2 off market deals in West Texas! Should I purchase them?

2 off market deals in West Texas! Should I purchase them?

Jordan SutherlandBusiness Member
Realtor · Lubbock, TX · Member since 2016 · 86 posts · 119 votes

Hey guys, I've been looking for my next SFR or small multi family deal for the past month. I'm pre-approved for a conventional loan with 20% down at 5% interest amortized over 30 years. I'm a realtor and look for deals on the MLS every day. It's been slim pickings in my local market lately! I have found two off market deals, through personal connections and i think both of these deals are worth investing in. I would love to hear your opinion on the potential investments! Both of them are in totally different neighborhoods of my hometown, Lubbock, TX. Based on analysis and comps, both properties are easily worth around $115,000-$120,000 each. I can purchase both for around $95,000-$100,000 each, and both homes will cashflow around $100/month each. Both are 3/2/2 Brick SFR's built in the 80's, and in good condition. The projected cash flow on these is not wonderful, but both deals have instant built in equity. Both of these homes also are on the outskirts of a growing city, in good B class neighborhoods, and should have great potential for long term appreciation. Both deals have so much potential, but I'm a little hesitant to go for it, because the cash flow is not that great. I have three rental units right now, and I'm trying to expand rapidly, but want to minimize my mistakes. Any cashflow I make will be directly reinvested into acquiring more rentals. These won't provide a whole lot of cash flow in the short term, but will still provide $100/month (conservatively) each while financed, and offer great potential for appreciation. Do you guys think I should pull the trigger? I appreciate any input you guys have! Thanks!

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Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
9y

I haven't been to Lubbock in several years.   Is it growing?   I always thought it was a pretty stagnant town.    Everything goes up in value over time, but what is the draw for rapid expansion to increase the cash flow or value in the next 5 years?    Are they going to go up $2K a year in value or $10K a year.   Are the rents going up $300 a month in the next 2 years or are they going up $25 a month?   1980s homes are now 30+ years old and along with it comes associated maintenance.   1 new hvac system wipes out 4 years of $100 a month if nothing else goes wrong, not including vacancies.    A tenant moving out and you sitting on a payment for a month wipes out 1 year of $100 a month.   Which is fine if you get decent appreciation,  but look at it realistically rather than being house horny.    

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  • Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
    9y

    I haven't been to Lubbock in several years.   Is it growing?   I always thought it was a pretty stagnant town.    Everything goes up in value over time, but what is the draw for rapid expansion to increase the cash flow or value in the next 5 years?    Are they going to go up $2K a year in value or $10K a year.   Are the rents going up $300 a month in the next 2 years or are they going up $25 a month?   1980s homes are now 30+ years old and along with it comes associated maintenance.   1 new hvac system wipes out 4 years of $100 a month if nothing else goes wrong, not including vacancies.    A tenant moving out and you sitting on a payment for a month wipes out 1 year of $100 a month.   Which is fine if you get decent appreciation,  but look at it realistically rather than being house horny.    

  • Jordan SutherlandBusiness Member
    OP
    Realtor · Lubbock, TX · Member since 2016 · 86 posts · 119 votes
    9y

    Thanks for the input @Brian Mathews! When I say they will cash flow $100/month, that accounts for an expected average of all expenses including: mortgage, taxes, insurance, vacancy, repairs, capital expenditures, etc. I calculate almost exactly like Brandon Turner suggests, so if something like an HVAC unit needs to be replaced, I've budgeted for that, and will gladly have it replaced. I'm in it for the long run, so for the long term, even with crazy expenses like that, it should still net $100 month. Also, Lubbock is rapidly growing, and is growing in the direction of these properties. I would be seriously expecting about $4,000/year appreciation at least on these properties. And I also see the rents going up $50/year over the next few years, while my payment would remain the same. There should not be a ton of cashflow immidiately, especially if major problems come up soon, but over a few years, it should be at least $100/door/month with good potential for appreciation and some great instant equity upon purchase. 

  • Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
    9y

    What is the draw to Lubbock that is creating growth?   I'm just curious, I haven't been there in a few years.   Was it caught up in the oil boom that hit Midland and Odessa or is something else at play?  

  • Jordan SutherlandBusiness Member
    OP
    Realtor · Lubbock, TX · Member since 2016 · 86 posts · 119 votes
    9y

    I wouldn't say we've been hit by the oil boom, although it is very close to us. There are many people from here that make a long commute and work in the oil fields. From what I hear, there is potential for the oil fields to make their way closer to Lubbock. Right now, the Marsha Sharp Freeway (that goes through the middle of town) is being expanded and the construction of an outer loop is in the beginning stages. Many new businesses are popping up, and new homes are being built like crazy. Texas Tech University, two of the best hospitals within a few hundred miles, and other things keep people coming here. The cost of living is low and local unemployment is very low. There's also no shortage of land out here, to keep the city expanding!

  • Rental Property Investor · Dallas, TX · Member since 2015 · 283 posts · 179 votes
    9y
    What are expected rents? I'd be curious to see what you will get an do some calculations on it. But if you truly average 100 a month I would pass. Your cash on cash return would be too low. I wouldn't count on equity, as it gives u no return. If you have 3 rentals in Lubbock maybe diversify into DFW? Or another market. Can you substantiate "massive potential"? Not saying it doesn't, but let's let numbers and trends convince us, not emotional statements.
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