Selling a Sacramento investment property is a lot different than selling your own home. Part II; Disclosure...

A few weeks ago I wrote about how selling an investment property is a lot different than selling your own home. An investment property is any rental property - for example, a duplex, triplex or fourplex, or a single family home or condo. There are many of key differences and things to consider when selling these properties. Last week, I wrote mainly about how to work with your tenants so they help rather than hinder the investment property listing and selling process.

Today I would like to follow up on all that by talking about another one of the things that the sellers of investment property need to consider: the fact that you don't live in the property, and you may not know much about the property to disclose to a buyer.

I always give my sellers a full packet of disclosure documents to fill out before the property goes on the market. First, you should note that there is a check-box on the Real Estate Transfer Disclosure Statement where you can note if you are, or are not, occupying the property. You would check the "not" box. Second, I will tell you that it is a good idea to overtly state in your disclosures that you have never lived in the property as your primary residence, or that you have not lived in the property in ____ years. A good place to do this is the Seller Property Questionnaire. On the 4th page there is an "Other" Section where this statement can go.

Hopefully as a landlord, you have been keeping accurate maintenance records for the property. The big-ticket things you probably know and can disclose -- for example, you probably know approximately when you replaced the roof, or that you replaced the dishwasher before the current tenant moved in, that you have a company spray for bugs every other month, etc. And you should note those dates and details in your disclosures. If you have contractor receipts, it is best to include copies of them with your disclosures as well.

But what about the non-big-ticket things? This information can be of equal importance to a buyer, but as the seller you may not be aware of the property's certain idiosyncrasies that only someone who lives in the house will. Like the fact there are 4 constantly barking dogs next door, there is street sweeper that makes lots of noise every Tuesday morning at 4am, that vagrants rummage through the trash cans at night, that the bathtub has a slow drain, that airplanes fly overhead sometimes, that the neighbor grows marijuana in the backyard, or that the downstairs tenant can hear the footsteps of the upstairs tenant...or that the tenant you think is low maintenance and never complains just didn't choose to tell you that the water heater is leaking, that the bathroom exhaust fan stopped working, etc.

Remember my last post about communication with your tenants when it comes time to sell? This is the perfect time to schedule a walk-through of the unit -- not only to talk about showings and introduce your Realtor, but also to ask your tenant if there are any little things like this you may want to disclose. If during your walk-through, you discover the water heater is leaking, that is a good opportunity to get it repaired before the property goes on the market, and then be sure to disclose that the repair was made. Ask your tenants about potential nuisances and disclose them. Something like "Per tenant, neighboring dogs bark at night" should be adequate.

One thing I also highly recommend is augmenting your disclosures with some professional inspections. For example, it is a really good idea to get a termite inspection before the property goes on the market, and either make the recommended repairs for a clearance, or just use the written report itself as a disclosure.

It's definitely in the seller's best interest to make disclosures as transparent and accurate as possible. Inadequate disclosures can lead to buyer frustration and potential issues with the new owner down the line...

Read my previous post on this topic: How to work with tenants when selling an investment property.

Wanted! (Possibly) your home for one of my buyer clients...

And continuing with my buyer clients "wants and needs" series of blog posts -- here are what some of my buyer clients are looking for...are you (thinking about) selling a home that would meet any of these buyers' needs?

"Buyers A" are very well-qualified pre-approved buyers. I just closed the sale of their home and they are staying with family as they look for their next home. They would like to live in the Arden or Carmichael area as close as possible to the intersection of Watt Avenue and Whitney Avenue. They are looking 3+ bedrooms, and 1.5+ bathrooms, decent closet and storage space, and a 2-car garage. They do not mind something that needs updating. A large side yard or a separate living room and family room would be a plus. Their max purchase price is $260,000.

"Buyer B" is a very well-qualified pre-approved investor buyer seeking a duplex, triplex, or fouplex. He ideally would like a property in the Citrus Heights, Arden, Carmichael, or nearby Sacramento areas. He does not mind a property that needs TLC. He may or may not do a tax deferred 1031 Exchange. His max purchase price is $400,000.

"Buyers C" are very well-qualified pre-approved first time buyers. They ideally would like a newer or remodeled home in Elk Grove or South Sacramento. They would like 3+ bedrooms, and 2+ bathrooms, and 1,400sf or more. A built-in pool is a huge plus. Their max purchase price is $275,000.

"Buyers D" are very well-qualified pre-approved buyers. They ideally would like home in West Sacramento in Ironworks or in Downtown, Midtown, or East Sacramento. They would like 2+ bedrooms, and 1.5+ bathrooms, and 1+car garage. His max purchase price is $400,000.

If you own a home that seems to meet any of this criteria and are thinking about selling (or know someone who is), please contact me -- I may have a buyer for your home! If you need to do a short sale, I can certainly facilitate that as well, and am happy to talk to you to see if we are a good fit to work together.

On another note, I am working with numerous other buyers who are looking for homes in several other Sacramento area neighborhoods -- please contact me if you would like more details, and look for future posts.

Selling a Sacramento investment property is a lot different than selling your own home. Part I; Working with your tenants...

Recently I have received a lot of inquiries to list and sell small "investment properties." What's an investment property? An investment property is any rental property - for example, a duplex, triplex or fourplex, or a single family home or condo.

Since property values in Sacramento have increased in the last few years since the bottom of the real estate market, it seems that folks are looking to cash in their chips. The element that is most interesting to me is that most (not all) of the investment property sellers I am speaking with are looking to sell because they don't like being landlords, and rather than roll their equity or sales proceeds into a bigger better investment property via a tax deferred 1031 Exchange, they are just looking to cash out.

Selling an investment property is a lot different than selling your own home. First and foremost, somebody else, a tenant, is likely living in the property. Second, since you don't live there, you may not know much about the property. Third, there are things like deposits, maintenance expenses, utilities, repairs, and rental income to factor into the equation. And fourth, often times the monthly rental income the property produces is an important element in determining value -- not just the property as compared to the sales prices of other recent sales of comparable properties.

Over the next few weeks I will write about the different considerations investment property owners face when selling...

Let's talk about tenants first. A tenant can really make or break your property's sale. An uncooperative tenant can cost a seller thousands of dollars in a sale. For example, are they tidy or messy? Some tenants treat rental property like their own home, are clean and take pride in its appearance, maybe do minor maintenance themselves, and let their landlords know if something is broken and needs fixing. On the other side, I've seen some tenants who are borderline hoarders, their units smell bad, there are dirty clothes and moldy food everywhere, and they haven't cleaned the bathroom in a few years. A new buyer looks at those issues and immediately thinks in terms of potential cleaning and repair costs, and may pass on the property all together or hit you up for a lower price or concessions for repairs. Another thing to consider when selling a property with a tenant: are they going to be cooperative with allowing showings, or not? Some tenants are very understanding, want to make a good impression on their possible future landlord and accommodate showings and access to the property for inspections. Other tenants will feel threatened by the possibility of a new landlord, feel afraid they will be kicked out of their home, and not make the effort to make the unit available on their own accord. Some tenants will insist to be present for showings and sabotage the potential buyer’s impression of the property.

So what do you do when you have a tenant who falls into the problem category? I find the best approach with tenants is complete and total transparency -- do not hide the fact you are planning to sell. Nothing creates more tenant hostility than a landlord who lists a property and the first notice a tenant gets is a seeing a “for sale” sign in the front yard. Communicate with them. Let them know that you want/need to sell and that you want to make the process as easy as possible. Ask to make an appointment with them and meet at their unit - this allows you the chance to talk, and allows you to see the unit. If the unit is messy, offer to have it professionally cleaned for them. Most tenants will jump at the chance to have their unit cleaned for free. If you can afford it, you might offer to incentivise the tenant by offering a temporary reduction in rent in exchange for cooperation with showings while the property is for sale. If you do that, be sure to do it in writing with very clear parameters. Be sure to introduce your Realtor to the tenants and make sure they know how to contact each other. Set clear parameters for arranging showings and access -- like “by appointment with 24 hours notice.” If you need to arrange extended access to a buyer for inspections, maybe offer them some movie tickets in exchange for being away 3-4 hours.

Most tenants do want to help you succeed in your sale and make a smooth transition to the new owner...next week I will talk about disclosures for a rental property since you don’t have first hand knowledge of the potential idiosyncrasies about the property...

New Listing - 3498-3950A-3950B Sherman Way, Sacramento, CA 95817

Amazing renovated 3-unit / triplex investment property opportunity near UC Davis Medical Center! You will appreciate the attention to detail and recent renovation. Front unit (3948) is a spacious 2/1 with a sunny front porch, light and bright with lots of windows, built-ins, updated kitchen with a Wedgewood stove, updated bathroom bathroom. Rear unit (3950A) is an adorable 3/1 with a downstairs bedroom and bath, and 2 fun attic bedrooms with skylights and cool nooks and crannies! Also features a quarter basement, updated kitchen with new quartz counters. ADU unit (3950B) is an efficient 1/1 that is newly built and has lots bells and whistles, including new kitchen with stainless appliance, new bathroom, a minisplit a/c, breezy rear deck. All units have new dual pane windows, refinished or new flooring, fresh interior/exterior paint, new light fixtures. Landscaped yard and planter boxes. Disclosures, income/expense statements available. 5.8% estimated Cap Rate, 13.14 estimated Gross Rent Multiplier. Offered at $875,000. MLS# 20031999. 3D Virtual walk-through and more photos and detail available at 3498-3950A-3950B Sherman Way, Sacramento, CA 95817.

I was featured on the news...Squatters are becoming more common in Sacramento...

It seems like "squatters" have become an issue again. For several years during the housing crash, as many homes sat vacant they were prone to vandalism and break-in. It was not uncommon to encounter people squatting in homes. When values started to go up again and there were not as many vacant properties, it seemed like squatters became less of a problem. Fast forward to today, and squatters seem to be an issue again.

What is a squatter? A squatter is someone who unlawfully enters into a property and stays there without permission from the owner. It is a crime of opportunity, as well as the fact I do think that with the proliferation of smart phone devices squatters can search MLS for vacant property to target.

I encountered squatters at one of my vacant Midtown Sacramento duplex listings a few months ago. I approached the property to install a carbon monoxide detector, and noticed a shopping cart near the front porch. As I got closer I could hear voices inside and footsteps echoing off the hardwood floors. I immediately called the police. Before the 9-1-1 operator could take my information, a police car drove by and I flagged him down. Luckily those squatters did little damage and probably had not been there too long.

I just represented buyers on another Curtis Park triplex property that was broken into and torn apart by squatters. That property was the subject of an ABC Channel 10 news story by John Bartell. You can watch the news story here. Luckily I was able to negotiate a price reduction on the property once we got a full understanding of the extent of the damage, which in this case was extensive. All three HVAC units were stolen. Holes were punched in the walls. All of the copper plumbing and wiring was removed. It was bad.

How can you as a home seller prevent squatters? I highly suggest if you have a vacant property that you give it the appearance that it is occupied. Park a car in the driveway, or ask a neighbor to do so. Make sure your windows have blinds or curtains so people can not see inside. Put a lamp with a plug-in light timer in a few rooms that is set to go on and off during the evening. Keep the grass and landscape trimmed. Make sure you suspend mail so your mailbox does not overflow. Same with the newspaper. Set your alarm and spring for month-to-month monitoring services. Make sure your neighbors are aware the property is vacant and let them know to alert you to any suspicious activity.

A little vigilance goes a long way.

Want to sell your investment multi-unit Sacramento property? I may have buyers for you...

Are you considering listing your Sacramento investment property (like a duplex, triplex, fourplex, or 5+ unit property) for sale? I have a couple different clients who are listing properties in other geographic areas and starting 1031 exchanges with the intent to buy investment property in Sacramento. These are all-cash buyers. And no, I'm not talking about some big hedge fund looking to buy up half of Sacramento...these are just regular people looking to make a few key investments in Sacramento real estate.

What is a 1031 Exchange? A properly structured 1031 Exchange allows an investor to sell a property, to reinvest the sales proceeds in a new property purchase and to defer all of the capital gain taxes. There are some timelines to "identify" the replacement property to be purchased that will be coming up in the near future. So timing is a critical issue.

So if you have an investment property you are considering selling -- call me. I am working with a few different investor buyers who will be participating in these tax deferred exchanges soon that need to identify their replacement purchases soon. Budgets for these purchases depend on a few factors but could be anywhere from $200,000 - $1,000,000, and they could purchase one or more properties.

Can a New Duplex Owner Terminate Month-to-Month Tenants in the City of Sacramento?

I recently spoke with an aspiring real estate investor who was considering purchasing a duplex in Midtown Sacramento. Both units were occupied by long-term tenants (long term = occupied the unit for more than one year) on month-to-month rental agreements. His plan sounded pretty straightforward: purchase the property, give the existing tenants notice, furnish the units and operate them as short-term rentals. Interesting idea. But there was an important wrinkle: Just because a tenant is month-to-month doesn't necessarily mean a new owner can simply give them notice and ask them to leave.

Buying the property doesn't eliminate or void the existing tenancy. And this is an especially important consideration when purchasing an occupied multi-family duplex, triplex or fourplex within the City of Sacramento due to their Tenant Protection Program. 

Buyers naturally spend a lot of time analyzing the real estate itself. What is the condition of the roof? How old is the HVAC? What are the operating expenses? Does the property need updating? But with an occupied investment property, the tenants and their tenure in the unit are every bit as important. I sometimes put it this way: you're not just buying the building. You're also buying the existing tenancies. And those tenancies can directly affect what you're able to do with the property after closing. 

But what if the tenants are month-to-month? This is where investors can get tripped up. It's easy to hear "month-to-month" and assume that means the tenancy can simply be terminated with appropriate notice. But rental units covered by the City of Sacramento's Tenant Protection Program can have just-cause eviction protections once a tenant has occupied the property for more than 12 months. In other words, the expiration of an original lease and conversion to a month-to-month rental agreement doesn't necessarily eliminate the tenant's protections. 

A landlord generally needs a legally recognized "just cause" to terminate a protected tenancy. Some qualifying "just cause" reasons involve actions by the tenant, such as failure to pay rent, certain breaches of the rental agreement, nuisance or criminal activity, or failure to provide lawful access. 

There are also certain circumstances that don't necessarily involve wrongdoing by the tenant. These are sometimes referred to as "no fault evictions" and can include an owner move-in, withdrawal of the unit from the rental market, or necessary and substantial repairs requiring temporary vacancy. But simply purchasing a property and preferring to have it vacant is not, by itself, the same thing as having a qualifying just cause. 

Why this matters to your investment strategy? Go back to the duplex this potential buyer was considering. His entire investment plan depended on terminating the existing tenancies and taking possession of both units after closing. That makes the status of those tenancies more than a minor due-diligence question. It's fundamental to whether his proposed investment strategy will work at all.

Maybe you want to buy a duplex and live in one side. Maybe you plan a significant renovation. Maybe you're buying a property for another family member to occupy. Or maybe, like this investor, your plans for the property are completely different from the current owner's use. Whatever the goal, if your plan requires an existing tenant to leave, you should understand whether you can legally accomplish that before you purchase the property.

This is also an area where I encourage clients to consult a qualified landlord-tenant attorney. As a Realtor, I can help identify the real estate issues we should investigate and obtain information about the existing tenancies, but determining whether a particular tenancy can legally be terminated is a legal question. 

And we're specifically talking about the City of Sacramento. Here's another detail that can easily cause confusion. The City of Sacramento's Tenant Protection Program applies within Sacramento city limits. That is a specific governmental jurisdiction. A property having "Sacramento, CA" in its mailing address does not necessarily mean it's located within the incorporated City of Sacramento. There are large areas around Sacramento that people commonly refer to as Sacramento, and that may even use Sacramento as their mailing city, that are actually located in unincorporated Sacramento County. That distinction matters because local ordinances can be different depending on which jurisdiction the property is actually located in. Some areas that are NOT in the city limits with a Sacramento mailing address include the Arden-Arcade area, Foothill Farms area, South Sacramento area, Rosemont area, most of the College Greens area, most of the Sierra Oaks area, etc.

So if you're considering purchasing an occupied rental property, don't make assumptions based solely on the mailing address or ZIP code. Verify the property's jurisdiction. And remember that properties outside Sacramento city limits may still be subject to California state landlord-tenant laws and other applicable protections. Being outside the City simply means that this particular City of Sacramento ordinance may not apply. 

But the moral of the story is to understand and be familiar with the basics before you buy. When evaluating an occupied multifamily property, I want to know more than the number of units and what the building looks like. How long has each tenant lived there? Are there written leases? Are they month-to-month? What documentation has the seller maintained? Are there agreements or notices that a buyer needs to know about? Is the property within Sacramento city limits? Is it subject to the City's Tenant Protection Program? Do other protections apply? And perhaps most importantly: Does your plan for the property depend on one or more of the existing tenants leaving? If the answer is yes, that's something to investigate early. There can be tremendous opportunities in Sacramento duplexes, triplexes and fourplexes. But with an occupied property, understanding exactly what you're buying means understanding both the real estate *and* the ramifications of the tenancies that come with it.

It is worth noting that this post is intended to provide general real estate information and is not legal or tax advice. California landlord-tenant law and local tenant protections are complex and can change. Buyers, sellers and property owners should consult a qualified landlord-tenant attorney regarding a particular property or tenancy.

New Listing: 1011 Vernon Street, Roseville, CA 95678

Prime investment opportunity awaits in Roseville! This well-maintained triplex at 1011 Vernon Street offers three individual, separately metered units and a large 0.14-acre corner lot. 'Unit A' features 3 bedrooms, 1 bathroom, 857sf, a recently updated bathroom (2024), and a long-term tenant in place. 'Unit B' is the largest unit with 5 bedrooms, 1 bathroom, and 1540sf, with updates including a freshly painted interior, newer kitchen cabinets, sink, faucet, countertops, refrigerator, and flooring all completed in 2023, along with a new bathroom vanity (2023) and tub replacement (2020). 'Unit C' includes 3 bedrooms, 1 bathroom, 996sf, laminate flooring, an updated bathroom, and a freshly painted interior. Additional common features include a large shared coin-operated laundry/utility room, upgraded electrical service panels (2023), resurfaced PVC membrane roof over Unit A (2023), new exterior stairs (2023), and recent exterior enhancements including a section 1 and 2 pest clearance (2025), and a new acrylic color coat (2025). Conveniently located near downtown Roseville, major freeways, and public transit, this property offers nice amenities to potential tenants while providing strong income potential for investors. Offered at $799,900. For more information and to schedule a private showing, please visit 1011 Vernon Street, Roseville, CA 95678.