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Updated about 5 years ago, 11/07/2019
Good investment numbers for Spring Branch?
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!
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.
Thanks @Jeffrey D., I guess you are right, if I were in a multifamily then I would take the chance since I would have more units... I know the 1% rule is the ideal but comparing prices with rents so far I didn't find anything like that even close to that.
Would I need to buy the property and renovate it first in order to get it, or is it possible to find those kind of deals in listings? Any recommendations on where to look and areas?
I think you are better off buying from wholesalers than turnkey
That's a really good question. I am trying to find a good deal myself, but you are right that fixing up a house will make it more likely that you find that 1% house. I think Spring Branch is doable, but may be on the pricey side. You are more likely to get 1% on houses below 200k.
Finding a good deal is not easy, in my experience. There are probably hundreds or thousands of investors in Houston looking at rental properties to buy. Some of these investors work with property managers that find them good deals or some of them are real estate agents with access to the MLS and can see deals when they first hit the market. Good deals will not last long. You may need to work with a real estate agent knowledgeable in rental properties or wholesalers to help you find these deals.
I believe it's currently a seller's market as well, making it harder to find deals. Houses that I saw for sale in Pearland for $100k a year ago are going for $120-130k now, while rents have not caught up.
I feel like my post is discouraging overall, and it's not my intention. Rather, just don't want you to waste time/money on a bad deal or worse, a money pit.
@Jeffrey D. not at all, I appreciate your honesty. @Ethan G. any recommendation of any specific wholesalers or investor friendly realtors?
Originally posted by @Begona Miron:
@Jeffrey D. not at all, I appreciate your honesty. @Ethan G. any recommendation of any specific wholesalers or investor friendly realtors?
I'll copy you on a couple of email introductions
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.
@Ethan G.Thanks a lot!. @James Polk I have some but not in the US, I have been doing some research and so far I liked Fast Track Remodeling, do you know them? Any recommended company? May I ask you which areas would you invest under 200k not very rough?
It's hard to hit 1% and cash flow on most single family homes. Not so on mutli -- even on the MLS. Last MLS multi I bought was in Montrose. $850. Had 10 units, each renting for $900. A little bit of work (call it $50k) and they were renting for $1000. 1%. Good area. Appreciates. etc.
So MLS doesn't mean bad deal. But you're going to kiss a LOT of frogs before you find a prince if you're only looking at SFH
@Cody L. I wonder what your opinion is about the current status of smaller multifamily (10-20 units) in inner-loop Houston - are they too pricey now with low cap rates or are good deals still to be had? SFRs do seem like a grind, especially if the end goal is to scale which may not be possible without multifamily.
Right now I'm pumping money into multifamily via crowdfunding where institutional-grade seasoned/tenured developers are offering 15-20% IRR for 4-5 yr hold period. But this doesn't offer equity, so keen on acquiring smaller multifamily to get ownership and scale.
Originally posted by @Begona Miron:
Begona, this will address the 1% rule as far as my personal circumstances. All my properties averaged $194K, with average rents of $1435. So about 0.74% with respect to the 1% rule. That said, I get a cash on cash ROI of 5.5%. That's including a PM company on 80% of my properties. I'm making money at less than the 1% rule, and I can make more if I choose to take over from the PM. My path is not a 'get rich quick' one. But, I'm making money...don't let the 1% rule scare you off. Do your numbers well, and you might be pleasantly surprised.
Originally posted by @Tushar P.:
@Cody L. I wonder what your opinion is about the current status of smaller multifamily (10-20 units) in inner-loop Houston - are they too pricey now with low cap rates or are good deals still to be had? SFRs do seem like a grind, especially if the end goal is to scale which may not be possible without multifamily.
Right now I'm pumping money into multifamily via crowdfunding where institutional-grade seasoned/tenured developers are offering 15-20% IRR for 4-5 yr hold period. But this doesn't offer equity, so keen on acquiring smaller multifamily to get ownership and scale.
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 ****** 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)
Thanks @Michael King! I established certain parameters for my strategy for investing to make sure I take the best possible decision.
Originally posted by @Begona Miron:
@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..;)
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
@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?
Originally posted by @Tushar P.:
@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?
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.
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...
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?
@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: $100
That 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