Trying to make sense of the numbers in DFW

[Johnson T.]

Dear all, I am an out of state investor, trying to really get invest in the DFW market. My agent direct me to Denton and Collin county, in which I think is a great location. As i do my calculations, in which i put 6% on CapEx, 6% on Repair / Maintenance, 2.3% property tax plus the PM fee (8% of gross rent plus full month placement fee), i almost never find any property that is cash flowing (even just a small number). Is this always the case with the DFW market? So, i should just pretty much banking on appreciation? Your advises are greatly appreciated. Thanks

[Nick B.]

@Johnson T., take a look at Arlington, Mid-cities, Irving, North Fort Worth, White Settlement.

I'll give you an example on capEx.

Let's say you inspected a house and found that the water heater is 5 years old and is in good shape. The life expectancy of it is 10 years. Which means you will likely have to replace it in the next 5 years. The cost of a new one today is $2000 (just for the sake of this example). Assuming 5% inflation, it will cost $2552 in 5 years. You need to budget for that cost, so divide $2252 by 60 months and get $42.5/mo. You set this aside for a new water heater. Then you do the same exercise for other major items than may need to be replaced sooner or later. Add that all up and that's how much you need to set aside monthly. If you fix everything upfront, your expected capEx will be really low for the first 3-5 years.

R&M is similar. Let's say that your tenant would move out in 1 year and you would need to paint a few wall scratches and clean the carpets. Get the cost of that upfront (e.g. $720) and divide by 12. Then set that $60/mo aside for R&M. To minimize R&M, fix everything upfront and include a provision in the lease that first $250 of any repairs is paid by the tenant. Any repairs that were caused by tenant's actions or negligence are paid by the tenant entirely.
Of course, you are responsible for repairs that are the result of your actions or negligence. E.g., a sewer line got clogged. If it happened because a tree root grew into a sewer pipe, you pay for the repairs. However, if a tenant flushed inappropriate items down the toilet, they pay for the clean-up.