Newbie Investor Seeking Wisdom/Advice On His First Property

Houston, Texas
Buying & Selling Real Estate
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Newbie Investor Seeking Wisdom/Advice On His First Property

Lucas Hunt
Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes

Hello BP Family - I am looking for some of your wisdom and/or opinions on my current investment situation. I will not take any of your responses as investment advice!

I have made two aggressive offers on a couple of single-family homes in the northern suburbs of Houston, TX. At this point, both offers have a strong likelihood of getting accepted. This will be my first long-term hold investment property and I am only able to choose one property. They are both turnkey. My current goals are that I am looking to get a base hit so that I can get into the game and build some wealth. I am struggling with choosing between the property that has average cash flow in a class B neighborhood [PROPERTY A] versus a property that has below average cash flow in a class A neighborhood [PROPERTY B]. I have provided some info on both properties below. I can imagine that some of you were in my shoes some time ago. Is there any wisdom/insights that you would be willing share that could help me make a decision? I appreciate all of you!

Property A

Year Built: 2013

Estimated Home Value: $233,000

Offer: $210,000 w/ a $10k credit to the investor (me)

Year 1 Estimated Cash on Cash Return: $150 / mo

Neighborhood: Class B

Nearby School Rating: 2/10

YoY Appreciation: 3%

Home Layout: 3 bed, 2.5 bath, 2 car attached garage

Property B

Year Built: 2009

Estimated Home Value: $226,000

Offer: $215,000 

Year 1 Estimated Cash on Cash Return: $50 / mo

Neighborhood: Class A-

Nearby School Rating: 7/10

YoY Appreciation: 3%

Home Layout: 3 bed, 2 bath, 2 car *de-attached* garage

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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y

These deals are extremely tight. If they don't appreciate a dollar you will lose money selling these. Buy with more spread

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    These deals are extremely tight. If they don't appreciate a dollar you will lose money selling these. Buy with more spread

    1Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    3y

    What do they each rent for?  Where is your monthly cash flow est coming from?  Unless you have a TON of 'worst case' and buffer built in, you might want to reconsider both of them. 

    0Reply
  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    3y

    definitely need rental income to better analyze 

    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Nate Sanow:

    definitely need rental income to better analyze 


    $1700 on Property A

    $1750 on Property B

    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Cody L.:

    What do they each rent for?  Where is your monthly cash flow est coming from?  Unless you have a TON of 'worst case' and buffer built in, you might want to reconsider both of them. 

    Hi Cody - my estimated monthly cash flow comes from comps that my realtor shared with me minus all expenses (HOA, Insurance, Vacancy, CapEX etc.)

    Rental income for both are estimated at

    $1700 on Property A

    $1750 on Property B

    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Eliott Elias:

    These deals are extremely tight. If they don't appreciate a dollar you will lose money selling these. Buy with more spread


     I appreciate your insight Elliot

    0Reply
  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    3y
    Quote from @Lucas Hunt:
    Quote from @Nate Sanow:

    definitely need rental income to better analyze 


    $1700 on Property A

    $1750 on Property B


     I’d probably shoot for the better cash flow.  Down the road you may want a better neighborhood but for now , you can always get started better if you’re collecting some income. It doesn’t sound like the better cash flow is in a bad neighborhood either. Just different.

    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Nate Sanow:
    Quote from @Lucas Hunt:
    Quote from @Nate Sanow:

    definitely need rental income to better analyze 


    $1700 on Property A

    $1750 on Property B


     I’d probably shoot for the better cash flow.  Down the road you may want a better neighborhood but for now , you can always get started better if you’re collecting some income. It doesn’t sound like the better cash flow is in a bad neighborhood either. Just different.

    I hear you Nate. I was thinking the same thing. I appreciate your insight here!

    1Reply
  • Joseph R. Smith
    Rental Property Investor · Carthage, NY · Member since 2019 · 72 posts · 47 votes
    3y

    Respectfully, Neither one is cash flowing or appreciating anywhere near enough to even be considered here. Think $500/month Very minimum cash flow (-whew thats on more like a $120K ARV property), and 7%/year appreciation (national historical average) Very minimum. I dont look at an area without an expected 20% YoY appreciation rate. Know your strengths and weaknesses and consider Class C property for higher ROI's.

    0Reply
  • Marci MayesPro Member
    Real Estate Agent · Willis, TX · Member since 2019 · 71 posts · 37 votes
    3y

    I applaud you for trying to get in the game of real estate. I think the north side of Houston is great! I also like Montgomery County. You are correct that all you need is a base hit. You don't need a home run. My suggestion is to buy the property with more cash flow. For a newbie, a property with with zero or negative cash flow will be very discouraging. You want to build momentum so that you are ready for your next deal. Best of luck! 

    [email protected]
    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Joseph R. Smith:

    Respectfully, Neither one is cash flowing or appreciating anywhere near enough to even be considered here. Think $500/month Very minimum cash flow (-whew thats on more like a $120K ARV property), and 7%/year appreciation (national historical average) Very minimum. I dont look at an area without an expected 20% YoY appreciation rate. Know your strengths and weaknesses and consider Class C property for higher ROI's.

    Thank you for your insights Joseph
    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Marci Mayes:

    I applaud you for trying to get in the game of real estate. I think the north side of Houston is great! I also like Montgomery County. You are correct that all you need is a base hit. You don't need a home run. My suggestion is to buy the property with more cash flow. For a newbie, a property with with zero or negative cash flow will be very discouraging. You want to build momentum so that you are ready for your next deal. Best of luck! 


     Thank you Marci! That is the one we are leaning towards

    0Reply
  • Lauren CutchenBusiness Member
    Real Estate Agent · The Woodlands, TX · Member since 2019 · 188 posts · 79 votes
    3y

    @Lucas Hunt

    Since I live and work in Montgomery County, and not knowing the exact location, but the 2/10 school rating doesn't look very good. I would at least stay to the West side of 1-45. If that helps your decision. You're in this for the long haul, and year 1 doesn't always cash flow. Look at long term appreciation and where the growth is happening. Hope that helps too. 

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    0Reply
  • Lucas Hunt
    OP
    Real Estate Agent · Dallas, TX · Member since 2022 · 27 posts · 10 votes
    3y
    Quote from @Lauren Cutchen:

    @Lucas Hunt

    Since I live and work in Montgomery County, and not knowing the exact location, but the 2/10 school rating doesn't look very good. I would at least stay to the West side of 1-45. If that helps your decision. You're in this for the long haul, and year 1 doesn't always cash flow. Look at long term appreciation and where the growth is happening. Hope that helps too. 

    this certainly helps. thank you Lauren!
    0Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    3y

    @Lucas Hunt

    These deals looks tight.

    Have your investment goals in place and see if these fits into your goals.

    Get in touch with a local agent or investor and shorten your learning curve and save you a lot of headaches as they tend to understand the market better.

    Good luck!

    [email protected]832-776-9582Podcast Guest on Show #469
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    0Reply
  • Altanzul Sabatino
    Member since 2022 · 2 posts · 0 votes
    3y

    I am a newbie. 

    I been calculated a lots of properties. In my opinion  I think you offer too high. I think you offer too high

    I actually lost earnest money on my first offer, because realize didn't work the way I want to. So walked away. Now I am doing slow and calculate.  I didn't offer second yet. I am planning too. I think my offer will piss off someone and I don'tcare. That is the number works for me. If that person except my offer I am going for it. If not, I'll walk away

    Also A neighborhood hard to rent out. However it is great for flipping. That is the book says.... 

    Just saying...

    0Reply
  • Ben M.
    Houston, TX · Member since 2015 · 304 posts · 47 votes
    3y
    Quote from @Lucas Hunt:

    Hello BP Family - I am looking for some of your wisdom and/or opinions on my current investment situation. I will not take any of your responses as investment advice!

    I have made two aggressive offers on a couple of single-family homes in the northern suburbs of Houston, TX. At this point, both offers have a strong likelihood of getting accepted. This will be my first long-term hold investment property and I am only able to choose one property. They are both turnkey. My current goals are that I am looking to get a base hit so that I can get into the game and build some wealth. I am struggling with choosing between the property that has average cash flow in a class B neighborhood [PROPERTY A] versus a property that has below average cash flow in a class A neighborhood [PROPERTY B]. I have provided some info on both properties below. I can imagine that some of you were in my shoes some time ago. Is there any wisdom/insights that you would be willing share that could help me make a decision? I appreciate all of you!

    Property A

    Year Built: 2013

    Estimated Home Value: $233,000

    Offer: $210,000 w/ a $10k credit to the investor (me)

    Year 1 Estimated Cash on Cash Return: $150 / mo

    Neighborhood: Class B

    Nearby School Rating: 2/10

    YoY Appreciation: 3%

    Home Layout: 3 bed, 2.5 bath, 2 car attached garage

    Property B

    Year Built: 2009

    Estimated Home Value: $226,000

    Offer: $215,000 

    Year 1 Estimated Cash on Cash Return: $50 / mo

    Neighborhood: Class A-

    Nearby School Rating: 7/10

    YoY Appreciation: 3%

    Home Layout: 3 bed, 2 bath, 2 car *de-attached* garage

    Hi Lucas, great efforts, below are the numbers I'm getting for property A after running in the BP calculator. This does not take into account if there's an HOA and I did not include management fees in case you are managing yourself. It seems tight on the cash flow, you could recoup on the loss after the appreciation, mortgage paydown, etc but it might be several years. I am curious how you are calculating the expenses, etc as well. It would definitely help to work with investor friendly realtors, and the properties don't have to be on the mls, you could still have a realtor represent you with off market properties as long as the numbers make sense after commission fees etc

    ---------------------------

    Purchase price: $210k.. the $10k credit will probably cover the closing costs

    Loan amount 20% down: $168,000 at 7.125% rate

    Total cash needed for 20% down payment: $42,000

    Rent income: $1700/month

    Mortgage: $1132/month

    Taxes: $3500/yr

    Insurance: $1800/yr

    Vacancy 5% of rent: $85/month

    Maintenance 5% of rent: $85/month

    Capex 5% of rent: $85/month

    -----------------------------

    Total cash flow: -$127/month for the first year

    1Reply
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