Need Advice Investing in Cheap Lubbock Single Family Rentals

[Dan Ben]

Hi Everyone!

I've recently began investing cash in SFR's in Lubbock. These properties are east of University for the most part. Half the properties I've acquired have strong ARV numbers post rehab and I plan to pull out any money I invested in them using BRRRR. The other half had long term tenants with below market rents and high rent ratios. However, nearly all of my properties are in C areas. Maybe even considered D class on a couple of them. I was initially excited by the numbers I was seeing on my excel model for my small portfolio, however, after reading some articles by Ben Leybovich on '$30k pigs' I am worried that my cashflow will eat into future CapEx & turnover repairs (roof, HVAC, Foundation, Windows, Flooring, Paint!, Etc). So I significantly increased my reserves and repairs, and to my surprise the returns were still very strong.

I am now assuming: 

- Capex reserves at $1k annually per SFR plus $1,300 annually in principle payback that I plan to use on future CapEx per home. Total $2,300 in CapEx reserves per house per year. 

- Maintenance at $300 annually per SFR.

- Management 10%

Even with these assumptions, my model shows I am still making a little over $200/mo per home in pre-tax cashflow with little to no cash in each deal. At that rate, my CoC return is over 35%. My plan would be to use the cashflow to expand while still saving $1,300/per home annually in future capex/repairs plus the $1,300 in principle payback annually. Of course, I'd have to tap into the accumulated equity at some point for these repairs/capex. Does this seem like a viable plan or am I missing something/too optimistic? I would love any thoughts and feedback! 

FYI: I am a buy-hold investor looking to grow and would love any feedback on what my strategy should look like! 


Thank you,
-Dan

[Tyler Bains]

I feel like your plan is extremely viable pending the condition of the homes and the quality of your management. If you occupancy is solid then great BUT a piss poor property manager will destroy your CoC ROI quick than you can say BRRRR. The tenant needs to be in communication when an issue arises and should not fear punitive action. The property manager should be responsive and remain in communication with you. I see it time and time again in Lubbock where a property manager ignores a tenant and it ends up costing the landlord thousands of dollars so ensure you trust your management.

Make sure on your BRRRRs that you are buying properties that the ARV will truly appraise. This is a common mistake and can totally screw your plan up.

I am happy to help in any way I can and hope Lubbock is treating you well!