Buy & Hold in DFW - can't make the numbers work - what am I missing?

Question

Hi there,
I've been researching the DFW metro in the past 3 weeks and running the numbers on many many deal opportunities, but nothing actually works out as a long term business.

We're looking for a standard home, nothing fancy.

Here's an example.

https://www.redfin.com/TX/Fort-Worth/9225-Nathan-Dr-76108/home/30994800#property-history

Since we were so frustrated from the numbers, we unrealistically said, that we'll get the property for 50% discount.

So instead of the asking price 300,000 we'll get it for 160k.Rehab 55 + hardmoney interest + closing.

And the entire deal costs - $249,378

Here's the complete calc

The only way this does work is if I take a cash-out refi of 63k (which is 20% of arv) instead of 210k as my original plan (which is 65% of arv).

My conclusion from this is that you really can't invest in buy & Hold/BRRRR in this market if you want to role your money to more properties - am I wrong?

Thanks.

Eyal

Skyler Bissell · Answer

Some markets just don't pencil. But it's also heavily property dependent. If the property won't work for that amount, offer less. Or look elsewhere. I'm in Seattle and there haven't been real BRRRRs here in years haha

Gregory Schwartz · Answer

You're applying a BRRRR strategy to a turn-key rental house. There's no meat on the bone here. Heck, the a/c is brand new. The house in your example is prime for someone to put 25% down, have a $2000 month mortgage, and make $2400 in rent. That extra $400 covers maintenance, capex and vacancy.

So to answer your question, YES you are wrong. You can still BRRRR in this market but not when you're looking at a class A house that could rent for $2400 tomorrow.

Gregory Schwartz · Answer

@Eyal Goren That's a real-life example. The only difference is that we didn't have to refinance it because the original loan was $120k, 7% interest only for 5 years. We have the equity that allows us to refinance at any time. The good news is that the expenses are less than anticipated and we're cash flowing $100-200 per month.

The best part is that since we only put 20k in, we had enough money to buy a deal 9 months later, a $270k turn-key duplex that rents for $1450 per side.

Gregory Schwartz · Answer

For many investors, your example is an excellent buy-and-hold strategy. Buying one every few years could lead to significant wealth over time

For a BRRRR strategy, consider Lower price points and older homes with more substantial rehabs and higher risk.

Example:

Purchase: $110kRehab: $30kARV: $170kRent: $1,450/monthRefinancing at 75% LTV: Cash-out refinance: $127.5k Funds left in the deal: $13kMonthly PITI: $1,258 You have $192 for maintenance and vacancy cost

It's not a perfect BRRRR but way less than the 20% ($34k) you'd put down on a turn-key investment. In this example, we invested $13k to create $30k in equity plus you own a break-even, renovated rental property while growing your net worth.

Eyal Goren · Answer

Thanks. I guess you're right.

Eyal Goren · Answer

Can you share numbers of a hypothetical deal that does work?Buy - $X ??

Rehab - $Y ??

Rent - $Z ??

Eyal Goren · Answer

Thanks.

Joe Villeneuve · Answer

If it doesn't work, it doesn't work. You can't put a round peg in a square hole, so stop trying.

Eyal Goren · Answer

I guess that's true. But I think that as a whole, when you look

1. a market with more than 2% property tax2. the current ~7% interest rate

3. the current 0.6-0.8% rent/(all-in costs)

any property is simply isn't going to work.The only param you can somehow control is by increasing the rent by rooming/section 8.

Unless I'm missing something?

Buy & Hold in DFW - can't make the numbers work - what am I missing?

Buy & Hold in DFW - can't make the numbers work - what am I missing?

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