Pearland, TX · Member since 2016 · 9 posts · 4 votes
I'm saving up some capital right now and hoping to purchase my first rental property in a couple months.
I'm from Houston so as many know, the market is crazy and full of investors.
I've been looking at starting in a part of town that is considered rough.
10 miles due south of downtown, just outside the 610 loop is crestmont park, sunny side and south acres.
As I've done research, the selling market isn't hot in the area, but I know there are a lot of rentals. The houses that are for sale are pretty run down.
However, there is a lot of new build about a mile away and from my opinion of the Houston market, this is the only direction that Houston can go with a lot of new growth this close to downtown and central to the metropolitan area.
It's 5 miles from the Hobby Airport
Right off of the 288 highway
8-10 mile north of Pearland that is just outside of the Beltway 8 loop (and booming - it's where I live - but haven't been able to find a deal with near this good of numbers)
Numbers on a property....
I could probably get a house for 40-45k ($.35-.45/sf), do about 10-15k in rehab (I'm in the construction industry) and rent it for about $1000-1200 ($.70-.80/sf) for what seems to be $400-500/month NOI.
The fixed up houses I've found on the market are around $80-90k so I figure I could refi in a year or less and do it all over again.
I did the rental property calc on a listing I found:
SF: 1400
Purchase: $42k
Closing costs: $2.5k
Estimated repairs: $12.5k
ARV: $85k
Monthly Income: $1100
Monthly Expenses: $572.10
Monthly Cashflow: $527.90
Pro Forma CAP: 14.10%
NOI: $8.4k
Cash on Cash ROI: 26.40%
Purchase Cap Rate: 18.80%
I hear all the time that you never want to buy in a bad neighborhood...
But someone has to, right?
And if it seems to have this much potential, is it worth the risk?
Thoughts?
Investor · Dearborn, MI · Member since 2016 · 34 posts · 34 votes
10y
I buy in what some would call "the hood" in Detroit. That said I stick to the area I grew up in. It's easier to keep an eye on them once they go vacant or during my rehab. I've found its a strong rental market because, as my mom said, everyone has to live somewhere. It depend on your goals and risk tolerance. Rather than analyze your deal, I'll just give you a few tips on how I cut down on break ins and theft and crappy tenants.
1. I do some of the work myself which allows me to make my homes nicer than the competition. There are good people in the hood who just don't have the money to live in a better area. You're in construction, so consider adding some things like ceramic and glass tile back splashes, ceramic floors, ceramic baths with nice towel holders and light fixtures. You probably know where to get a lot these things for even cheaper than I do. But I've found Craigslist and Habitat ReStore to be excellent sources to get nice stuff for cheap. Many would recommend against this as its "just a rental in the hood." But I've found that not only have I been able to pick and choose my tenants, but many of them have recommended friends and family who are equally good tenants. Not to mention, if you make it nice then some of the people with housing vouchers/subsidies are attracted as well.
2. As soon as you start working on the home board up the windows from the inside (especially the back of the home) and use double-keyed deadbolts on the locks. If someone really wants to rip you off, you can't stop them but you can discourage or slow them down. Also consider reinforcing the side or back door from the inside while you're working and use the front.
3. Be a good member of the community. I usually introduce myself to the neighbors. I've even stopped the ice cream truck and gotten all of the kids ice cream. The neighbors have been very helpful once I show them a little love. Sometimes I'll even shovel the next door neighbors snow if I'm already doing my own. Takes me an extra half hour but they appreciate it. Plus they usually know who is doing the breaking in (it might even be them) so I've found any way to build good will helps. One even contacted the former owner and got me the keys to the house so I wouldn't have to break in. (I bought the house in a tax foreclosure auction). They tend to see me more as a neighbor than some rich investor guy trying to make money off of them. Keep up your lawn. Poorly kept houses are magnets because folks figure they are neglected and no one owns them.
4. If possible, drop by the house at odd times. I have friends in the neighborhood who might drop by the house on the way to or from the club and I do the same. Just to show traffic. It is my theory at least that people are reluctant to break in if they have no clue when someone might show up. Theft is a huge problem in Detroit.
5. Some investors I know pull the furnace and hot water heater as soon as the property goes vacant. I don't have the storage for that so I try to make up for that by babysitting the vacant properties where I'm doing work or waiting on a renter.
6. If possible, don't drive your nice car over there. In my experience, EVERYONE in the hood knows you by your car. No sense in making people any more interested in you or your property than necessary. Especially if it'll make them think you have something worth taking.
7. Be on TOP of your business. No need to be an *******, but they need to know that you are a serious owner. Prompt response to maintenance requests. All legal documents professionally created and executed. 7-day notices and rent ledgers where applicable. If you're lax, they'll likely also be lax.
Well, I hope you find those tips useful for this or any other property you decide to buy. I've had a few bum tenants but by and large have gotten some good ones. Some of these tips I picked up from other more experienced people, but all of them I use myself. When I haven't I paid.
De Pere, WI · Member since 2016 · 83 posts · 39 votes
10y
I think you need to think of the reasons why people say not to buy in a bad neighborhood... especially for rentals. Is it a high crime area? Is your project going to be at high risk of getting robbed while trying to reno? Will you over improve on the property? Will people want to live there? Will those that can afford to (or want to) live in that neighborhood be reliable tenants? Will they pay on time? Will you run into issues in regards to your standards for tenants? If it doesn't work out as a rental would it be easy enough to sell? Or will you be stuck holding onto the property and run into financial issues? If it works, it looks like a great opportunity! But there is a reason the neighborhood is considered a bad neighborhood. Everyone needs a place to live though, so it may still be worth it!
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Philip Schultz if you can flip them and sell them to the greater fool do that .. those are not good long term holds unless you really think something will happen in a few short years.. unless you can buy a 100 houses there and make it a business thats one thing to buy a few is usually financial suicide
Investor · Dearborn, MI · Member since 2016 · 34 posts · 34 votes
10y
I buy in what some would call "the hood" in Detroit. That said I stick to the area I grew up in. It's easier to keep an eye on them once they go vacant or during my rehab. I've found its a strong rental market because, as my mom said, everyone has to live somewhere. It depend on your goals and risk tolerance. Rather than analyze your deal, I'll just give you a few tips on how I cut down on break ins and theft and crappy tenants.
1. I do some of the work myself which allows me to make my homes nicer than the competition. There are good people in the hood who just don't have the money to live in a better area. You're in construction, so consider adding some things like ceramic and glass tile back splashes, ceramic floors, ceramic baths with nice towel holders and light fixtures. You probably know where to get a lot these things for even cheaper than I do. But I've found Craigslist and Habitat ReStore to be excellent sources to get nice stuff for cheap. Many would recommend against this as its "just a rental in the hood." But I've found that not only have I been able to pick and choose my tenants, but many of them have recommended friends and family who are equally good tenants. Not to mention, if you make it nice then some of the people with housing vouchers/subsidies are attracted as well.
2. As soon as you start working on the home board up the windows from the inside (especially the back of the home) and use double-keyed deadbolts on the locks. If someone really wants to rip you off, you can't stop them but you can discourage or slow them down. Also consider reinforcing the side or back door from the inside while you're working and use the front.
3. Be a good member of the community. I usually introduce myself to the neighbors. I've even stopped the ice cream truck and gotten all of the kids ice cream. The neighbors have been very helpful once I show them a little love. Sometimes I'll even shovel the next door neighbors snow if I'm already doing my own. Takes me an extra half hour but they appreciate it. Plus they usually know who is doing the breaking in (it might even be them) so I've found any way to build good will helps. One even contacted the former owner and got me the keys to the house so I wouldn't have to break in. (I bought the house in a tax foreclosure auction). They tend to see me more as a neighbor than some rich investor guy trying to make money off of them. Keep up your lawn. Poorly kept houses are magnets because folks figure they are neglected and no one owns them.
4. If possible, drop by the house at odd times. I have friends in the neighborhood who might drop by the house on the way to or from the club and I do the same. Just to show traffic. It is my theory at least that people are reluctant to break in if they have no clue when someone might show up. Theft is a huge problem in Detroit.
5. Some investors I know pull the furnace and hot water heater as soon as the property goes vacant. I don't have the storage for that so I try to make up for that by babysitting the vacant properties where I'm doing work or waiting on a renter.
6. If possible, don't drive your nice car over there. In my experience, EVERYONE in the hood knows you by your car. No sense in making people any more interested in you or your property than necessary. Especially if it'll make them think you have something worth taking.
7. Be on TOP of your business. No need to be an *******, but they need to know that you are a serious owner. Prompt response to maintenance requests. All legal documents professionally created and executed. 7-day notices and rent ledgers where applicable. If you're lax, they'll likely also be lax.
Well, I hope you find those tips useful for this or any other property you decide to buy. I've had a few bum tenants but by and large have gotten some good ones. Some of these tips I picked up from other more experienced people, but all of them I use myself. When I haven't I paid.
Investor · Conroe, TX · Member since 2013 · 30 posts · 8 votes
10y
Please keep us updated! I'd like to see how this turns out. I have seen these properties and pondered investing into them, but have decided against it due to distance, potential for crime, etc. I think to have this work out, you'd definitely have to make yourself known and keep a much tighter around the clock watch over your investment.
Rental Property Investor · Sugar Land, TX · Member since 2013 · 113 posts · 27 votes
10y
@Philip Schultz : I live in Sugar Land, but drive to Pearland to work every day! I am also trying to get started. Can we talk sometime? Maybe put our heads together on some ideas! I know that area as well!
Residential Real Estate Broker · Pearland, TX · Member since 2016 · 2 posts · 2 votes
10y
Hey Robert, I have been a real estate broker for over 20 years and I have lived in Pearland for over 40 years. I'm not saying the numbers might not work in Crestmont Park but it can be a fairly dangerous area. I've had clients that owned rental property there and they were scared to collect rent in the neighborhood. They would meet their tenants near Town Centre. FYI...I'm not trying to promote my brokerage to you. Just some friendly advice.
Investor · Las Vegas, NV · Member since 2016 · 41 posts · 23 votes
10y
As a landlord with some experience, I would have to strongly advise you against buying in a bad neighborhood. You have to think in terms of the type of tenants you will get in an area you wouldn't dream walk around in at night.
Think of this: If you buy in a bad area, you can guarantee that almost every credit check you do will come up bad. So, you will have a really hard time finding tenants you can trust. Also, let's say you buy the property and just can't seem to find decent tenants who actually pay you on time, and take great pride in destroying everything in the unit. Now, you want to try selling. Good luck with that. Most seasoned investors won't touch properties located in really bad areas. I speak from experience, when I say this to you. I unwittingly purchased a duplex in a "questionable" area of Texas (in another state from where I reside). I owned the property for about 4 years, and in that time, went through 4 separate tenants. I've had tenants who didn't pay for 2 months, and then snuck out in the middle of the night. As I live in Las Vegas, Nevada, I didn't learn of this until about 2 weeks after they vacated the premises, when my other tenant called to let me know.
I then had to pay lots of money to EMPTY a 2 BR apt full of nasty furniture, garbage, etc.... replace carpeting, linoleoum, patch holes in the walls, paint, repair busted kitchen and bathroom cabinets. To add insult to injury, I later learned they had GLUED all the windows shut!! I then had to replace the entire window frames before my realtor would show the apartment to anyone else as it was a fire hazard.
I really hope you will learn from my bad experience, and stay AWAY from bad neighborhoods.
Investor · Friendswood, TX · Member since 2016 · 88 posts · 51 votes
10y
Phillip,
I have 3 properties in those nicer subdivisions in that area. Those are my most under performing properties. Getting good tenants is always a problen. My best performers are IN PEARLAND! Stick closer to home. The Hood is just going to be problemmatic, unless you are planning to be a total slumloard.
@Raphaela Todd Thank you for your story. I am also from Las Vegas and considering buying long distance. Did you have property management in place for that rental in Texas? Did you ever sell that property after the bad experiences?
Real Estate Investor · Las Vegas, NV · Member since 2016 · 399 posts · 260 votes
10y
Hi Philip. My usual advice to all that are pondering the D question is don't. These markets are very management intensive and unless you or someone you are partnering with has experience you will might make too many mistakes and you will see that your pro forma go to hell.
Now that being said if you have done your homework looked at the city's plans and this neighborhood happens to be in the "path of progress" it might turn out well however it needs to make sense now. The path of progress play is a 5-10 year plan and at times does not work out. So buy it for what it is and if things change for the better good. I also agree with @Jay Hinrichs unless you can control the whole neighborhood or have enough to have the economy of scales it does not make sense.
Residential Real Estate Broker · Pearland, TX · Member since 2016 · 2 posts · 2 votes
10y
I agree Pearland is a great market for rentals. There are currently 81 properties in Pearland for rent according to MLS (Multiple Listing Service). The least expensive homes are starting at $1400/mo. and go all the way to $3200/mo.
With the athletic programs for baseball and football doing so well in Pearland there are a lot of people looking to relocate to this school district. The proximity for those who work downtown is also a factor. If I'm not mistaken the only area growing at a faster pace at this time in the greater Houston metropolitan area is on the NW side near HWY 249 and Beltway 8 going towards Magnolia. Now is probably the best time to invest in that market but as stated here in previous posts, I would stay as close as possible to my investment properties.
Best of luck to everyone in your future endeavors.
Investor · Friendswood, TX · Member since 2016 · 88 posts · 51 votes
10y
Veronica,
I have nothing in Manvel, but I think over the next 10 years there is lot of potential growth in the Manvel /Alvin area. So if you are thinking long term I'd say do it.
Hospitality · Houston, TX · Member since 2015 · 14 posts · 2 votes
10y
I have drove through that neighborhood, and its not as "hood" as it may seem. I see it as working class people who are on a minimum income who need a place to live. Yes there might be some bad areas and some bad people however, don't let that discourage you from what you want @Philip Schultz. Remember even a "hood" person needs a place to live. So if they are willing to pay your rates, I'd say go for it.
Missouri City, TX · Member since 2015 · 52 posts · 5 votes
10y
@Philip Schultz very interesting post! I was thinking about investing in that same side of town, but I was told the tenants over there are a hassle. Let us know about your next move! There are greater properties and "cooler" tenants within a 5 mile radius of that area.
Pearland, TX · Member since 2016 · 9 posts · 4 votes
10y
@Myles Ngumezi where were you looking? I just haven't found an area that has that low of an entry point but can still pull a decent rent.
I'm still thinking about it...i know that there can be good tenants and a large portion of that area is renting, but i wonder how much it would cost after each renter to get it back up to standard.
Missouri City, TX · Member since 2015 · 52 posts · 5 votes
10y
@Philip Schultz I'm focusing in on the Alief/Missouri City areas, but I will begin searching properties on that 610/288 side of town in the next few weeks. I attended Texas Southern University and that 3rd Ward/Sunnyside area has experienced ALOT of renovation in the past few years. I'm a wholesaler, so I look for great deals all around the city. If you're ever up for a meet up to talk more real estate I'm available! I'm a newbie so I still have lots to learn.
Investor · Las Vegas, NV · Member since 2016 · 41 posts · 23 votes
10y
@Alisha Wagner I didn't have a formal Management Company take care of my duplex, I have a great relationship with a realtor there who had a handyman who would take care of issues and maintenance. I actually had TWO duplexes in different areas of Texas at one time. Unfortunately, when the recession hit, ALL my tenants lost their jobs and I couldn't find new ones! I guess everyone was moving back in with Mom & Dad. At the same time, my husband, a Master Carpenter by trade, was laid off intermittently for almost 2 years. I ended up turning these duplexes back over to the bank. It still stings just talking about it. But ... I've learned a lot since then, and am ready to get back on the horse again, so to speak. Because of my out-of-state investment experience, I will be a lot more cautious and do more research BEFORE I decide to do that again.
Real Estate Consultant · Houston, TX · Member since 2015 · 172 posts · 51 votes
10y
Hi @Philip Schultz I am familiar with the area and I to am considering investing in the area. I echo those who say if the numbers work go for it. There are decent people who rent in the area, but you would need to screen the tenants well and of course you will run across issues simply because of the age of the properties. I don't get into speculation; however the location of the area is what I'm interested in more for the future because the area is in close proximity to some major places within the city.
