All Forum Posts by: Wes Blackwell

@Victoria Townsend -- While there are some sites like https://www.neighborhoodscout.com/ca/sacramento/ that give you some information about various neighborhoods, what you really need is someone local that can advise you on any properties that you're looking at. Real estate agent, local investor, etc. Any of these (that are knowledgeable) will be your best bet. Sites can offer info, but like Joe and I said it can be street by street. It'd be best to have someone who could drive out to properties and take pictures for you if needed.

@Joe Bertolino just echoed one of my mantras... "block to block" and street to street. Things can change so much just a few blocks away, and that's why you have to see it in person for yourself.

I think another thing that's helping to lower the crime on Nedra Ct is it's essentially a dead end. You don't have a reason to go in there unless you live in the area or are visiting someone. That helps cut down on foot traffic, and most criminals probably just drive right on by. Plus with all the fourplexes, it's an extremely populous dense area which means lots of eyes are always watching. That wouldn't be the case if these were SFR or even duplexes.

But you really have to look at all the data and drive the area in person, talk to the neighbors, etc. to get a comprehensive "feel" for a neighborhood. Hopefully this helps you avoid the AC bandits!

@Account Closed -- Hahah hey sorry about the lengthier posts, but you asked if I'd recommend owning in this area, numbers aside. And with numbers aside, we're talking about crime rates and the potential pool of tenants, and I wanted to support my case not to judge a book by it's cover.

The objective of my previous post was to supply Amir with all the facts and information he needs to make the best possible investment decision. I supplied my analysis on the return of investment, and my analysis of the crime rates for the neighborhood, and suggested that lastly he would need to drive the neighborhood and see if it was a comfortable fit for HIM. What's comfortable for you, me or any other investor is completely subjective and not as important as how Amir feels about it.

Despite how the tenants look or what stereotypes they might remind someone of, the crime in the area is statistically low. Over the last 2 years, there have only been 11 crime incidents. Once every 2 months. And two of them were merely reports of someone stealing a license plate. And no one was murdered, robbed, or mugged. And no houses were broken into either.

If you were to contrast that with the neighborhood around the intersection of MLK Jr Blvd & 44th, you'd probably find the exact same stereotypical look you mentioned, but a lot more crime. This is from just over the past year, and you've got two murders, countless assault charges, and multiple cases of personal robbery and burglary.

That's an area I would recommend avoiding, not based off of how the people look, but off what the people do. And what people in the area are doing is committing crime. Lots of it. And if Nedra Ct had the same levels of crime, I'd recommend avoiding it. Regardless of stereotypes and any opinion I may form based off of who is living there. 

FAIR HOUSING ACT'S POLICY ON STEERING

And here's why: as a licensed real estate agent, I'm governed by the Fair Housing Act to avoid steering clients to or away from certain neighborhoods on the basis of race. If I were to say "The people of this neighborhood remind me of stereotypical South Central Los Angeles" that could easily be considering steering and I would be in violation of the Fair Housing Act and be putting my real estate license at risk. 

But, if I merely present Amir with factual information and allow him to form his own opinion, I am not in violation. As a Realtor I have to be extremely careful only to disclose factual information about a neighborhood such as "The schools have X ratings, and there has been X incidences of crime" and not say "The schools are good/bad, and the crime rate is good/bad" as that is a subjective opinion and a violation of the Fair Housing Act's guidelines on steering. 

Particularly when the conversation moves from the neighborhood itself to the people living in it. 

"One man's hell is another man's paradise."

@Account Closed -- Let's say you had two investors looking at a property in Anytown, USA... one investor from Oakland, and one from Napa.

The guy from Oakland looks at it and says "Oh wow! No one has been murdered nearby in over a month?! That's fantastic! I love this property!"

The guy from Napa looks at it and says "Oh wow! People actually live in this sort of dump?! That's crazy! I hate this property."

Same property, two different perspectives. And those investors only live an hour away from each other. It's all subjective.

(And yes, some investors from Oakland REALLY ARE happy that no one has been killed recently, as I've worked with investors who had the experience of routinely finding dead bodies in the nearby alleyway. YIKES! So to them Del Paso Heights is a cakewalk)

The most important thing is the numbers on a property. If the numbers work, then you can see if you're comfortable with the neighborhood and potential pool of tenants it will attract.

Just the other day I drove around a more troubled area of Sacramento with a couple guys from Google... specifically the 95815 and 95838 zip codes (North Sacramento / Del Paso Heights)

We looked at 8-10 different properties... some great, some not so great, all within 5 minutes of each other. So just because the zip code gets a bad rep doesn't mean you can't find a nice little pocket in it and pick up a nice property. In some areas, it's really street by street. It becomes hyper-local.

Also, I think far too many investors don't fully grasp the concept of risk vs. reward when it comes to investment property. I often get asked to find C neighborhood profits in A+ neighborhoods, and they simply don't exist. If you want better returns, you'll pay for it with the potential of more neighborhood crime and more troublesome tenants (which you can control to a large degree). If you want less crime and potentially better tenants, you're going to pay for it in purchase price.

I emphasize the word potential because you can do a lot to control what types of tenants you rent to (you do decide after all). Investors worry that if they purchase in a lower-class neighborhood, suddenly their tenants are going to turn into Nino Brown and Walter White, and start cooking meth in the garage and hiding dead bodies in the backyard, and that simply isn't going to happen.

Is this who you're worried about renting to?

I also emphasize the word potential because bad things happen to good people, anywhere, anytime. I had a client who trusted his gut and rented to a pastor from a local church who seemed like such a kind, warm, godly man. But unfortunately, he lived like a pig and had an affinity for punching holes in the wall, and so it cost him thousands to repair the damage once evicted. 

And this was in a nice part of town. Rented to a pastor. Near his church. My client should've screened him more heavily with a background check and referrals from previous landlords, and he would've avoided this problem all together.

NEIGHBORHOOD RATINGS

Here's how I would normally break down neighborhood ratings. There are no strict definitions of these terms. They're just rough grade people use to give an idea of what a property is like.

A: Newly built properties in the nicest areas. (Too expensive, ain't gonna happen)

B: Slightly older property, but still nice. Might not be quite as nice of an area. (You'll pay a premium, lower returns, fewer deals)

C: Older properties. Likely really could use some work. Not the best areas. For investors, these are really the bread and butter for rentals. (Better returns, but possibly more issues with tenants and local crime)

D: Run down properties in bad areas. (War zones, avoid!)

F: That city in Somalia from the movie Black Hawk Down

If you take a look at the local crime map below, in the past three months you've only had 3 incidences in the entire neighborhood. A parked car was stolen, assault with a deadly weapon (non-firearm), and somebody shoplifted from the local grocery store.

Plus, if you take a look at the street view, although the neighborhood is crowded (looks like a mini-development of multiple fourplexes) none of the cars are beat up or junkers... there's no drug dealers walking the streets or standing on the corner, and the grass is green and well taken care of:

 I promise you there are areas WAAAAAY worse in Sacramento. For example, take a look at Midtown, the main culture and nightlife hub of Sacramento where everyone wants to live and you'd die to have a rental in:

People are getting robbed left and right! Cars are constantly getting broke into! Businesses and homes too! BUT -- you wouldn't typically consider Midtown to be a troubled area, would you?

When it really comes down to it, you have to drive the neighborhood and see it in person. If you don't feel safe even getting out of the car, you certainly shouldn't buy there. But if it's a clean street and has a good vibe to it, you should proceed with your due diligence on the property. 

Starting January 1st, 2017 California is requiring "that all noncompliant plumbing fixtures in any single-family residential real property shall be replaced by the property owner with water-conserving plumbing fixtures... 

"The bill would require, on and after January 1, 2017, that a seller or transferor of single-family residential real property, multifamily residential real property, or commercial real property disclose to a purchaser or transferee, in writing, specified requirements for replacing plumbing fixtures, and whether the real property includes noncompliant plumbing. The bill would require, on and after January 1, 2017, a seller of certain residential real property to make a specified disclosure in this regard. The bill would permit an owner or the owner’s agent to enter rental property for the purpose of installing, repairing, testing, and maintaining water-conserving plumbing fixtures, as specified..." 

Read more at: https://leginfo.legislature.ca.gov/faces/billNavCl...

Just had my first transaction where this has become an issue... seller countered our offer simply to disclose that the water fixtures are non-compliant, and that section 7B2(i) and 7B2(ii) (the government compliant retrofit standards) of the residential purchase agreement are "the responsibility of the buyer as the seller will no longer have any future interest in the property."

Sooo... that brings the question, how is this going to be enforced? Primarily by the lenders? Are we really going to make installing new plumbing fixtures a part of every single transaction?! Appraisers are supposed to evaluate whether or not a toilet or faucet is water conserving? 

And what's going to be the standard going forward for who's responsibility is it to pay for it? The buyer or the seller? Let's hear some thoughts on the issue!

116 Nedra Ct Sacramento, CA 95822 Analysis

MLS Listing # 16060009
Units: 4
List Price: $390k
Price Per Unit: $97,500
25% Down: $97,500
Monthly Rents: $3,000
Annual Rents: $36,000
PITI 5% Mortgage: $2,090
PITI Monthly Cashflow: $910
PITI Yearly Cashflow: $10,920
GRM: 10.83
1% Test: 0.77%

Fourplex directly across the street sold for $345k back in April, exact same rents. Was listed at $379k. Around the corner on Coral Gables Ct you had two fourplexes sell recently in the $360k's, so I'd start there. At $365k you'd be positive over $1,000 per month before utilities, CapEx, and vacancy. I have thoroughly analyzed the Sacramento multifamily market and can tell you this property is in the top tier of performers. In short, make an offer :-)

Hi @Charles Velasco! Great question!

I deal extensively with 2-4 unit multifamily properties in the Sacramento area, and look at this list every single day and so I can offer you some insight for your plan...

First and foremost, my opinion is that $550k is way too expensive. Of the 9 available properties between $485-550k, on average they will LOSE you $1,489 per year based off of PITI, before you add in vacancy, capital expenditures, and utilities. And that's putting 25% down and fully renting out the property, not living in one of the units and house-hacking like you plan to.

$250-350k is going to be your sweet spot for multifamily, as the rents vs. mortgage payment will be favorable enough to provide some minor cash flow for you or at least be living there for next to nothing. Plus, the problem with the $500-550k price range is that you're stepping outside of the FHA conforming loan limits, which in Sacramento County is $474,950 for SFR and $608k for 2 units.

That means you can probably kiss the 3.5% down goodbye and be expecting somewhere between 5-15% down for owner occupied, depending on the property and lender. I would highly advise speaking with your lender about your plans so you have a rough estimation of what your numbers will be going in. If you need some help finding someone I work with a guy who's been in the industry over 30 years and is in the top 1% of loan officers in the nation.

@Kenneth Reimer hit the nail on the head when he said you'll want to understand what point of the real estate cycle we're in before investing. You don't want to purchase at the top of the market and basically overpay for a property you could get a few years later for tens of thousands of dollars cheaper. Here's a graph to illustrate this point:

Think of Stage 1 being 2004-2006 at the previous peak. Stage 3 at the bottom was 2009-2010 where you could pick up properties for pennies on the dollar. I'd estimate we're somewhere currently between Stage 5-6, and probably have 12-36 months before we're near the peak of the real estate cycle. Buy now, and you've got 2-3 years of appreciation. Buy 2-3 years from now, and you'll shortly be upside down on your property and wish you could've waited.

The climb to the top won't be as steep as it was last time because we don't have all the crazy loan shenanigans going on, and the fall won't be as bad because we should have far less foreclosures than before. But one thing is for sure: Prices will continue to go up and interest rates will rise, reaching the point where supply meets demand and new construction cost the same as existing housing, and then we'll see a shift into the favor of buyers and a downturn in the real estate cycle that's been cycling along forever and ever.

I could go on, but to sum up: Buy a duplex in 2017 as soon as possible so you get the lowest price and most appreciation, get a roommate in your half and rent out the other so you can live there for as close to free as possible, speak with a tax advisor to maximize your deductions, and then wait at least 2 years before selling so you'll be exempt from capital gains, and then sit on your money or put it in another investment for a couple years and wait for the market to bottom out, and then purchase as much property as you can. Rinse and repeat alongside the real estate cycle, and by the time you retire you'll be a wealthy man.

If you want to know more about the real estate market here in Sacramento, let's connect and I can show you what sort of returns are possible. Best of luck!

@John Thedford -- it's pretty typical out here, especially for 2-4 multifamily properties. In part I think it's just lazy agent syndrome, but sometimes sellers don't want to disturb the tenants unless it's a serious buyer. And to them we're only serious if we're willing to write an offer subjection to inspection without seeing the interior. I understand that they don't want a bunch of tire-kickers and wannabe investors, but I agree with you that the whole thing is pretty ridiculous and just makes the proceeding all the more complicated. Frankly, I think proof of funds and perhaps a letter of intent should be enough, so perhaps I can try that.

Let's imagine you had a property that you're interested in, and the seller or listing agent is asking for offers subject to inspection and doesn't have any interior pictures of the home or won't let you in to view it before making an offer... and the property is waaaaay overpriced.

How would you approach the situation? Should you try to negotiate immediately and make a lower offer upfront? Or just write an offer for full-ask and then negotiate afterwards?

I have a property I'm working on for a client, and the home is WAY overpriced, by at least $75k which is a huge deal in this price range (sub $300k). I have the comps to prove it, am trying to discern whether I should bring them up now before writing the offer, or wait until after the inspection to present them along with additional findings. 

If we were closed on price I'd probably just offer ask and then negotiate down, but in this case we have absolutely no intention of paying anywhere near asking price and don't want to give off that perception to the seller. 

How would you handle a scenario like this?

Hi @Edit B.! Great question!

For the most part, the MLS is a not going to be an option for finding deals in a seller's market. It's simply way too easy to list your property for full market value and sell it in less than a week. Plus, once an agent is involved, most of them are brainwashed to tell their sellers to wait for the highest possible offer, even when an all-cash quick close for a discount may be a better option for them.

I knew of an investor who recently hired two people to watch the MLS and contact agents for him 8 hours a day... know how many properties he bought that way in 3 months? One. He kept constantly getting outbid by contractors, other flippers, or people that wanted to live in the home. The juice simply wasn't worth the squeeze if you ask me, and he eventually stopped looking.

That being said, I know of another investor who's flipped several hundred homes since the early 2000's, and she's calling and making offers on properties on the MLS all day and finding success. Although, I think a big part of what's helping her is that she's had a long time to get her team and flipping process in place, and source the cheapest work she can so she can outbid other flippers and still make a profit. I think her A/C guy only charges like $3,500 for a new system, while most are be charging $5,000-$6,000. Every little bit adds up, and if she can come in $10,000 higher than the next guy because of her lower costs, she's gonna outbid you but still make the same profit.

My advice to those looking for flip deals now is to contact preforeclosures, drive neighborhoods for distressed properties and knock the door, or send letters to vacant or out of state owners. Or hire bird-dogs to do this for you. While that may take more work, you'll get way better deals that way. Even if a fixer gets put on the MLS, all the listing agent has to do is put the any of the words "fixer, contractor, tools, investor, TLC, motivated" etc. in the listing description and dozens and dozens of investors get notified as soon as it's listed. This creates somewhat of an auction-like situation where you're competing with other investors and paying more than you want to. But if you source the deals yourself, you'll likely be the only offer on the table, and get your property at the proper price.