All Forum Posts by: Wes Blackwell

@Kim Stofan

A core concept of real estate investing is that you make money when you buy. If you are able to purchase a home for $20k less, then you have another $20k in equity to hold, it will become $20k in profit when you sell. And it's the easiest money you can make since it's all a negotiation that costs nothing... no repairs, no rehab, value-add, etc.

And in general, off-market deals will be better than on-market deals because there is far less competition and you're usually dealing directly with the seller. On the MLS, an agent is involved who has incentive to sell the home for a higher price, all communication goes through the agent instead of directly to the seller, and everybody else knows about so there's a lot of competition. Although there still are deals.

At the Roseville Meetup last night (which EVERYONE here should be going to), @David Oldenburg went over some sample deals members of the group were doing and emphasized the point that while deals are on the MLS, you need to approach real estate investing like a business, not a hobby. Like a professional, not an amateur. You really need to know your numbers, and be willing to work on smaller margins for a higher volume of deals.

But the main point of this post, along with what I think David's main point was last night, was that if you want to find a great deal you're going to have to work for it and it's not just going to fall in your lap. If it's going to be on the MLS, you really need to know your numbers and be able to properly analyze the deal, and you should have your financing and contractors ready to go so you can take action as soon as the deal hits the market.

If it's going to be off the MLS, you're going to need to market your compelling message to home sellers however you plan to do that. You're going to need to craft a compelling message, design the marketing materials, put together the list of leads, and send the mailers or knock the doors.

Either on the MLS or off the MLS, the flipping homes take work. And the investors who are professionals and treat this like a business not a hobby are going to be the ones taking a lion's share of the deals.

As far as BRRRR goes, I think the time and opportunity for SFR has mostly passed, as prices are too high and there's way too much competition from the owner-occupied buyer base. Rents are too low to cover the mortgage payment in many cases. Although there may be some out there.

But, if you look at 2-4 unit multifamily the market is ripe with opportunity. Prices are on par with SFR, but more units = more rents. 2-4 unit multifamily is like the weird middle child in between SFR and Commercial Multifamily. Investors with serious money are better off buying 5+ units and going commercial, and most non-investors want SFR, so the demand and prices for 2-4 unit lags behind because too few of investors don't know about the opportunity.

Several comments down on my other post here I provided some real world examples of small multifamily deals for some perfect examples. 

While it's not really my regret, I wish that my mother had sold her home in Stockton, CA at the peak of the market in 2005. She bought it in 1999 for only $84k, and at the peak of the market it was appraised for $350k! INSANE!

If she had sold the home she would've walked away with enough money to buy 3-5 homes CASH for $50-70k in Stockton in 2009-2010. Could've rented them all out and retired immediately if she wanted to. They'd all be worth low $200's today and hopefully get back to mid to high $200's by the time the market peaks again. Once in a lifetime opportunity, and she missed it. What a bummer!

@Jason L.

319 Kelly Ct, Sacramento, CA 95838 -- $349,500 -- Sold in 2 days

Completely remodeled fourplex with all new appliances. Was purchased prior in October for $216k. Rents for $750-900 per unit. With 25% down and 5% interest rate your PITI would be roughly $1,875. Even if you only get $750 per unit that's a total of $3,000 gross and your positive over $1,000+ per month before utilities and vacancy. Repairs will be next to nothing since it's all new, and you'll probably sell it at the peak of the market before CapEx even matters.

And for those investors sketched out by the fact that it's in the 95838 zip code (Del Paso Heights), here is the crime map for the past 6 months:

3 car thefts, 1 house broken into, and 1 case of petty theft. In six months. No assaults, no muggings or personal robbery, and no murders. I can almost guarantee you the neighborhood you live in has the same small level of crime seen here or more.

Now, grand opportunities like these don't come along often, but now that I think about it... here's another one currently for sale that doesn't have any pictures on the MLS because the agent isn't doing his job, and so that's why no one has bought it yet. Should've hired me lol:

Two Single Family Homes & Duplex on a Full Acre in 95838 Zip Code

Purchase Price: ~$450's
Gross Rents: $3,700
PITI @ 25% Down & 5% INT: $2,444
Monthly Cash Flow Before Vacancy, CapEx, & Utilities: $1,256
Number of Crimes in Past 6 Months: 6
4 Stolen License Plates
2 Car Thefts w/o owner

There are plenty of opportunities here in Sacramento, it's just that most people don't know about them or are screening way too hard based off of zip code alone.

Hi @Wenqian Guo! Great question!

First and foremost, you need to figure out what's your exit strategy or investing plan.  Are you hoping primarily for cash flow? Or for appreciation? Or both? And where do you want to be with this property in 3-5 years? The answers to those questions will really help you determine what area to shop in and what kinds of properties to pursue.

If you're new to real estate investing and are unfamiliar with the market, I'd probably stay away from the Bay Area. I'd say it's the most bubble-prone place in Northern California right now, and the high prices means it costs a lot just to play and get your feet wet. If you were already experienced or very savvy about the area and market, then perhaps it could work, but I foresee far too many problems especially when you're in a scenario where a stroke of bad luck could ruin you financially.

I'd suggest looking into the greater central valley, specifically Sacramento. That $30k will go a whole lot further, and the property values are half as expensive which makes for a lower mortgage payment. That way if you lose your job or the property goes vacant one month you're not going to lose everything.

It's not too far away from home so you could always drive to the property if needed, or you could hire a local property manager to manage the property for you and make it a hand's free investment. I would suggest researching all the options first for a few weeks or months since this is such a large decision, but the good news is you can do that from home to start by asking questions here and researching online. 

To start, tell us more about your situation... is this property going to be owner-occupied? Do you already have your financing lined up and know what kind of options are available and what kind of down payment will be required? Give us some more details about the situation and then we'll be able to better guide you in the right direction :-)

@Isaac Godfrey

Frankly, if you're becoming a real estate agent just to purchase your own home, don't do it. The time and cost involved will simply not be worth it. Plus, no one is going to want to hire you. Why have a new agent join my office to only sell 1 home and possibly never conduct another transaction? Not worth the investment into training and teaching you how to fill out the purchase agreement. 

Considering your 25, unless you're receiving an extremely large gift from your parents as a down payment your home probably won't be expensive enough for the commission to be worth it. 3% of a $300k is only $9, and by the time to figure in a transaction coordinator and your broker split you'll be walking away with half that. Add in the cost for the course, the license, joining the local MLS and Associations of Realtors, and your monthly desk fees, etc. you'll have lost money rather than saved by getting a commission.

To rant for a bit, "part-time" agents are a really big problem for the real estate industry because too many amateurs get their license and sell 1 home a year for their friends and family and usually deliver extremely sub-par service. If they fail to sell the home now the seller doesn't trust the next guy to do the job, even though they are a seasoned professional with a proven track record.

Instead, find an extremely good agent who can find you a great deal and negotiate well on your behalf. Get even a $10k discount on the purchase price and you've just saved yourself the money without all the headache. Keep your main thing your main thing, and only pursue your real estate license if you're planning to become an agent full-time. Best of luck!

@Jesse Grothaus

Welcome to Bigger Pockets! There's a ton of opportunity in the Greater Central Valley for small multifamily properties since we're having a massive influx of Bay Area millennials into the area looking for more affordable living. I've written about this trend here, and while it's primarily happening in Sacramento, Stockton and Modesto are also locations for potential relocation. Let us know if you have any further questions about the market and feel free to start some more posts in specific local forums! Best of luck!

@Vamshi Ananth

From my flipping days I know the cost for each will roughly be $3,500 to $5,000 per story depending on how expensive your contractor is. @Joe Bertolino's numbers are what you can probably expect.

I would suggest sitting down with each of the contractor's you have and mind and asking them to give you ballpark figures for the following repairs:

• New Roof (Rip and Reply, Full Roof, and Re-Shingle)
• Exterior Siding
• New Windows (cost per window)
• HVAC
• New Electrical
• New Plumbing
• Various foundation repairs
• Replacing sheetrock (per sq ft)
• Replacing concrete (per sq ft)

These are the things you are going to encounter most often, and having ballpark bids will help you estimate repairs on the fly, but is no substitute for an in-person bid. Best of luck!

@Brian Twigg

My advice would be to wait a little to sell and then relocate. You're stretching to try and pencil the numbers, when you could just relocate to next location and invest in something there. 

While West Sacramento is extremely close to downtown and midtown so you may lure some professionals there to pay a higher rent, for $2,650 per month they might as well just buy. The median price in West Sac is ~$350k so even with only 5% down and a 5% interest rate they're still paying less for a mortgage than they would for renting your home.

Another you've got to consider is that for most of Sacramento, West Sac is still considered out in the boonies. Sure, you and I know it's only just across the river, but let's not forgot it's actually in a whole separate county and most people don't know how close it really is.

I think rent growth will happen in Downtown/Midtown first, East Sac, Oak Park and Arden Second, and then everywhere else third. You may be holding onto it for far too long to really see anything good as far as returns go.

Your main problem though is that you don't have enough equity to cover the costs of selling the home, let alone walking away with anything after the sale is complete. You can expect selling a home to cost 7-8% of the final selling price. 5-6% for the agents, and 1-2% for closing costs, transfer taxes, etc.

If you can wait to sell until Spring or Fall you may potentially be able to clear the costs and walk away completely debt free. You could try FSBO to try and save a little (~2%), but it's real easy to lose that in negotiation or a simple misstep in the selling process.

When will you guys be making the move?

@Ken Singh

Great question! I've actually written a ton about this market, in regards to flip and buy and hold. Here are two posts that cover the local market:

• https://www.biggerpockets.com/forums/621/topics/398662-heres-what-fixer-uppers-on-the-mls-are-selling-for
• https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush

In sum, buy and hold is looking good (particularly 2-4 unit multifamily)  and flipping is ultra-competitive and you're really going to work to find a deal.

Check those posts out and then let us know your thoughts and we'll be able to help guide you further in the right direction :-)

I did some research this morning to help some new investors I'm working with who are looking for fixer uppers on the MLS here in Sacramento. They were surprised to see how fast properties have been moving and the number of multiple offer scenarios, so I thought this would help.

In the last 6 months, there have been 175 homes sold on the MLS in Sacramento County with the word "fixer" in the property description. They sold for an average of 99.69% of the list price.

Of the 175 that sold, 98 of them went for 100% of asking price or above, with many going for 120-140% of asking price. 

11 went for 80-90% of asking price, 5 were between 70-80%, and only 1 went below 70% at 67%. The rest were all between 90-100%.

THE MARKET RULES ALL

There is simply waaaaay too much demand for housing right now. Just about every transaction I'm involved in, whether I'm the listing agent or the selling agent, is a multiple offer scenario. The nature of multiple offers means competing for the property, which means higher final sales price. 

So, taking the old standard of 70% of ARV minus your repairs simply isn't going to cut it in most cases. You'll be beat by a mile. This is why I'm telling people that if you want to find a deal you're going to need to put in the footwork to go and find something OFF the MLS.

Either that or you're going to need to do the repairs yourself or create some serious value-add to the property to make the numbers work.

You have to understand that by the time a real estate agent is involved in the transaction, you've now got someone who's practically brainwashed to sell the home for the highest price possible even when an all-cash quick close for a discount would be better for the seller. Plus, we have incentive to sell it for a higher price, because we get a higher commission if we do.

I know a guy who hired two people to watch the MLS for him 40 hrs a week and look at every single listing to try and find a deal. Know how many times he pulled the trigger in 3 months? Once.

And that was because the listing agent knew about us already and we gave him both sides of the commission when we bought and  listed it with him when we sold!

The month after that, those people watching the MLS were let go, because there simply weren't enough deals. And this guy had flipped over a hundred homes so he wasn't no rookie either.

The reason he kept getting beat is because there are investors in Sacramento that have flipped over 400 homes, in this area!

I know one. She has her mother sitting at home making offers on the MLS all day long, and they've had over a decade to get their system down pat and find the cheapest quality labor possible. Her AC guy charged half the price ours did, and we were already getting a massive discount!

So that means she could come up a little higher on her bid and still make as much profit, all because she had her system down and her expenses were lower. 

And so we lost. Time and time again on the MLS. We still flipped 1-2 homes per month, but you know where those leads came from? Direct mail. 

He took his morning walk in a different neighborhood every morning, and any time he saw an "ugly house" he'd note the address in his phone. As soon as he got back to the house he'd drop a letter in the mail offering to buy their home. Send enough targeted mail, and eventually you'll find a deal.

With all the TV shows like Flip This House, Fixer Upper, My First Flip, etc. everybody and their momma thinks they can flip a home now, so you've got tons of rookies coming into the market and overpaying for properties too. So that's another reason the percentages are so high.

There's a flip like this right around the corner from me, and they WAY overpriced the home when they listed it too. Been on the market 32 days and already had to reduce the price once. But now it's stale, and they've easily lost $10-20k in profit for their error. Too bad, so sad.

I don't want to crush anyone's dreams, but you've got to be realistic. Deals are out there, but it's a seller's market and so there's already a ton of demand for housing. So don't think that dreamy lowball offer at 50% of ask is ever going to happen. It won't. Not on the MLS at least.

And that's because once it's on the MLS everyone else already knows about it... 

The 400 home flipper with lower expenses, the knowledgeable contractor who can do the work himself and always has free extra materials laying around from other jobs, and the young couple who wants to remodel the home over the next few years to really "make it their own." 

All of these buyers can pay more than you and win.

So keep looking on the MLS if you like, but the investor who spends 40 hours a week looking on the MLS and the investors who spends 40 hours a week looking OFF the MLS at things situations like vacant homes, out-of-state owners, preforeclosures, divorces, bankruptcies, direct mail, etc. will be world's apart in finances and investing success 5 years from now. Just saying :-)