All Forum Posts by: Wes Blackwell

Hi @Gary Baker! Great question!

In my opinion, the 2% Rule is really only useful for lower priced properties in the $50-100k range. If you have a $50k SFR that rents for $1,000 that'd be a killer deal and meet the 2% rule of thumb.

But like @Eric Marofske said, in California it simply doesn't work. You'd need to find a $400k property that rents for $8,000 per month! And the second you find one of those let me know because I'll be the first to buy it lol.

Once you get past a certain price point, SFR becomes out of the question. You'll need to start looking to 2-4 unit multifamily. That's the only way to make some decent returns on the monthly cash flow.

Here in Sacramento and the Central Valley (Stockton, Modesto, Fresno) you can expect 0.60 - 0.70% on average, with the better properties being in the 0.80 - 1.0% range. RARELY will you see something crack the 1% barrier (at least off the MLS) and usually it's gonna need some serious rehab and remodeling. Highest I've ever seen was like 1.33% on a fourplex in Stockton, CA.

Hope this information helps! Start looking into 2-4 units and you're sure to find some deals!

Hi @Ike Igiebor! Great question!

I would recommend either Property Radar or Rebo Gateway (no affiliation with either of them).

Property Radar seems to be a favorite of a lot of Northern California investors, and the CEO Sean O'Toole just so happens to be a member of this site. He'll probably get a keyword alert regarding this post and be able to chime in and help answer some questions. I think Property Radar even has a free trial so you can try before you buy, not sure if Rebo Gateway does, but just check the site.

Hope this helps! Best of luck!

Hi @Peter Yang! Great question!

The last time I ran the numbers, there were only like 11 small multifamily properties under that price point. Slim pickings. If you have $400k down that's a completely different story. Most of these properties were in Oakland or Richmond, with 1 or 2 in places like Antioch and Pittsburg.

But, of those 11 the average purchase price was around $350k with gross monthly rents of $2,000. So If you've got 25% down with a 5% interest rate you're looking at an average PITI of ~$1,850.

Your cash flow on average is only gonna be $140 per month BEFORE CapEx, vacancy and utilities. Ouch. But it gets as high as ~$660 per month though, so there are deals to be found.

If you're willing to look at little further out at areas like Sacramento and the Central Valley, the options are really going to open up and your money will go much, much further. Have you looked into investing in areas within driving distance just outside the Bay?

@Diane G. -- Hmmm... 20% down on $700k is $140k, leaving a mortgage of $560k. Even at a 4% interest rate your mortgage payment would be roughly ~$3,600. That's before CapEx, vacancy and utilities. At 40% down and 4% INT your mortgage would be ~$2,950 and you'd have ~$650 per month cash flow... but who wants to spend $280k to make $650 per month?!

There are like 20 rental properties you could buy cash here in Sacramento for at that price and have like 2-3x the cash flow!

Granted, you'd get a lot more appreciation off that $700k property in San Fran and it's closer to home so there's always that to consider too lol :-)

Hi @Jeff Macdonald! Great question!

You're going to want to be VERY careful here with how you proceed in case some descendant gets a stick up their butt and decides to make your life a living hell.

The first time you enter the home, photograph and video record EVERYTHING in or around the property. Be extremely thorough to the point of overkill. Also, bring someone with you as a "witness" should you need their testimony in the future. The witness will be able to testify that you did not remove anything valuable from the house and that you didn't just record the trash that was left behind instead.

I believe as a part of the Protecting Tenants and Foreclosure Act of 2009 that property isn't left behind and automatically considered abandoned, and notify the owners of the personal property (owner's heirs, if any) that they have 90 days to remove it. But I could be wrong. Read that document to get the full details and it will likely point you in the right direction.

The worst case scenario is the former owner's heirs show up outta nowhere, and claim that poppa had a precious family heirloom worth lots and lots of money hiding in his dresser drawer, and now that it's gone you must've taken it.

But since the owner is dead, it may require going as far hiring a private investigator to find the heirs and notify them of the situation. Now that I think about it I'd bet that probate attorneys/investors will probably know exactly what to do in a situation like this since they'd come across it regularly. I'd try reaching out to Rick H. here on Bigger Pockets and see if he can give you some tips.

Another resource to pursue would be contacting the REO department of the lender that foreclosed and see if you can get through the labyrinth of extensions and transfers to someone who can actually give you some solid advice. Best of luck!

Hi @Jason L.! Great question!

If you're looking to invest locally, there are FAR better options than Fresno. I would highly suggest you consider the Sacramento market for 2-4 unit multifamily. I must be working with 10 other investors who have your exact criteria and they're all shopping this market because the potential growth in rents and appreciation and close proximity to the Bay Area.

I'd check out these posts I've written here to see if it interests you:

• https://www.biggerpockets.com/forums/55/topics/396376-looking-to-get-unstuck-in-the-sf-bay-area
• https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush

As for investing out of state, Jacksonville sounds like the best option. I know Grant Cardone currently holds A LOT of multifamily there, so I think it sounds like a good bet. Best of luck!

@Diane G. -- Well, it might just be that your friend was a bad landlord and didn't do an effective enough job in screening the tenants prior to agreeing to lease to them.

I wrote about this pretty extensively in a post here on Bigger Pockets, definitely worth the read:

https://www.biggerpockets.com/forums/88/topics/394381-116-nedra-ct-sacramento-ca-95822

If after a credit check, background check, employment verification, contacting previous landlords and a personal interview you're still having trouble with tenants, you're doing something wrong.

BP has a pretty snazzy guide about tenant screening you can check out about it here:

https://www.biggerpockets.com/renewsblog/2013/01/27/tenant-screening/

And if you really want to be hands off, simply hire a local property manager. My friend @Chris Kirk only charges $89/mo per unit. That way you get no phone calls in the middle of the night, no drama from tenants, and no headaches. Just checks in the mail. 

But you sound like you've got a pretty good plan, so perhaps you'll find something there that will match your criteria. Finding a property in a B-class neighborhood where the numbers work is super rare though, so if you find something snatch it up quick!

@Diane G. -- In the past 3 years, only three 2-4 unit multifamily properties have sold in the Tahoe area. And that's because for the most part those properties simply don't exist. And those that sold previously during the recession (8 more if you go all the way back to 2010) were picked up at such amazing prices they probably cash flow like crazy thanks to AirBnB and so the sellers have no intention of selling them anytime soon.

Lake Tahoe, just like Auburn and other more rural area, is full of SFR and properties on large acreage, and simply doesn't have the population density to demand 2-4 multifamily housing. For that you need to look to major metro areas like Sacramento, Modesto, Fresno, etc. Here's the map of all 2-4 unit properties sold in the past three years:

So short of looking up the mailing addresses and tax records of the building owners in Tahoe and contacting them directly to inquire about selling, I'm afraid you'll be waiting a real long time for one to come on the market.

But, you can make a ton of money with 2-4 unit properties in Sacramento area, and with the 10% increases in rents and 7.2% projected appreciation this year I can't think of a better possible market to invest in locally.

Hope this helps! Best of luck!

@David Zocchi -- I actually looked at a fourplex in this area, so I have a story that will help add some context to the neighborhood...

The numbers looked great on paper, and the price was right, so my client was quite excited to go and view the property and make an offer...

As soon as we turn the corner into the neighborhood, there was a guy with a couple pitbulls nearby throwing money into the air and rapping into the camera while filming a rap video with his friends. Dead serious lol. We didn't even stop to get out.

And @Gordon Cuffe is correct, the confidential agent remarks on the MLS listing note that "Property was broken into by vagrants, windows broken. It has been secured and boarded up."

Here's a look at the crime in the area for the past 6 months. Notice all the robberies and assault charges:

This is definitely an area I would recommend avoiding. You'll probably have way too many problems managing the property. Not worth it. 

As for the 1% Test/Rule, it's extremely rare to find a local property that goes above 1%, and it will most certainly be a 2-4 unit multifamily property. But you can regularly get in the 0.80% range for sub-$400k properties. 

The whole 2% Test rule-of-thumb is intended for $50,000 property that rents for $1,000 per month.

In California you'd need a $400k property to rent for $8k per month to hit 2%, and as soon as you find one of those let me know because I'll be the first to buy it ;-) 

@Robert Richards -- I would highly advise AGAINST flipping out of state properties in that price range, especially if you've done 20 flips or less.

Flipping a property locally is hard enough... knowing what to pay for it to get it at a good price, hiring the right team to do the remodel, and having the market knowledge to sell the property afterwards.

Add in distance to the equation, and all those challenges grow in proportion ten-fold. And what that really means is increased risk.

Since you're starting out, having your first deal go bad could completely ruin you financially. If you've got $500k sitting in the bank you can afford the risk, but the low price range of the properties you're looking at tells me that's probably not the case (nor is it for most investors) because otherwise you'd be flipping locally.

All you have to do is read some horror stories from investors who had a bad experience with a turn-key provider to see how easily this kind of investment can go south.

For example, what if the contractor team goes AWOL and suddenly the deal requires you taking a week off of work to fly out to the property and interview new contractors to get the deal going again? Can you afford to do that? Not only financially, but will your work allow you the freedom to do it? If not, either you take a massive loss on the deal, or lose your job and perhaps take a massive loss in life. Too much risk for starting out.

Locally, the market is extremely competitive. You can't simply put some "lipstick" on a property (new paint, new flooring, and some gardening) and think you're going to make the business work. It's serious value-add only. 

I would recommend starting with wholesaling if you have the time to work the business and find deals, because not only will you learn how to source deals and acquire property, it also involves far less risk the rehabbing.

Hope this helps you get going in the right direction. Best of luck!