All Forum Posts by: Scott Scoville

Hey @Scott Trench, I'm an investor and agent in Sacramento. We're still finding deals, but have to be more patient, like off market, seller finance, creative finance. We're doing heavy value add deals, which still pencils for SFH's and Small Multi's. We're also seeing flips work in many of the first time home buyer neighborhoods. Also, starting to target properties that can be rented by the room or as sober living, etc. Lot's of different strategies that work. Just need to pick one, know the market, and rinse and repeat what works. Glad to hear Denver is working for you:-)

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Quote from @Sipan Y.:

I'm looking for a real estate agent in Sacramento who is also an investor and has experience with ADUs—specifically someone familiar with local ADU regulations, how properties with ADUs are appraised, and preferably someone who has built ADUs before.

If you or someone you know fits this description, please reach out. Thanks!

Hey Sipan, I'm an agent and investor in Sacramento. I built a permitted ADU above the garage of a primary SFH and rented it out to traveling nurses. I also have helped a number of investors that have converted garages and detached buildings into ADU's. Happy to help anytime.

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Quote from @Chinu Lee:

Hi,

I’m looking for rental properties to invest in Sacramento and find the Natomas area particularly exciting. What are your thoughts or recommendations about investing there? Additionally, while researching, I came across some vacant lots (4040, 4050, and 4060 Natomas Central Dr) in the area, and I’m curious about why these lands remain undeveloped. Do you have any insight into this, including who the owners are or whether the lots are for sale, etc.?

Thank you!

Hey Chinu, I have a double lot in Sacramento Zoned RD5 ready to go. DM me anytime.

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Sacramento, California

Welcome Lima! I'm a local agent and investor in Sacramento. Looking forward to connecting.

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Sacramento, California

Quote from @Seth Reardon:

Hello Team,

I am looking for advice on a pricing strategy for this property.

We are in the greater Sacramento area in California.

.30 acres

Duplex:
1/1 ~700 sqft rents for $1,950
Studio ~400 sqft market rents for 1,700.

Main house (SFR), 3/3 and ~1,900 sqft and market rents for about $2,950.
There is also a shop on the property that is about 800 sqft. (could easily bring in about $500. - $600. a month, but I want to be conservative.

Monthly income from these four things would reasonably be about $6,800-$7,000.

The house by itself would probably sell for 800K and the duplex by itself would easily sell for 400K and that's based on other sold duplexes in the surrounding areas.

The property is in a great town, but it's not in the nicest neighborhood of that town. There's not a lot of rentals here, so I had to mostly go one neighboring town over to get data.

What would a good pricing strategy look like in this situation? Any help is MUCH appreciated!

Thank you!

-Seth

Hey Seth, how's it going with your properties? I specialize in small multi family in Sacramento. Be happy to give you my opinion. DM me the area and or address. Happy to help.

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Sacramento, California

Section 8 is like anything, you still need to vet your prospective tenants. There are good Section 8 tenants, and bad ones. I've had a ton of great Section 8 tenants in Sacramento, CA. Good people, and they typically stay for a long time. Ensure that your rentals are clean and safe, and you'll get the best residents.

1 Vote

San Antonio, Texas

Quote from @Faviola Paz:

Hello Friends!

I need some guidance on renting out the other unit of my duplex. We are finishing up the final touches on the unit, and I’m hoping to get it rented out soon. What are your best tips for advertising this unit?

I’m planning to list on Zillow, Facebook Marketplace, and Craigslist. Are there any other effective platforms for West Sacramento or Northern California? Have you found success with any local property management groups or investment meetups for referrals?

The location is near the Sutter Health ball park where the Oakland As will be playing for a few years. Given this, what’s the best way to determine competitive pricing?

Are there any strategies you recommend for structuring lease terms (e.g., month-to-month vs. a longer lease to attract stable tenants)?

I’m currently managing this property remotely from San Diego. What are some must-do strategies for remote property management? I believe I have a solid application and screening process ready for tenants but managing that while working a full time job that requires travel is where I worry. Do you recommend self-managing with virtual tools (online rent collection) or hiring a property manager?

Any insights or advice would be greatly appreciated!

Hey Faviola, I self manage my rentals in the Sacramento area. I've yet to find a property management company that will treat your property like it's their own. I primarily market on Zillow, occasionally Facebook Marketplace. List it high and backend into your number. The market will tell you what it should rent at. I say no to the majority of applicants. It's better to have a unit stay vacant for an extra week or two, than lock someone into a lease that you will instantly regret. Conduct your due diligence, background checks, etc., and if you can, meet your prospective tenants in person. Happy to help in any way that I can. Available to chat anytime.

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Sacramento, California

I'm still BRRR'ing in Sacramento. Look location and heavy value add, and it's totally doable. Be patient, find the right property, rinse and repeat.

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San Diego, California

Quote from @Keith Mintz:

Hey Community, I’m curious what do other investors in Sacramento think of north highlands area? Is north highlands up and coming at all? As an investment.

Hey Keith, long time no talk:-) Lot's of good off market opportunities. Highest number of flips in Sacramento are happening in the North Highlands or Del Paso Heights areas. Price points are low, rehabs quick, dispoing properties relatively easy. Lot's of first time homebuyers. We've had a number of wholesale deals in those areas.

1 Vote

Sacramento, California

Quote from @Dan H.:

Quote from @Adam Watanabe:

Quote from @Dan H.:

Quote from @Adam Watanabe:

Quote from @Dan H.:

Quote from @Bradley Buxton:

@Adam Watanabe

Converting a garage is not the best idea for the exit of a property. Many people still want garages for primary residences. By having a garage converted, you limit the value of the home and the buyer pool to investors. At 120k/2k that is 60 months or 5 years on the return. @Dan H. has some good insights on ADU conversions.
Generally, it would be better to put the $120k towards the down payment of another property so you can gain the equity even if the cashflow is breakeven.

thanks for the tag. To the OP, I regularly check ADU addition underwriting. I encourage accurate and conservative underwriting. On an ADU addition, the most important aspect of the underwriting is to KNOW the value that will be added by the ADU. In the absence of sufficiently comps, expect a very poor valuation.

I suspect the cost to convert an 450' garage to an ADU will approach $150k. The issue is it will likely add ~$75k of value resulting in an initial negative $75k (a value subtract). This initial negative position needs to be recovered before any cash flow is obtained.

I am also a bit skeptical that a 450’ unit can achieve $2k rent in Sacramento.

Using 50% rule (expenses other than mortgage is 50%) on a financed ADU, 8% 30 your loan at 80% LTV.

$2000 - $1000 (50% rule) - $881 (P&i) = $119/month
$75k/$119 = 630 months to recover the initial negative equity. This is 52.5 years.

Let’s use OP’s $120k with $45k initial negative position.
$2000 - $1000 - $704 (P&i) = $296/ month
$45k/$296 = 152 months or 12,7 years to recover the initial equity.

Building a single smal, unit is very expensive development.

Here is a list of why adding a single ADU in single family zoned areas in my CA market is typically a poor RE investment:
1) The value added by the ADU addition is often significantly less than the cost of adding the ADU. Search the BP for ADU appraisals to encounter numerous examples. This creates a negative initial position. This negative position can consume years of cash flow to recover. Make sure you know the value the ADU will add to the property before building the ADU.
2) the financing on an ADU is typically far worse than for initial investment property acquisition or is often not leveraged by the ADU (HELOC, cash out refi, etc). Leverage magnifies return.
3) The effort involved in adding an ADU is comparable or larger than a rehab associated with a BRRRR. However if I do a BRRRR I can achieve infinite return by extracting all of my investment. Due to item 1, adding an ADU can require years to start achieving any return (once the accumulated cash flow recovers the initial negative position).
4) Adding an ADU is a slow process. It can take a year or more to complete an ADU. During this time you are not generating any return from the money invested in the ADU. This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return.
5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space.
6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties. This may affect value or time required to sell.
7) Adding an ADU does not make the property a duplex. For example in many jurisdictions I can STR units in a duplex but cannot STR an ADU (some jurisdictions will let you STR if you owner occupy). Duplex have different zoning that may permit additional units. Duplex can always add additional units via the ADU laws.
8) Related to number 1, purchasing a property with an existing ADU is cheaper than buying a property and adding an ADU. Why add an ADU if it can be purchased cheaper?
9) adding multiple ADUs or adding an ADU to a quad looses F/F conventional financing. This reduces exit options and affects the value.
10) Small number of small units is the most expensive residential development there is. This implies residential units can be built at lower costs and provide better return than building a single ADU.
11) adding an ADU to SFH can make the SFH fall under rent control. In CA currently only MF properties are rent controlled. If the house is older than 15 years old and an ADU is added, it can become rent controlled. Rent control laws are market specific. Make sure you know the impact that adding an ADU will have on any rent control.
12) investors seldom include the land value in the overall ADU costs. The reality is the land has value.

Good luck

@Dan H.

Thanks for the thoughtful break-down, Dan! It's really helpful seeing all the numbers and you also raised some really good points that I'll need to further investigate. We're closer to Davis, CA and we have various acquaintances who are renting their attached ADUs for at least $2K a month. One of our friends is even getting close to $2,250 (Airbnb fees deducted) for his 350ft attached ADU (which doesn't even have a stove!).

Other than purchasing a property with an ADU, it seems like an attached garage conversion is one of the more cost-friendly ways to go. Are there ever situations when you would support building an ADU for rental income? If so, what would that look like? We'll most likely stay in the home anywhere from 7-10 years. If we converted the garage to an ADU, that would allow for eventually 3 rentals on the property (Main house, 1 detached ADU, 1 attached ADU) which would incentivize holding onto the property even if we move out. I've already looked at the local codes and we don't need to live in one of the units to rent medium/long term.

Curious to know what your thoughts are and if you would ever encourage ADU development for rental income. It gets harder and harder to find good deals out there which is why I've been lately hearing more about ADUs and the need to "build a good deal."

Thanks in advance!

Is the $2k/month as an STR or LTR? STRs and MTRs are more work and have more expenses.

if you are planning on adding a second ADU, is one a JADU? JADU in general lower the value of the property and require owner occupancy. If i is not a JADU, are you relying on a local ADU law?

my wife has an acquaintance that adds ADUs in some of her OC coastal flips. She only does this if she can find comps that show a valuation noticeably above her development cost (her ADU development costs are significantly lower than a non developer hands off ADU). Note because she has her own development team, this is not a hands off ADU addition. Even with having her own development team, having the ADU add more than the cost of the addition is an exception and not the normal. Most flippers are not adding ADUs because even acting as GC the value added is typically less than the cost of the addition.

In addition, if there are local laws that permit the addition of multiple ADUs, then it could be worth adding. The link i provided had the land provided by one of my protégés. I suspect everyone will make money on that development but for sure my protege did well and has already exited (so even if it goes south, he has made his money). I am a partner on an effort that leverages San Diego rule that allows as many ADUs as desired to be converted from permitted space The plan is to add 8 studio ADUs out of garage. It seems like a good investment, but I fear I will lose money on this effort due to the hit in valuation of commercial MF. Hopefully I am mistaken and I can get some profit.

I agree RE investing is challenging at this time. However the large initial negative position and the other items I listed make adding an ADU typically a particularly poor investment. The ADU addition making the primary rent controlled (assuming more than 15 years old) can make LL more challenging (currently SFH are exempt from rent controlled state wide - Costa Hawkins).

Make sure you know the value the ADU addition will add. Make sure you know the ramifications of adding an ADU. Make sure you understand the work involved and how the ADU addition will be financed.

Good luck

The $2k/month is for MTR usually targeted towards traveling medical professionals on contract for a few months. With enough foresight and planning, there isn't usually large gaps of vacancy.

We already have a 600ft DADU in our backyard, and the conversion would be an attached 450ft ADU (sharing kitchen wall to main unit) with a separate entrance and furnished with full kitchen, bathroom, living space, etc. As you foreshadowed, I would be acting as the general contractor to manage the project and even taking on some of the work myself. I already checked with the city and we would be approved to add the second ADU since it would be attached. CA is on the forefront of ADUs and appraising them seems to provide at least 70-80% of the original investment. Hoping more down the line as popularity grows. I don't think there would be any issues selling the home in the future. MF is hot and properties in our area aren't on the MLS for long!

As far as funding goes, I could pay for probably half with cash then would either need to get a loan or potentially borrow from 401K.

Really appreciate your perspective and providing more considerations! Will continue to research and look into options.

Adam

>CA is on the forefront of ADUs and appraising them seems to provide at least 70-80% of the original investment.

I do not know the source of your number but suspect it came from an ADU vendor. ADUs in southern Ca rarely get an appraised value as high as 70% of the hands off costs of a single ADU addition. I look at Southern CA ADU underwriting fairly regularly. I also go to RE meet ups where ADU appraisals are discussed. Do you have a mortgage broker? Ask where they are seeing appraisals of ADU valuations. Yours not being hands off will have a lower addition cost depending on how much work you do and how good you are at managing the effort. This makes it difficult to have an expectation on valuation to addition costs.

>Hoping more down the line as popularity grows.

I have been hearing this from ADU vendors since they became legal statewide. here is things to consider 1) it has been 10 years since ADUs were allowed statewide (SB1069) and longer in many jurisdictions 2) building a single, small unit is the most expensive residential development and even more so when built by the consumer. There is no reason, despite what ADU vendors might say, to believe the ADU valuations will change significantly with more time. I do not know how long ADU vendors expect it to take but apparently more than 10 years.

in addition, are you sure the ADU being added is not classified as a JADU? Statewide a lot can have one ADU and one JADU but jurisdictions can allow more (they cannot allow less). JADU are virtually worthless at appraisal due to OO requirement. make sure it is not a JADU being added.

Good luck

@Dan H. yeah, agree. Even with the increase in ADU's, theirs a lack of comparables in most areas and the appraisals are coming in lower than what most homeowners are expecting. If you're looking for forced appreciation, I don't think an ADU is the best dollar for dollar approach. I have multiple ADU's and they are strictly cash flow plays.

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Sacramento, California

All Forum Posts by: Scott Scoville

Scott Scoville has started 31 posts and replied 386 times.

Post: Is it a Buyer's Market in your niche/town?

Post: Seeking Investor-Friendly Agent Experienced in ADUs Sacramento

Post: Investing in Natomas Area

Post: Looking to help our homeless veterans!

Post: SELLING SFR with a Duplex (three units total) ....looking for VALUATION advice

Post: Would you recommend rent on section 8?

Post: Renting my duplex from out of town (San Diego!)

Post: Is trying to BRRRR in So Cal where I live possible than doing out-of-state investing?

Post: North highlands area a good investment?

Post: Garage to ADU conversion?

Scott Scoville has started 31 posts and replied 386 times.

Biggerpockets Logo Post: Is it a Buyer's Market in your niche/town?

Biggerpockets Logo Post: Seeking Investor-Friendly Agent Experienced in ADUs Sacramento

Biggerpockets Logo Post: Investing in Natomas Area

Biggerpockets Logo Post: Looking to help our homeless veterans!

Biggerpockets Logo Post: SELLING SFR with a Duplex (three units total) ....looking for VALUATION advice

Biggerpockets Logo Post: Would you recommend rent on section 8?

Biggerpockets Logo Post: Renting my duplex from out of town (San Diego!)

Biggerpockets Logo Post: Is trying to BRRRR in So Cal where I live possible than doing out-of-state investing?

Biggerpockets Logo Post: North highlands area a good investment?

Biggerpockets Logo Post: Garage to ADU conversion?

Post: Is it a Buyer's Market in your niche/town?

Post: Seeking Investor-Friendly Agent Experienced in ADUs Sacramento

Post: Investing in Natomas Area

Post: Looking to help our homeless veterans!

Post: SELLING SFR with a Duplex (three units total) ....looking for VALUATION advice

Post: Would you recommend rent on section 8?

Post: Renting my duplex from out of town (San Diego!)

Post: Is trying to BRRRR in So Cal where I live possible than doing out-of-state investing?

Post: North highlands area a good investment?

Post: Garage to ADU conversion?