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Tips for Buying Real Estate Today as a Sacramento Investor
A Sacramento investor today might want to consider buying a halfplex.
It doesn’t take a Sacramento investor to know that returns on money market accounts and CDs are fairly dismal at the moment. The stock market, too, can be a bit volatile, especially if you aren’t willing to risk a loss. In fact, I received an urgent letter from Capital One (which used to be ING) offering me one of the nation’s highest rates of 1%. You know, like any other Sacramento Realtor, we really don’t want to see interest rates rise but criminy, the rates of return for secure investments are so incredibly lousy and have been lousy for years. Can we have a little inflation, please?
I was thinking about this when a somewhat newer Sacramento investor called yesterday. She expressed an interest in the Bridgeway Towers condos, also known as the N Street condos. This particular investor did not want to spend over $300K for a condo there. Well, 5 years ago you could buy a one bedroom in the 500 N Street condos for $200K, but not today. Today they sell for about $350K on the small side. The larger condos on higher floors above 9th (which is the most desirable because you have an elevator to the basement) are about double what they were worth 5 years ago. But does that make a condo a good investment?
Five years ago, probably. There are still HOA dues to pay, and the difference that the HOA costs, applied to the sales price of a single family home, means you might make out better with a single-family home as a Sacramento investor over a condo. Besides, sales in the same complex, even distressed sales by some homeowners who needs to dump and get out, affect your value, whether you like it or not. There are just so many variables with a condo that you don’t have to deal with in a single family home.
That got me to wondering, though, if I were to buy as a leveraging Sacramento investor today, whose primary goal is appreciation coupled with potential for positive cash flow, what would I buy? Based on our current market, which is rising, and considering our affordability index — and let’s not forget the current Sacramento June Housing Market Report that reflects median prices in the Sacramento region at $400K — I might not consider buying a single family home in a prime neighborhood like Midtown. Not enough potential cash flow using leverage. Single-family homes in high demand areas such as Midtown will sell for more than $400K.
I would look where the strength always lies in the Sacramento housing market. With entry-level housing for first-time home buyers. Real estate 101. This is the foundation for our market. And that, in Sacramento, would be halfplexes. In fact, I’m working with a seller in South Land Park who is presently subdividing a duplex into a halfplex. As a duplex, on average, it would be worth about $400K. But as a halfplex, each side would be a minimum of $300K in South Land Park, adding another $200K of equity.
Halfplexes don’t have any HOA dues. It’s definitely affordable housing for first-time home buyers. Other investors have different needs, of course, and we counsel each Sacramento investor to meet their own goals. Just saying that this might be an avenue to explore, and I know the neighborhoods where a Sacramento investor might look. If you’d like help, just give the Elizabeth Weintraub Team at jingle at 916.233.6759.
Difficult Tenants Who Refuse to Cooperate With Home Sale
Better options exist for Realtors who want to tear out hair over difficult tenants.
A fellow agent in southern California wrote on an agent website about struggling with a listing in which he is dealing with difficult tenants who refuse to cooperate with the sale of that home. The tenants wrote a lengthy letter to the seller, filled with demands, including a snotty retort about social non-responsibility because the seller wanted to put grass in the yard. I could see them kicking back with a few craft beers among friends, composing the letter, scratching off sentences, changing the format and laughing their fool heads off.
Of the 35 or so comments received by other agents, almost every real estate agent said they would not take the listing under those circumstances. They expected the sellers would evict the tenants. But the sellers did not want to evict the tenants and lose the rental income. Like many, the sellers want the rental home home sold with the tenants in place.
I guess I must be the oddball agent in that group because I most certainly will take the listing occupied by crazy tenants. It’s not my place to demand that the seller evict the tenant. Oh, I will suggest eviction and explain why, but if the seller refuses, that’s the seller’s prerogative. It’s not my house. I’m hired to sell that listing with the difficult tenants, so that’s what I do. My sellers make their own informed decisions. I give them the phone number of the best eviction lawyer in Sacramento. If they don’t make the call, it’s still all good.
Solutions for Dealing With Difficult Tenants When Selling a Home
The first step is to get inside to shoot photos, and I can generally arrange that with a bit of finesse. I put the home on the market. If the tenants remove the sign from the yard, we put it back. When I show up to initially meet with the tenants, I size them up. They think I’m there solely to inspect the home, but I am checking them out. I also hand them a Notice of Sale and document the delivery.
Then I slip the listing into MLS with a notation that all offers will be subject to interior inspection because the tenants refuse to cooperate with the home sale. Now, I know some of you will say, hey, the seller has a right of entry with 24-hours notice, and that’s true. But difficult tenants means even if you secure a showing, the tenants will most likely do everything within their power to discourage the buyers, and I think you know exactly what I mean.
Rodents. ¡La rata! Mold. Health and safety issues. Noisy neighbors. Meth lab. Leaky roof. They make up shit.
After we receive an offer — and we will receive an offer, you can bet your bottom dollar on that — we can arrange for the home inspection to occur at the same time as the buyer’s initial inspection, with the seller present, if necessary, and after posting a Notice of Entry the day before on the front door. Once it closes, the new buyers are free to evict the difficult tenants. I refer a spectacular lawyer.
But not take the listing due to difficult tenants? That seems silly. Call Sacramento Realtor Elizabeth Weintraub, 916.233.6759.
Finding a Replacement Property for a 1031 Exchange
Lots of investors from the Bay area call top-producing Sacramento real estate agents when they decide to sell — which is how I end up working with many of them — and the shift I spy on the horizon now is to 1031 exchanges. You might not know this, but I got my start in real estate in the 1970s by working solely with investors, many of them first-time investors. I sold investment properties exclusively for about 9 years, and I moved into real estate from my certified escrow officer position, during which I processed and closed a large number of 1031 tax deferred exchanges.
It’s funny how some things can come full circle. Now that the market in Sacramento is picking up, more investors have equity and some of them want to put that equity to work elsewhere. They don’t want to pay taxes on the sale of their investment property if they don’t have to, and most of them don’t as long as they find and identify a replacement property within the 45-day period and effect a 1031 exchange. (There are minor sub-rules that don’t apply to very many, so I won’t go into those.) The more important rule is an investor has 180 days to close escrow.
My new clients have a rental home in Elk Grove they want to exchange. They don’t live in the area and have discovered how difficult it is to manage an investment property without family nearby. A drive into Sacramento from the Bay area can take 2 to 3 hours each way. Some investors might prefer to move their equity to another town.
A 1031 Exchange wouldn’t be such a nagging problem if we had more inventory in Sacramento. I try to explain that investors actually have about 75 days, if you look at this systematically. Once an offer is received to buy the investor’s rental property, that escrow period is about 30 days, give or take. That means 30 days + 45 days = 75 days. But people, being people, sometimes look to the worst case scenario. Like, what happens if they can’t find a replacement property?
Being in real estate, I know they will find a replacement property for a 1031 Exchange, even if they’re looking out-of-area, because I know real estate agents and how the business works. But that doesn’t help the investor if they’re not standing in my Jimmy Choos, and looking at this from my viewpoint.
This is yet one more reason why we need more inventory in Sacramento. To give investors an assurance that they can find that replacement property, and two more properties along with it as a backup. If you’re thinking about deferring taxes on the sale of your investment property, talk to your accountant and then call this Sacramento real estate agent, Elizabeth Weintraub. I’d love to help you to locate a qualified intermediary and sell your investment home, 916.233.6759.
