Realistic Cash Flow Expectations for Texas

[Ryan Betzing]

I’ve been investing in single family homes in Texas for the past 3 years. 

Here is something I am struggling with - I see posts throughout the forums about Texas being a strong cash flow market, and I’m trying to make sure I'm not missing something. Texas has a fun combination of high property taxes and high insurance that eats away at cash flow.

Here is an example of the numbers for probably my strongest property. I have to be very selective, and pick up homes at 60-70% ARV to make the numbers work.

Rent                 $1,150.00

Taxes               $185.17

Insurance        $71.80

Vacancy           $57.50

Prom Mgt.       $92.00

Maint.             $57.50

Capex $150

NOI $536.04

Debt Service $412.00 

Cash Flow      $124.04 

I have prop management for 8%, vacancy at 5% and maintenance at 5%. The debt service of $412 is 30 years fixed @4.75% on a 65K loan. The house is worth around 115 - 120, so my LTV is around 55%.

What I can't figure out is how investors are making the numbers work in Texas?  With a mortgage of 65K and monthly rent of $1,150, I'm approaching 2% rule territory, but my cash flow is still only $124 a month.  Am I missing something? 

[Cody L.]

Originally posted by @Ryan Betzing:

I’ve been investing in single family homes in Texas for the past 3 years. 

Here is something I am struggling with - I see posts throughout the forums about Texas being a strong cash flow market, and I’m trying to make sure I'm not missing something. Texas has a fun combination of high property taxes and high insurance that eats away at cash flow.

Here is an example of the numbers for probably my strongest property. I have to be very selective, and pick up homes at 60-70% ARV to make the numbers work.

Rent                 $1,150.00

Taxes               $185.17

Insurance        $71.80

Vacancy           $57.50

Prom Mgt.       $92.00

Maint.             $57.50

Capex $150

NOI $536.04

Debt Service $412.00 

Cash Flow      $124.04 

I have prop management for 8%, vacancy at 5% and maintenance at 5%. The debt service of $412 is 30 years fixed @4.75% on a 65K loan. The house is worth around 115 - 120, so my LTV is around 55%.

What I can't figure out is how investors are making the numbers work in Texas?  With a mortgage of 65K and monthly rent of $1,150, I'm approaching 2% rule territory, but my cash flow is still only $124 a month.  Am I missing something? 

 "Texas" isn't a market.  It's a giant state.  No one should say "Texas" is great for cash flow as it's too big.  It has areas that are great, and areas that are terrible.  

But let's narrow it down more. Houston. Just one city. I wouldn't even say Houston is good or bad. I can get a duplex that's a 4 CAP at best and some that are 10 CAPs.

So let's get real focused:  Inner loop Houston.    Now even inside the loop I have stuff I've bought for $100k+/door (old class C) and stuff I've bought for $20k/door.  And get this -- they're within a few MILES of each other.   

I have a building that's built in the 30's.  Super old studios.  We lease them for $875/month.   LESS than a mile away I have 2 beds that have been nicely updated for only $750.

When selecting a market you have to be much more granular than a state.  Or even a city.  Or even an AREA of a city.