Texas SFH - expected cash flow with high taxes?

[John Gossett]

I am ramping up to purchase SFH in the Austin Texas market, which is quite bubbly right now. (Stepping in at peak?) I've been running numbers on MLS properties my realtor has been sending me and should be pre-qualified for a rehab mortgage by next week. I desire to pick up "TLC" or "As is" properties because I have available a vastly experienced contractor acquaintance who has agreed to help me in the rehab and I've been remodeling my own home for years.

Running Fix-and-flip numbers (70% ARV-rehab=max offer) has produced numbers I can deal with financially on two "as is" properties where gross rehab estimate is preliminary $35/psf (at the recommendation of my contractor). The offer would be lowball but I'll selectively toss lowballs out until one sticks.

However, I don't feel like the numbers work well for buy and hold because when the 50% expense rule is factored in with Austin's HIGH tax rate, my evaluations never cash flow more than $50 unless I offer a similar F&F lowball offer. I was thinking buy and hold offers should be higher than F&F with desired target numbers for buy and hold to (given the >$230k median home price) end up with something in the ARV ~175-200k range with at least 25-30k equity and cash flow >$100. Is there anyone with SFH experience in the Austin area that can help me understand how to target offers considering price, taxes and what you're targeting for cash-flow? (Should I be looking at wholesalers rather than MLS?)

Thanks,

John

Cedar Park, Texas

[Jeff Clawson]

Hi John, 

You are going to have a tough time getting any low ball offers accepted in the current market in Austin, where we are seeing multiple offers on over half of our listings in MLS. Your best bet is going to be through a wholesaler or source your deals directly with your own marketing. Otherwise, you will be finding yourself competing with dozens or other investors for properties in MLS. The really good deals that hit MLS usually have multiple offers within hours, so be prepared to make offers extremely quickly and for over the asking price, if the numbers work. If you have cash, you might try buying at the trustee sales, but there is stiff competition there as well....