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Updated over 6 years ago on . Most recent reply

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Min Wang
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The numbers don't add up. What am I missing?

Min Wang
Posted

Hello everyone, 

I recently became more serious about real estate investing.  I'm see myself as a buy-and-hold investor as I want passive income.  I'm learning to crunch the numbers.  

Can anyone with more experience tell me why this isn't a good deal (I'm assuming it's not a good deal given how hot the Houston market seems to be and how long it has been on the market)?:

https://www.har.com/12627-ashford-meadow-drive-a-d...

In summary it's a quadplex asking for $259,000 and is 100% leased with Gross Income of $3400/month. Expenses include maintenance at $200/unit or $800 total (Courtesy Patrol, Exterior Building, Grounds, Insurance, Water and Sewer) and water averages around $125/month total.  Taxes last year was $3091or $258/month (I assume this will go up after purchasing). 

At first glance, this passes the 1% rule, which I think is good for Houston?  I have not seen anything that comes close to the 2% rule when comparing recent sales of different areas to lease prices of similar properties in the same areas.  How does a buy-and-hold investor make money in Houston?  

I plugged in the numbers into the Buy-and-Hold calculator.  I used the following values:

Loan: 20% down, 30 years at 4.75%

Vacancy: 10%

Repairs: 12.5%

Cap ex: 12.5%

Management: 12%

There is hardly any cash flow AND I used last year's tax appraisal value.  Is Houston this tight?  

Thanks a bunch in advance. 

Most Popular Reply

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660
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459
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Vijaianand Thirunageswaram
  • Real Estate Broker/Owner & Property Manager
  • Sugar Land, TX
459
Votes |
660
Posts
Vijaianand Thirunageswaram
  • Real Estate Broker/Owner & Property Manager
  • Sugar Land, TX
Replied

@Min Wang Good question. SFH and MFH are totally different ball game. But duplex is not way apart from SFH. It's almost similar. Let me tell you something, looking for just 1% purchase price as rental is old way. If you want to scale, you need to look at DSCR. That's the key figure and many investors don't even know about it. It's called Debt Service Credit Ratio. It's ratio between all your expense and your rental income.

See the screenshot I attached from our excel calculator which took your numbers and I added 10% on repair and maintenance and split expense to insurance and other cost. It should give you an idea. It hows 1.26 DSCR which is not bad at all. Cashflow is not much because you are adding capex which will reduce your cashflow. Many investors take capex is cashflow too since you are not using until their is expense. It's up to you how you want to see it.

Hope this helps. 

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