Three Reasons Why Investors Fail in Sacramento
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In a competitive market like Sacramento, investors are always looking for ways to save money. This means having the knowledge and experience to make the right decisions when buying or renting a property. Today, we have with us Scott Raymond. Scott—who is the founder of Raymond Property Management, which is now part of Mynd—is here to share with us the top three reasons for failure in the Sacramento rental market and how investors and landlords can avoid making these mistakes and losing out on their investments.Alex: Boys and girls. Alex here with Mynd Property Management. We're talking all about investing in Sacramento and being successful doing so. My guest today is Scott Raymond. Scott, how's your day?Scott Raymond: It's going great, Alex. Thanks.Alex: Awesome. Always a good sport, Scott is. He is the founder of a company called Raymond Property Management in Sacramento, which is now part of Mynd. Very exciting. He is also an avid investor with over a decade of experience running all kinds of seminars and very interesting stuff he covers. So we're lucky to have him, today. The topic today is going to be the three reasons investors or landlords may fail in Sacramento. What are your top three, Scott?Scott Raymond: Top three today, Alex. Number one: they overpay for the property relative to rents. I've fallen into this trap. It's very easy when doing your analysis on whether or not to purchase an investment property to overestimate the rents that you can get on it, which could very quickly send the investment return into negative territory. So before you purchase any investment property, make sure you really, really understand the rents that you can get for it. Number two: they fail to adequately budget for expenses and vacancy. In that same analysis, it’s very easy to underestimate the cost of maintaining that property, getting the vacant units ready, and basically factoring in the time it takes to lease up a unit, which results in lost income which you'll never get back. And then they try to manage it themselves. Unless they're a full-time investor like me with the time to essentially look after the property on a day-to-day basis and show vacant units, do the bookkeeping and stay up on all the laws, investors really should hire a professional property manager and factor in that cost of management into their investment analysis.Alex: Now, I've had another interview with our expert from Seattle, and he was talking about fines being levied on unsuspecting landlords who don't follow fair housing and some of the more complex rental control, rent control laws. Do you see that impact in Sacramento? Have you seen some of the people you know getting fined or getting in trouble with the local city or the law?Scott Raymond: Yeah, absolutely. It seems like, as landlords, we have targets on our back from many, many different angles. The City of Sacramento has a rental housing inspection program, which is a city-mandated program that says all rental stock needs to be basically registered with the city, and then the city then has a team of inspectors that comes out on an annual basis to make sure that the unit's habitable and that there are no code violations. So if you don't have the property in that register, you can get fined. If you have the property in the register and they come to do an inspection and they find some code violations, you can get fined and be required to do the code violations. And now with rent control that just got implemented in September of 2019 in the city of Sacramento, there's all kinds of new regulations that could end up being very, very costly for owners.Alex: Mm. Here we go, boys and girls—pay attention to the laws. Hire a good property manager if you are not a full-time investor. But the market is still hot. Check out the other episode Scott and I have done on the five ways investors are actually successful in Sacramento, because it's one of the hottest markets in the country. And one of the things that Scott said is that there's a lot of flow from the Bay area money going into Sacramento. But you’ve got to watch that episode yourself. Go to mynd.co and search for Sacramento investing. You'll find a number of episodes Scott and I have done. So hopefully today this helped you out. Thank you for watching and Scott, thank you for your time.Scott Raymond: Thanks, Alex.Success starts before you buy a property. This means knowing which properties will offer the best return when thinking of making an investment. By necessity, investors will face expenses that, if not accounted for, could compound and become a major concern. This can mean everything from factoring in the time a property may be vacant, to complying with city codes and ordinances.Many such headaches can be avoided outright by hiring the right property manager. With the knowledge and foundation to account for such expenses or city codes, hiring a property manager can inoculate an investor from mistakes that might otherwise be avoidable.
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