Does 50% rule work in Texas / Houston?

[Jacob M.]

Hi Everyone.  I'm looking at a 4-plex in Houston area.    When I run the numbers I seem to get expenses (including vacancy) that is usually 55-60% of gross rents.  I think this is partly due to property taxes that are higher in Texas due to lack of an income tax.  Anyone else seeing similar numbers for expenses?   

Should I use a higher expense ratio for Houston  or am I being too aggressive with the estimated expenses?

Here are some numbers as an example for a $300k 4-plex.   Please look over and let me know what you think.  Do these number 

Monthly Gross Rents $ 4200

Monthly Expenses

  Vacancy       $ 336 (8%);  (including here since 50% rule includes vacancy as part of expense)

  Prop Mgmt   $420 (10% of gross rents)

  Insurance     $208 ($2500 yearly; quoted by insurance agent)

  Prop Taxes   $680 (2.9%/year of assessed value; actuals; eats up 15% of gross rents)

HOA fees $330

  Maint Reserves:   $420 (10% of gross rents)

  Maint/Repairs       $84 (5% of gross rents)

Total Expenses : $2478 (59% of gross rents)

NOI: $1722

  Mortgage: $1215 (25% down @ 5% interest)

Approx Cash Flow: $507/month (about $125/unit)

Cash-on-Cash: 7.2% (Assumes 25% down + 3% closing costs as initial cash requirement)

Thanks,
Jacob  

[Cameron Tope]

Hey Jacob,

I have definitely turned down many rentals due to the property taxes eating up significant portion of cash flow. However, what's your goal? Some people are content with 7.2% COC because the bank is paying 0.25%.