Good investment numbers for Spring Branch?

Question

My idea is start to build a portfolio of SF homes for buying and hold. I have found a house, totally rehabbed in Spring Branch neighborhood to buy for 275k,already with tenants, $2000 per month and mortgage around $1700 insurance and property tax included. I liked it because it would already start to generate cash flow, no flooding area and also the area seems to improve its value progressively.Since this is my first investment, I would like to get your insights.

Thanks a lot!

Cody L. · Answer

Almost everything I buy is inside the loop. Not so much 10-20 unless in montrose but yeah deals are out there for legit serious buyers.

Last month I bought a super nice property that was heavily marketed (i.e., not off market) that was 1%+ rule and super clean super nice. It’s a well know property (saw that Houston chronicle felt the need to run a story on its sale. Which surprised me a bit). Exactly the type of property you’d think would have shitty numbers

When you buy SFH you compete with buyers that don’t give two craps about “numbers” as they want to live in it. With multi you’re competing against investors and just have to outsmart most (not hard)

James Polk · Answer

Begona, I would agree with the other posts.  Use the 1% rule of thumb and stay under 200k.  If someone is selling a deal turn key in Houston, they usually have taken most of the upside out of the deal.

Do you have experience renovating houses? You need some skills when dealing with contractors or you will have to pay for that education in wasted money.

Jeffrey D. · Answer

That's a really tight margin. I think most people would also try to set aside a portion of the rent for possible repairs, capital expenditures, vacancies and property management. If you include those things, you would actually be negative in cash flow.

For instance, if you had the tenant move out after a year and it took 30 days get it cleaned up and another tenant moved in, paying the mortgage, insurance and taxes on it that month would already wipe out half of your "cash flow", not to mention any repairs that might come up.

It's tough in Houston, but a good rule of thumb for a "deal" is about 1% of the price of the house, should be the rent you receive. So for this house, you really need to be trying to collect closer to $2,750 to make it a good buy. I would pass on this. Your money would probably be better off invested in something else.

Adriel Hsu · Answer

@Begona Miron  As others have said, those numbers are real tight on that Spring Branch rental.  There is a bit of appreciation play in that neighborhood though, depends on your goals.How I would view that deal is:Rent: $2,000

Vacancy: $200

Mortage (Taxes & Insurance): $1,700

Repairs: $200

Property Mgmt: $200

CAPEX/Reserves: $100That would leave you -$400 a month.I prefer off-market to anything listed.  Deals do pop up once in awhile but they are pending same day.  I've never bought a single property on the market.  It's all through my own marketing direct with sellers or through a wholesaler.

If you don't have the time or money to do your own marketing, join the 3-4 major real estate investor houston facebook groups. Plenty of wholesalers there with deals. I wholesale in Houston, no current deals at the moment however. But message me and I can keep you in the loop when any pop up

Michael King · Answer

You may be right on the property tax. On a 1200sf home here, I pay $2600 - $3100 annually. My home, 3200sf, is $4400 annually. I had a 2900sf house in Spring TX, it was $5-$6K. But another place I had in Montgomery TX, 3000sf, was nearly $9K.

Not sure what's worse - high property tax or state income tax with moderate real estate tax?

I miss Texas. I miss the sun, driving topless in my Jeep, Mexican food, Shipleys...what'd I leave out?

Tushar P. · Answer

Ok, makes sense now. The property tax in Missouri is probably much lower than Texas, hence decent cash flow can be achieved even without the 1% rule...

Michael King · Answer

I put 20% down, yes. Traditional finance, so interest is under 5% for 30yrs. They are all in Missouri....I keep my eye on Houston stuff though. I'd love to get higher ROIs, but the buy in up here for a turnkey property is pretty high. And they are all less than 3 years old, so relatively maintenance free to boot.

Tushar P. · Answer

@Michael King that’s great you can get a decent roi with rent ratio of 0.74%!! Are these properties in Houston? Did you put 20% down with 30-yr loan or some other strategy?

Cody L. · Answer

Honestly it’s not a good price in any historical context except the last few years. Even 3-4 years ago no one would pay $100k/door for old class C in montrose. That’s now the new floor

Begona Miron · Answer

@Cody L. that price in Montrose for 10 units it is really good, well done! I am kissing frogs but ready to save the prince(I changed the story a bit in here..;)

Good investment numbers for Spring Branch?

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