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Hey BiggerPockets fam,

Anyone who knows the Bay Area knows that home prices here are on the expensive side.
I am currently employed at a great company working as a cashier making $17.25 but because I live(with my parents) in the pricier side of the area(San Jose) I get a $2.00 premium which brings me up to $19.25/hr which is awesome! The only issue is that when I went to get pre-approved for a home they only approved me at $175,000. If I continue working at my current employer I probably wont be able to afford anything in my area anytime soon.

Knowing the importance of location, I was looking at Austin,TX being one of the fastest growing cities out there. I hope to eventually turn my property into a rental property after my girl friend finishes nursing school out there which should be about two years max.

I have also had my real estate license here in California for a little over a year now but I have not made any moves in this industry. I'm held back by the thought of not being ready and many other excuses especially the fact that there is no promised paycheck. If I could be successful in this career I would prefer to stay but I want to consider this a higher risk route with a higher reward.

Essentially, my first choice is to move to Texas and buy a house for about $150,000. Take the $2.00 pay-cut for an estimated yearly earnings of at least $33,000 and eventually convert it to a rental property to eventually move back to California. 2nd choice would be to just stay here in San Jose and earn about $28-30k a year working part time hours at my great company and also try to get something started in Real Estate. I wont be able to buy anything until I sell at least two properties as opposed to be able to make the Texas move as soon as I find a property.

Is there anything I should know prior to making such a move or any advice you guys can offer me that might give me some kind of direction?

Thanks,

Rafael Gallardo Jr

1 Vote

All Forum Posts by: Rafael Gallardo

Rafael Gallardo has started 2 posts and replied 10 times.

Post: Investing Into a Rental Property in Merced, CA w/ ADU

Post: Investing Into a Rental Property in Merced, CA w/ ADU

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas

Post: First Time Home-Buyer from Bay Area to Austin Texas