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 $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…?
- Click here for a Proforma Cash Flow at the Current Rents.
- Click here for a Proforma Cash Flow at the Market Rents.
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