Sacramento residential investment property basics and tips

What is residential real estate investment property?

Residential real estate is where people live. The building can be single family homes, condos, duplex, triplex and multi family residential property. There are two ways to do residential real estate as an investment. Frist is to rent all or part to families, individuals or a cohabited situation as a rental property. Second is when an investor buys a residential property and does not rent it but repairs or updates the property and resells the property.

What is a fix and flip real estate investment?

Fix and flip real estate investing is the process of purchasing a property in need of repairs, then renovating it and selling it for a profit within a short time. Fix and flip investing is also known as house flipping. This is a good first investment property plan. This first time investment could start as your primary home. We buy houses in Sacramento is a good way to find value add properties.

What is the flipper investment model?

A real estate flipper has a simple formula for creating profit.  The investor adds value to the house by doing a renovation. The flipper must understand the After Repair Value of the property. Buy a physically distressed property below market value, then fix it up to market standards and sell it at a profit. Simple plan, but hard to execute. But if it is done right, flipping fixers can earn the investor a nice profit. The Sacramento real estate market has many house flippers and many times they bid up the property and fail to make a profit when selling because they brought the property at too high of a price. Flipping in Placer County has many issues outside the property like the fire danger, power issue, a poor quality of life issue like slow or no internet service. The beauty of the sierra foothills makes up more than for that short coming. But the flipper must do the due diligence to understand the local area.

AFTER REPAIR VALUE (ARV) – The after repair value is the local real estate market value of the property after all the repairs, upgrades and rehab work is done. The ARV is not a real number of the price the property will sell for at some point in the future but an estimate based in the person doing the ARV. The ARV is based on many assumptions. The ARV is not an appraised value. If the ARV is in writing, it is not an appraisal. The working formula of an ARV is the purchased price of the initial investment of the property in current condition plus all costs of renovations and repairs equal the ARV.   Purchase Price + Cost to Renovate = ARV. ARV is the key number to know for cash home buyers.

What are the pros and cons with flipping residential properties?

Real estate investing in physically distressed properties is a high-risk, high-reward activity. The goal is to buy properties at a discount, do a little bit of work and sell them for a significant profit. The problems are to lay out upfront money and the risk of unforeseen repairs. Problem tenants can also be and expensive cost. There is also the risk of the real estate market price between the time of the purchase and the time the property sells. And a major cost in flipping is the carrying cost of the money to buy and repair money, if the funds are borrowed.

What are the basics of residential properties rental investing?

A basic rental property is a tried and proven form of real estate investment for rental income. Simply buy a property and rent it out to a tenant. A rental investment property is real estate purchased to generate income. The property owner or landlord is responsible for paying the real estate loan, property taxes and costs of maintenance. Preferably, the landlord charges enough rent to cover the costs of the property. Or the property owner may also charge more in order to produce a monthly profit. Or charge enough rent to cover expenses until the property rises in value to sell it. Or more long term, pay off the mortgage and have a property free and clear. Rental real estate investors generally offer a higher price for a property than flippers.

Know the area of the property to understand how much rent can be charged

The neighborhood will influence the types of tenants, vacancy issues, upkeep and the rent rates. Understanding the neighborhood dynamic is an important factor when choosing a rental property. Sacramento real estate agent Dan Parisi can be a big resource to find rental properties that generate income.

Knowing the average rent in the area is the key to profitability. Each property has features that make it more valuable or less valuable than the local market. This is another factor that will help determine the success of the rental property.

What are the advantages of multi-family residential property investing?

Multi-family residential property usually provides the most stable returns by nature of more units to rent within a single property. A multi family residential property can help mitigate lost income because each tenant is on a different point in their lease or time renting. The purchase price of a multi family generally has a larger down payment for the investment property loans but the monthly rent payments should make the deal profitable in the long run.

What are multi-family residential properties?

Multi-Family Residential Properties can be from 2 units on up. The real estate lending market is geared around the 1-4 unit property. If a real estate investor decides to buy a 5 or more unit property, the loan becomes more difficult. A 5-unit or more property would fall into the commercial property classification.

Multi-Family Residential Properties are defined by the number of units contained in the building. A duplex consists of two units per building; a triplex, three units per building; and a quadraplex, four units per building.

A property management company can help you avoid some the hassle that comes with being a landlord. You need to decide whether you want to handle property management your self or DIY style. The repairs, tenant management with creating a lease, collecting the rent and emergency repair calls can be on the own or a property management company.

Balance Risk and Reward of residential property investing

Not all real estate investment works out. There can be a bad tenant who does not pay and damages the property. Or no tenant at all which creates a negative monthly cash flow. Real estate investing can be very profitable. And with the ability to use retirement money in accounts like a 401k, creates the ability to buy real estate with no loan. This removes much of the risk. Some real estate investor view cash transactions as lower risk. Other see it as the highest risk.

Due diligence is very important when investing in residential property

Find the right questions for you and get the best answers to get on the path to a profitable residential property investment.

• What type of investment property should a real estate investor buy?
• Is a condo with some of the maintenance taken care of in the HOA a good investment?
• Is a single-family home the best way to invest?
• Understand investment numbers like debt to income ratio and cap rate.
• What are your real estate investment goals?
• Who will handle the property repairs?
• How will I determine the rent to charge for my property?
• How do I find the right tenant for my rental property?
• How do I finance the first real estate deal I find?
• What does After Repair Value (ARV) mean?
• What tax benefits exist for real estate investors?
• Is now a good time to invest?
• Is there a way to use creative financing on the deal?
• Check to see if you can use veterans loan to buy a home.
• Should I buy properties with tenants already?
• Is this a faith based real estate investment?
• Do I want to invest in a care home?
• Do I want to purchase an assisted living facility?

How do I determine the value of an investment property?

Talk with a real estate professional at Coffee Real Estate.  We will crunch some numbers and see what type of investing is right for you. The investment home buying process is about finding the right property for your investment goals.

Just a final thought

There are millions if not billions of words written on the internet about this subject. This is a short basic insight into the field of residential property investing. Investment properties are not primary residences or a second home, which makes it harder for investors to secure loans and other financing.

Residential property investing is an area of finance counted not in millions or billions of dollars but trillions of dollars invested. Financing commercial real estate or large apartment complexes requires large amount of money. The bank is going to need than rent collection to prove acceptable for a loan. Interest rates will be higher on an investment property.

I am a veteran. I know about the VA loan and its benefit to us who did military service. VA loans are offered to veterans, surviving spouses and active duty military. These loans save money on closing costs and a zero down payment. The VA loan is used for the primary home.

It is a big subject going back thousands of years and used to build great sums of wealth, but that means you can start any time and as small as you want. Because, you will never know all the information about this subject nor will you be the person with the most real estate invested ever. Just be you and start where you are at. Enjoy the journey.

If you are looking for help finding and buying an investment property reach out to Coffee Real Estate. We are ready to help.

Creating Property Value with Income

Wealth creation is one of the important features of real estate. For most Americans the biggest asset they have is their home. High value homes cost a ton of money to own. Taxes, utilities, maintenance and many more money draining features of a home can create a cash flow losing asset. The rarest of real estate is a positive cash flow home. How to find one can produce a powerful personal asset.

Space can create opportunity. This property for example used some of the space of the land to build a 2400 square feet building. It has two large doors one is an impressive opening. This space creates opportunities. Limited only by the imagination this space can be the embryo of the next billion dollar start up. Or it can be the amazing garage with 10 collector cars. It can be the maintenance hub for an emerging business or the processing center of an internet business. How would you use the space?

As America ages, the opportunity for in home care businesses is growing. Economic principle supply and demand comes into play and prices per client are rising. This home is currently licensed as a care home. It can have up to 6 clients. The home is designed with a client wing. If a purchaser wishes this type of income they can continue it or use these rooms for other uses.

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