Category Archives: Investment

Midtown Sacramento CA – 4 plex for Sale

I’m excited to present this classic four unit income property.  As you may know, rents have gone a little crazy in Midtown, unfortunate for renters, but income property owners are loving it.  With the advent of Golden 1 arena, gobs of new restaurants opening every month, and the coming of the railyard build-out, this building is still a winner now and in the future!Flyer

Please contact me if you have interest.

Keith Klassen, Real Estate Broker – 916.595.7900

Specializing in residential real estate sales and property management

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LESSONS LEARNED IN REAL ESTATE & PROPERTY MANAGEMENT – How to manage & sell a dump.

5 Star Review

Keith Klassen is smart and professional.  No matter what the circumstances, he manages his attitude and stays solution oriented.  Because of this, we came up with great solutions together. 

Mari Paul (Buyer, Seller, Property Management Client)

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HOW TO HANDLE SOME OF THE ROAD BUMPS THAT GO ALONG WITH MANAGING AND SELLING A RUN-DOWN PROPERTY (Part 1)

Many income/investment properties are purchased with the idea in mind that they will be fixed up and improved over time.  This is a great idea… let the property pay for itself.  However, this doesn’t always happen, especially when the property is just breaking even or not cash flowing as expected.  Perhaps this also points to a reality check when figuring out expenses, deferred maintenance, and a realistic slush funds for unexpected costs at the time of purchase – by the way, this is something I enjoy helping newer investors figure out. When that big ticket item comes up, like when a new roof is needed, or rotting widows need replacement, it could be time to encourage an owner to sell, or for you to walk away from the property management position.  I have found that owners who are not able to maintain their properties to a minimum standard can put the property manager’s neck on the line (i.e., lawsuit waiting to happen), or just create an unmanageable situation.

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Here’s a story of how the house of cards can fall over.  The tenant calls to say that several of the old windows won’t stay up any longer – of course the owner was going to install new windows as a first priority.  The tenant says that it’d be nice to fix them, but they understand and it’s not a big deal because they can just put a stick or a book in the window to hold it up.  The owner says, “Oh good, because I don’t have the money to fix it anyway.”  Several months later the tenant calls to say that the window slammed shut and the glass cracked.  The owners says, “Can they survive with a cracked glass for a while?  … Until we get new windows, or just until I get some money together to fix it?  Maybe they can put some tape on the glass?”  The tenant is not super happy, but puts some tape on the window.  Six months later the tenant says, “I’m starting to notice some mildew, or maybe mold in the bathroom where the window was cracked.”  As it turns out, the roof was on its last leg, the windows were rotting, and many other items had been on a list to renovate over time…

The owner ended up having to give the tenants notice to move and give them free rent due to the mold (and pray there were no health issues as a result).  When the owner finally decided to sell after doing some hodge-podge fix-its, they still took a big loss on the sales price due to all the put-off maintenance issue that later became health issues.

While I had to threaten to cancel our management agreement due to the owner’s inability to take action to make the needed repairs, I ended up being able to navigate us through the fog of it all without things escalating and ending in litigation.  Eventually I listed, sold the property, and eventually wash my hands of the situation.  Remember, distressed properties a lot of times equal distressed owners.  If I had to do it again, I would have taken action faster, and not hung around as long, cancelling the management agreement or encouraging the tenant move-out and sell sooner.  What happens when everything starts sliding down hill, the property manager gets taken down by all parties (who used to love you and high five you for being so great).  This also obviously will kill the listing/sale opportunity. Fortunately on this one, I still walked away with a high five.

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Have you had any mold or deferred maintenance scares, whether as an landlord, seller, or agent/PM?

Cheers to learning new lessons,

Keith Klassen, Real Estate Broker – 916.595.7900

Specializing in residential sales and property management

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Adding Value to a Home & to Your Life

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Many have asked me about what adds value to a home when it comes to backyards.  Most people know that a $60K pool will usually not add $60K in value to a home.  In some cases, it can even be a liability, or it highly depends on where the home is located and what is expected in that area of town.   What about fancy landscaping? When it comes to property management, many savvy investors love a yard that has little to no maintenance, saving on landscaping expenses.  Flippers many times just leave a yard like a blank canvas, putting money into the front yard and curb appeal.  When it comes to one’s personal residence, much of the value can be seen in the intrinsic joy a yard brings and the usability for the owner.  I had one client that wanted to make sure the backyard faced a certain direction., was not sloping and had certain feng shui characteristics.  Another wanted to make sure the sun came across the yard in a perfect path for their love of gardening, so she could grow the best produce.  One client had to have a space for pexels-photo-715134.jpega Japanese Maple.  Others are in love with having a fire pit, or an outdoor eating area.  Recently I sold a home where an appraiser called and was curious as to why it sold for $11,000 over asking, relative to other similar homes?  I believe it was due to the high-end landscaping, custom lighting, a water feature, perfected irrigation and watering system, etc.  This stuff is also very expensive and sometimes costly to maintain, but definitely added value to this homes selling price.  What I’m getting at, many times an addition of this or that it’s not a value add to others (or a buyer), but it adds tremendously to your life and perhaps family.  And, if done with some forethought, you may be able to accomplish both.

My backyard has gone through some serious renovation over the last few years, and I can now write this post without feeling shame for having a half finished, project-of-a-backyard.  The first dilemma for many, to hire a professional, or do it yourself.  I tend to be a glutton for punishment, so I took on the “art project,” as I like to call it.  The term gives me room for error – ha ha ha.  Whether it’s a financial thing, or you want to tap into your creative juices, there are so many things to consider before undertaking a project like this.  I found that it can be like pulling a thread… one thing leads to the next… things you have not even considered, whether it be drainage, lighting, plumbing (gas for a grill and water coming in and going out); electrical outlets, furniture, BBQ, shade, space and functionality – the list can be endless.  Again, remember the term, “art project” if you’re a DYI’er.

 

First of all our yard is postage stamp sized –  No football game or kicking the soccer ball around there.  We tried to tend the landscaping that there when we purchased the home, but it either died or became over grown with weeds and ivy coming over the fence.  We’ve tried to plant a garden, but it just does not get enough sun.

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The water feature broke and we just stopped going out there except to dump food scraps into the compost.  With a dog chasing squirrels, rats living in the ivy, and kids in Jr. High, we decided that we needed a 5th Space, or outdoor room – a place to host; an extension of our kitchen; an outdoor living area; a place where our kids and their friends would want to hang out.  This, for us, has added tremendous value to our family’s life and to the value of our home.  During our Christmas party we found a group of people sitting by the fire until late night … mission accomplished!

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I only posted a handful of pictures – let me know if you are interested in seeing more, or any of the particulars of the concrete counters, or brew pub inspired metal fence, or what I choose cinder block over metal, etc.?  I’m happy to share more pics or thoughts on construction, err, artwork.

In addition, check out this cool article from our friends over at Houzz.com – 30 Creative Backyard retreats. I do dream of a little office, or chill spot, or retreat in the backyard – maybe I will convert our garage/carriage house.  These pictures get my juices flowing.  How bout you?  Which one is your favorite?

[See my backyard pics below]

Keith Klassen, Real Estate Broker – 916.595.7900

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Backyard pictures…

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Excavating and Forming base for cabinet

I managed to get a little help from my oldest

Got some free brick on Next Door

Used a pasta faucet, attached to a funky post I found in the alley.  Built the forms for the counter tops, even thought it looks like I poured in place.

Grabbed the wood siding from someone down the street that was throwing it away

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Drought tolerant lawn, errrrrr, fake grass!

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Fence inspired by Moonraker brewery

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View from our bedroom balcony… 9/10ths complete!

Dart boards are fun!

Income Properties in : Is it better to sell vacant or with tenant in property?

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A good portion of my business has trended toward investors and investment properties, I get this question/scenario posed to me often.  If the question is not asked directly, I’m usually bringing up the issues revolving around selling with a tenant in the property.  There are a lot reasons why the answer could go either way on this topic, but let’s explore some of the main concepts that will help you make a good decision based on your situation.  (Qualification:  This discussion mainly has to do with single family income properties, rather than multi-family units).

Many agents just don’t want to deal with the hassle of selling with a tenant. There are scheduling conflicts, posting of notices, and high emotions when treading on someone’s living situation – all potentially emotionally charged and exasperating situations.  While these can be good reasons to sell vacant, they may not be the best.  A good agent knows how to handle and deal with tenants in a caring and professional manner.  It does, however, make the process a bit more grueling and cumbersome.

I find the main issue boils down to is loss of income. Most owners balk at asking tenants to leave, because they don’t want to lose the monthly rents.  In most cases I’ve found that the loss in rent is less than the higher amount a home will fetch when vacant.  Why?

  1. Home buyer’s (people who want and need to live in the home) will pay more than an investor (someone buying a property to rent for income purposes). The reasons for buying are different.  An investor will want a deal to make money.  A home buyer wants a place to live and call home.
  2. Many investors have cash for purchase or a loan that requires 25+% down payment. Home-owner loans (like FHA) require only 3.5% down payment.  VA loans are virtually 100% financed!  Less money out-of-pocket, less skin in the game for an owner occupied loan, which means the purchase price can go higher.  Or another way to say it, money is cheaper for a home-buyer with an owner occupied loan.
  3. A typical home buyer’s loan (Conventional or FHA) requires the buyer to live in the home. If the tenant is on a lease, then tenant’s rights say that the lease must be honored and a home buyer cannot buy the property.

Call or write to discuss your situation in more depth.

Best,

Ketih Klassen, Real Estate Broker – 916.595.7900

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Net Sheets: What Are The Cost of Selling a Property in Sacramento?

Whether you are selling retail, wholesale, or analyzing a flip project, the costs can sometimes be tricky to figure out.  It’s not just estimating the sales price and backing the loan amount out of the proceeds.  There are many fees involved that can sting a seller if unaware.  This is where experience and some simple tools come in handy.

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For retail sales, your favorite title company can drum up an estimated cost sheet with your potential sales price.  Or, you can usually get the title company to give you a net sheet spreadsheet or a link to their website, which many of them have a seller’s and buyer’s net sheet program.  If you are an agent, doing it yourself can save time and help establish your expertise.  Remember to remind the seller that this is an estimate, however, the better you get at filling in the net sheet (and comping properties) the closer you will be to the exact net number.  I like to give a worst case scenario, then the client is happy when I negotiate a better deal.  The following are included in a typical net sheet:

  • CA Withholdings: If this is an investment property and you are not selling in a corporation and you are receiving a gain, the state of California withholds 3 1/3% of the sales price .  Ugh – no one likes to pay this and it’s a surprise to your clients at closing if they are unaware.
  • Purchase Price:  Again, if you don’t have an accepted offer/contract on the property, then this is an estimate based on your ability to know the market.  This is selling 101 for any agent – become good at valuing properties.
  •   Title Insurance / Escrow Fee / City and County Transfer Tax – All of these are part of the real estate purchase contract and can be negotiated as to who pays.  Currently in Sacramento, CA the custom is for the seller to pay for title fees, city and county transfer taxes.  The escrow fee is usually split 50/50 between the buyer and seller.  Title and Escrow fees are set and published yearly by the companies and tend to be competitively price so that there is not a huge price variation between one company to the next
    • City transfer taxes are calculated by multiplying the [potential] sales price by $2.75 and dividing by 1000.  I see this one split more often as the sale price rises.
    • County transfer taxes are calculated by multiplying the [potential] sales price by $1.10 and dividing by 1000.
  • Real Estate Commissions – usually split between listing and buyer’s agent, unless one agent handles both sides of the deal.  In Sacramento, commissions typically ranges between 5-6% depending on the experience, services provided, and what is negotiated
  • Loan amount, plus fees associated with payoff.
  • Natural Hazard Disclosure Report – 99% of the time, the seller pay for this.  The main company in town charges $99, but there are a few that charge less.
  • Pest Report – typically the buyer pays for this and their home inspection, unless the buyer has a VA loan, then the seller is required to purchase the pest report.  Also, this specialized company is mainly looking for termites, wood-boring beetles, and fungus that causes dry rot, not mice, rat, bats, and other pest.  Depending on the size of the house, you can get a report and inspection for $100-150.
  • Home Warranty – many buyers ask for the seller to provide a year home warranty.  Depending on the size of the house and item covered, typically they range between $350-500.
  • Other Costs and Credits:  Depending on what is negotiated, there can be other costs associated with closing the deal
    • Credit to buyer for closing costs – lenders typically allow up to 3% of the purchase priced to be credited to a buyer
    • After inspection and due diligence has been completed by the buyer, many times a request for repairs or credit is issued to the seller.  Is it nearly impossible to estimate or predict.
    • I some times charge a transaction coordination fee to pay for the file auditing ($350-400)
    • “Junk Fees” – There are about 4-8 escrow/title fees that fall under this category.  Doc. prep, courier, notary, drawing fee, etc. – think $250-500.  The net sheet I use through a title co. auto-fills these categories.

Here’s a sample net sheet:

SELLER’S NET SHEET

 

Seller: xxx Date: 6/28/2016
Address: SACRAMENTO, CA 95818 Est. Close Date: 6/28/2016
Prepared by: Keith Klassen, Klassen & Associates, 916.595.7900 Annual Taxes: $0.00

 

Estimated Sales Price: $645000.00 1st Loan Balance: $385000.00 Interest: $
Approx. Gross Equity: $260000.00 2nd Loan Balance: $0 Interest: $

 

CLOSING COSTS
CA Withholding (3 1/3% of sales price): $
County Transfer Tax: Paid by: Seller $709.50
City Transfer Tax: Paid by: Seller $1773.75
Title Insurance Premium (Owner’s Policy): Paid by: Seller $1815.00
Escrow Fees: Paid by: Both $712.50
Notary Fees: $150.00
EWC Drawing Fee: $0.00
Courier Fee (includes Federal Express): $40.00
Total Commission: 6.00% + $0 $38700.00
Transaction Coordination Fee: $350.00
First Loan Balance: $385000.00
        Interest on 1st Loan: $
        Prepayment Penalty: $
        Statement Fee: $30.00
        Reconveyance Fee: $45.00
Second Loan Balance: $0
        Interest on 2nd Loan: $
        Prepayment Penalty: $
        Statement Fee: $
        Reconveyance Fee: $
Recording Fees: $50.00
Natural Hazard Disclosure Report: $99.00
Pest Control Report: $125.00
Work Required for Pest Clearance: $
Home Warranty: $400.00
Tax Proration (if not paid to date of recording): $
Security Deposit(s): $
Total Estimated Costs to Seller: $429999.75

 

CREDITS TO SELLER
Tax Proration: $
Total Estimated Credits to Seller: $0

 

CASH TO SELLER
Estimated Sales Price: $645000.00
Plus Estimated Credits: $0
Less Estimated Costs: $429999.75
Estimated Sale Proceeds to Seller: $215000.25

Contact me if you’d like a complimentary value assessment done on your property, or to discuss the costs of selling in detail.

Enjoy,

Keith Klassen – Real Estate Broker

916.595.7900

 

 

 

 

 

 

 

 

New Development in Curtis Park, Sacramento

Yeah, I know what you were hoping for… an article about Curtis Park rail yard development.  Sorry not on this one – no chit chat about gas station wars and dollar stores.  Instead I’m inviting you to follow my own development experience as I build out two houses.  I hope to post some thoughts on the grueling process of splitting the lot / sub-dividing the parcel map.  Could be educational to some – loads of learning from my mistakes and experience.  I’ll be talking about the ins and outs of the scope of work, contracting, and architectural plans.  I’d love some feedback on the design elements when we get to the interior (yeah, everyone loves the interior – this is the sexy part).  Ultimately, these babies will be sold and I will be high-fiving my contractor and business partner.  Welcome to my housing development journey.house rendering

Brief background

If you live in the area, you can check out the progress on 5th Ave., highway 99 frontage road, and Portola Alley.  I bought the house on 5th Ave. in 2008 and got the approval to subdivide the parcel later that year into 3 lots (original house sits on one, leaving 2 to build on).  Oh yes, it came with conditions.  I figured a budget of $25,000 to do curb and gutter work and maybe a few other things.  The City gave me a laundry list of improvements that got bid out between $100,000-125,000 – Yikes!  That killed the deal quickly.  So for the next six years I paid a portion of the property taxes and kept the weeds down.

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Fast forward to 2014… I saw a house sell for a decent price on the alley and knew it was time to build.  I got a contractor on board to share the project and do the work at cost (cutting the improvement work cost more than half).

Contact me if you want to discuss the boring, but essential ins and outs of engineering, special use permits, bonding, traffic plans, dealing with the City/fighting with the City (everyone has their war stories), utilities, etc.

We’ve begun improvement work – manholes, water main, sewer main, fire hydrant, and much more!  At the same time I’ve got an architect putting plans together and submitting to the Design Review Board.  In addition, I just got bids from five structural engineers and Title 24 bids.  Yay, getting serious.

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Scrubbing the lot earlier 2016

 

“Man holes” – or should I be PC and call them “people holes” – might get a few weird looks?

 

Dropping the “hole” in the ground

Jimmy is the MAN!

Never thought I’d be so exited about a fire hydrant.

Water main beginnings.

Stay tuned for the next phase.

Cheers,

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Keith Klassen, Real Estate Broker / 916.595.7900

How walkable is Sacramento? Handy tool when buying Real Estate

There is a lot of talk around this issue of walkability, especially in Sacramento’s urban areas.  A friend of mine said to me the other day, “If I were to move, one of my criteria is that I have to be in walking distance to a bakery,” as donuts were the topic of our provocative conversation.  I am fortunate, there are several bakeries in walking distance from me (Freeport Bakery and Marie’s Donuts just to name a few).

You probably already know the answer to this question, but check out this website to walkscore.com and see where your neighborhood ranks.

For kicks I typed in my address (thinking our neighborhood is very walkable) and came up with a score of 69 out of 100 = “somewhat wakable.”  So I then typed in a  friend’s address who lives in Natomas… as imagined 43 out of 100 = “car-dependent.”  Our old home in Boulevard Park/Midtown gets 86 out of 100 = “very walkable.”

A fun and interesting website, especially in light of our changing cultural values when it comes to how we view our planet.  And, as fuel prices increase, cities become more dense, and as people realize their longing for community, this “walkability measure” will be even a larger factor when buying a home.