Sacramento Real Estate Blog

February was a fairly strong month for duplex sales in Sacramento County, with twenty-five units selling, as opposed to eighteen units last February and an average of 19 units selling each month over the previous years.  As will residential properties, duplex prices have fallen sharply over the past year.  The average sale price of a duplex in Sacramento County fell 27.3% from February to February:  from $348,420 last February to $231,000 this February.  During the same period, the median sale price fell by 33.7%, from $348,420 last February to $231,000 this February.

It’s a tough time to be a duplex seller, with the duplex inventory still high at 14.6 months.  Though the median sale price of a sold duplex in February was $231,000, the median list price of the 279 duplexes in inventory is $329,000.

What’s encouraging is that we’re seeing more and more properties that pencil out fairly well.  One duplex that’s listed now, for example, yields a positive cash flow of $48.00 per month assuming a 20% down, a 10% vacancy factor and a property manager — if you managed it yourself that number would be more like $198.00 per month.  Three years ago I’d be hard pressed to find a duplex in Sacramento County that provided any kind of cash flow.  Today I found this one after about five minutes of looking — and I’m sure there are others out there.

Admittedly, the cash flow numbers for the “middle of the market” may not be too impressive.  Nevertheless, there are bargains to be had, and I believe that as prices on some duplexes and other multi-unit properties continue to fall, sales in this category will pick up throughout 2008 and beyond.

So much of the heat (and not light) that’s shed on real estate market writing contains the implicit assumption that falling prices are bad.

Are falling prices bad? Well, they are if you have no choice but to sell now, and you owe more than you own.

Falling prices are also bad if you’re buying and your position is such that you’ll have to sell while prices are still falling.

For everyone else, falling prices are much less of a catastrophe than melting ice caps, because we’re likely to see the situation turn around in a relatively short term.

Falling prices are actually good if you want an investment 1) that you can afford and 2) that provides positive cash flow.

For the longest time, I didn’t see too many properties that penciled out positive in Sacramento County. Today I stubbed my toe on a condo that seemed offhand to pencil out so well that I threw some conservative numbers such as a 25% vacancy rate at it, and I still ended up $5 per month in the black.

There’s probably an improvement of $100 per month that one could make in the vacancy rate, and you can take out the $85 per month in management fees if you want to rent it out yourself. The other thing that’s conservative about this analysis is that this is based on the list price of the home. On the flip side one should inquire about utilities and factor in an estimate for maintenance.

Granted, five bucks is not a lot of money. But lots of folks who bought when it was “a good time” because prices were going up were happy enough to be upside down by hundreds of dollars. (Like the seller of this condo — which is now bank owned? Could be!)

Cash Flow Worksheet

We haven’t looked at residential income properties in quite some time, but last time we did, we found that the market for residential income properties in Sacramento County was a lot slower than the market for single family homes and condos. Sure enough, that’s still the case today.

Let’s take the case of duplexes. This August, one third fewer duplexes sold than last year. (The numbers are twenty units for last year and sixteen for this year). The average duplex sold this August for $355,969, down 4.8% from last year’s average of $374,021. The median sale price dropped 11.9% during this time, from $392,500 last year to $345,750 this year.

We don’t have figures for square footages or REO information on duplexes, unfortunately, so we can’t talk about those. However, inventory and the expired to sold ratios are the twin smoking guns that point to a market that is every duplex seller’s nightmare. There are 418 units in inventory, which works out to 18.7 months of unsold inventory based on average sales of 22 units per month. However, if you take just August’s sales as a basis, you come up with 26 months of inventory. Either way you slice it, that’s a lot of unsold duplexes people are trying to move.

The expired to sold ratio also tells a story of listings just sitting there. Last August the expired to sold ratio was 204.2%, meaning that roughly two homes expired for every one sold. This year the ratio is 318.8% — fifty-one listings expired and 16 sold.

Contrast these numbers to August, 2005, when duplexes were emblematic of the hot seller’s market. In that month, 78 duplexes sold at an average of $436,694.