Sacramento Four Plex For Sale But Income is Way Too Low

This Sacramento Four Plex for Sale has a List Price of $580,000, 16.11x’s Gross Rents.

Folks, now that we have Rent Control for the most part effective on Jan. 1, 2020 I’m seeing a few listings coming up like the one pictured at 5743 Blachly, Sacramento.   There are some issues any Investor in the market now should be aware of if they plan on making money on this property.  Sadly there are others out there just like this one.

I’ve always been told to “keep the rents at Market” at all times, because you’ll have the cash flow for reserves and repairs when needed.   When it’s time to sell, you’ll get your asking price with not many issues like the one you’ll encounter below.

This owner has the monthly rents almost $300 each unit below market or translated annually to be about $14,000 in missed income.

The Rents shown on the listing for each 2 bedroom 1 bath unit @$750 per month, with a Gross Annual Income of only $36,000.00, when it should be about $50,000.

Our Property Management Company, Haven Properties currently manage 2 Four-plex Apartment buildings in the immediate area on Keoncrest Circle.   The Average Rents for the same unit configuration as the one pictured are Blachly$1,045 and we even have one at $1,200.

HOW TO GET TO MARKET RENT… ?

The obvious solution for any Investor in this transaction is to raise the rents to the Market Rent for the area to make the deal work.   The only other option would be for the Seller to bring the price down to reflect the value of the existing rents which I’m sure is not an option the Seller has considered.

If you keep the current tenants you can’t raise the rents higher than the Rent Cap that’s part of the Rent Control Law.  The Rent Cap is currently 5% plus the rate of inflation for the area which is about 3%.

However the “work around” would be that either the Seller gives the existing tenants a termination now prior to January 1, 2020 or the Buyer does it when they close the deal,  hopefully before the end of the year.

However the Buyer is going to have some “turn over” expenses.  Those are the only two options I can think of because after January 1, 2020, Just Cause Eviction comes into play.

It makes a little tougher to sell now doesn’t it…?

The lessons learned are a few more hassles and roadblocks that could have been avoided if the owner kept the Rents at Market.   To see what I am talking about…?

Which one looks better…?

 

Think it over and in the Mean Time…?

Make it a Great Day…!

Ed Favinger, Broker, CRS, GRI, SFR 916-203-1260

 

Related Articles

Daly City Landlords Line Up To Evict Tenants Ahead of New State Law  SFist.com

Los Angeles City Council moves forward with eviction, rent increase moratoriums LA Times

 

More Rent Control – Now You Must Accept Section 8 Vouchers…?

If you are a Landlord, You Should Pay Attention

With the recent passage of the Statewide Rent Control Act, (AB1482) another recent piece of legislation, SB329 was also recently signed into law by the Governor.

Click here for the notice we got from the California Apartment Association.

Be sure and read the last line of the of the article.

You can be sure because of the ongoing housing crisis that governments are going to be placing more of the burden on Landlords and Investors.

They will be forced to become more of a player/participant as part of the so called “social safety net” the legislators will foist on Landlords/Investors because of their inaction.

While I still believe you can make money in Residential Investment Real Estate if you are not participating to help elect political leaders who understand the problem, more regulations and laws might come into being that you don’t like.

Get your checkbook out and be ready to support the efforts of the California Apartment Association and other groups that are in favor of building more housing and not restricting growth.   If you don’t help get people elected who are committed to increasing the housing supply, it’s only going to get worse for everyone, Owners/Landlords/Tenants and First Time Home Buyers.

Is this the California you want to live in…?

I’d like your comments….

In the Mean Time…?

Make it a Great Day…!

Ed Favinger, Broker, CRS, GRI, SFR    916.203.1260

Related Articles

L.A. City Council Moves to Stop Landlords’ Rent Hikes, No-Fault Evictions Ahead of New State Rules

 

Rent Control Is Here in Sacramento & Soon Statewide

Get Your Rents Up To Market Now Before January 1, 2020 Because Rent Control is Here.

 

The State of California it looks like is about ready to implement a Statewide Rent Control Law that recently passed both house of the State Legislature and headed to Gavin Newsom’s desk.

According to the Sacramento Bee Article I have here for you, it won’t become law until 1/1/2020.

If you have not raised the rent in a long time my suggestion is to do it now and get it close enough to the current market rent as you can because after the 1st of the year you will be limited in what you can do.

In addition, the more onerous “just cause” eviction will now be a factor in cleaning up a property that needs to rid itself of uncooperative tenants that maybe laying waste to the property and intimidating neighbors.   In the past with situations like this, we’d only have to give a 30 or 60 day “termination of tenancy” notice which had no defense.  It could be for any reason at all.

We rarely ever used that tool, but it did come in handy when we had situations that our Property Management Company encountered from time to time.

CLICK HERE FOR THE SACRAMENTO BEE ARTICLE DATED  SEPTEMBER 12, 2019 09:48 AM 

Now if you think Rent Control is going to help, it’s not.  The people it’s meant to help won’t get it.

Related Articles

CALIFORNIA LEGISLATORS MADE A MESS OUT OF RENT CONTROL. THEY JUST DON’T KNOW IT YET | OPINION – Newsweek, Sept. 13, 2019

California embraces failed rent-control policies at the statewide level – Washington Examiner, Sept. 12, 2019

If you have more questions, please contact me at 916.203.1260 or drop a note at favinger@rwnetwork.com

In the Mean Time…?

Make it a Great Day…!

Duplex Market Still Strong – Low Inventory – Prices Continue Up

Even Fixers Get Multiple Offers..! Just Not Top Dollar..!

I haven’t written an article in a while and thought I’d get back in here and update those of you that follow this blog from time to time

RE-SALE SACRAMENTO AREA DUPLEXES

Duplex sales in the Sacramento Region are still pretty healthy with rising prices and rising rents because of a Strong Economy.

Mistakes I See Sellers Make:

The biggest mistake I see some Duplex Sellers now on the market, is thinking an “as is” sale of a property that has a lot of “deferred maintenance” will sell for just about what a “Fixed Up” property will bring in.Duplexes - 1

Another mistake,  besides not maintaining the property, would be an existing unit Rents far below the market.  The reason usually given is “they are long term tenants”.  This reason ignores the fact when they go to Sell the Duplex, a new owner is going to have to deal with tenants receiving large rent increases.

Why to Avoid Those Mistakes:

Because they haven’t raised the rents during the long term tenancies, these tenants know they have a good deal and never report much in the way of needed repairs and since they always pay the rent on time,  the Seller hasn’t been by the property or maintained it unless it was an emergency.

Because the rents were so low, there was no incentive for the owner to make any upgrades to or any effort to enhance/upgrade.   Most of the time they only made repairs after a complaint.

Example of what I’m talking about:

I’m in escrow now on a Fair Oaks duplex where the HVAC unit will have to be repaired to the tune of $2,000 because the unit hasn’t been serviced in years.  What’s more… Even with this fix, there’s no guarantee and the contractor said you’d be better off getting a new unit.  Had it been maintained and serviced on a regular basis, the unit would have had more potential life and not become an issue in the Sale Escrow.

So the Bottom Line…? 

Prices are going up for sure and if you want top dollar for your investment, you should take an honest look at it and if repairs/upgrades are warranted, do them.  When you then raise the rent, you’ll see most tenants will put up with it because you have maintained it and they are proud to live there.

When you have maintained the Property and maintained Rents at Current Market, you are using the “prudent investor standards”.

By the way… Have you heard Interest Rates are coming down….?

If you’re thinking of Selling or Investing in the area, please give me a call at 916.203.1260.   I’ll actually answer the phone.. Texts will work also.

In the Mean Time…?

Make it a Great Day…!

 

Related stories

City of Sacramento Adopts Rent Control Ordinance BPE Law Group Blog

 

 

 

 

 

Sacramento Duplexes For Sale – Not Much Inventory – Prices Up

Yea… There’s Not Much To Choose From, But,  Rents Are Up Too….

If you are curious about the market regarding Sacramento Duplexes for Sale, I’ve got some recent stats/graphs for you.   We’re still in a Seller’s Market and I think you’ll see the graphs below make the point.  I think they will also change a bit next month.

If you have ever read any of my past articles, I’ve always said  “A nice well maintained Duplex will sell for a pretty good price now with multiple offers”, or something to that effect.   The Duplexes that don’t sell quickly generally have these characteristics.

  • Poor or “Fair” Curb Appeal and General Appearance – Lack Pride of Ownership.
  • Rents that are lower or much lower than Market Rent.
  • Price is not reflective of the above 2 conditions.

Low Rents – Updates/Upgrades:

If you are thinking of Selling your Duplex or for that matter any kind of Rental Investment Property, you might think about upgrading/updating the property a little.

Having the same great tenants over several years time does not translate into a much better positive outcome in the sale if the rents they are paying are only about 1/2 of what the same unit would rent for today.

Generally if you aren’t keeping the rents up, you aren’t maintaining the property because you don’t have the cash flow.   Tenants know when they are getting a good deal.

However, if you are a buyer and make an offer on one of these types of properties I’m describing above, you’ll have to take into account the Updates/Upgrades you might be faced with to get the “higher rents” the Seller says you can get.

We recently were in escrow on a Rancho Cordova Duplex the Seller has owned for almost 30 years.   Both units were in need of work.   One of the units had 6  people living in a 2 bedroom 1 bath unit.   Both units were paying only $800.00 per month when the “market rate” is in the $1,300 to $1,400 range.

The deal fell through because the Buyer wanted an adjustment in the price to reflect the deferred maintenance and the low rents.   The buyer would have to get possession by giving a 60 day notice to terminate tenancy before being able to start the “rehab” process.  The unit would then be vacant for another 30 days at least.   There was too much to over come… Low Rents /Poor Condition/High Price.

Let me know what you think of these stats.

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NUMBER OF UNITS FOR SALE – SOLD- PENDING

Graphics list vs sold 6-10-19________________________________

LIST PRICE TO SALES PRICE RATIO – AVERAGE DAYS ON MARKET

List Price to Sales Price Ratio

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If you are thinking of Buying a Sacramento Duplex you want to take into account not only the condition, but the existing tenants and their current rent as well.   As long as you are aware of these issues, you’ll make a better informed decision on whether to go through the deal or not.

In the mean time…

Make it a Great Day…!

Ed Favinger, Broker, CRS, GRI, SFR  – 916.203.1260 – favinger@rwnetwork.com

Related stories

Sacramento had state’s 2nd highest rent increase. But there’s good news for tenants too Sacbee.com

Thinking about moving to Sacramento…?  SFGATE.COM