3/2.5 SFR in Houston Texas - Deal Analysis

[David Light]

I'm running the numbers on a single family rental in the Houston,TX area. Seems like an OK deal but interested in any feedback. Here are the details:

Purchase Price: 163,200

Repairs: 5,000 (Tile repairs, paint and 3,500 of foundation work)

ARV: 190,000

Rent: 1,650/month

HOA: 200/year

I'm thinking about purchasing as a rental for a year or two and then selling. It has a current tenant at 1,650/month that's planning to move out in the spring when they buy a house, they're month to month. The seller is in some financial trouble and looking to get rid of the house quickly. 

I can get financing for 80% at 5% interest so would put down 32,620 of my own money. With an expense ratio of 40% of rent I'm getting 8.3% cash on cash return after repairs. Is this good for the Houston area? I use 40% as I manage my properties and have been able to manage costs at this level for the past few years which have included a few roofs etc. on other houses so feel good about that number.

Any feedback is appreciated!

[Nick S.]

Do you include all of the items below in your 40% expense estimate? 

• Property tax
• Insurance
• HOA fee
• Vacancy
• Maintenance/repairs
• Property management (I assume = $0, since you self manage)
• CapEx (different than maintenance/repairs)

I find it better to break down each item individually instead of using a % as a rule of thumb. When I plug your numbers in, depending on what I assume for some of the line items above, this deal is right on the brink of cash flow positive and negative. So COCR ~ 0%.

I guess if you only plan to hold it for a few years and you don't set aside any money for CapEx the numbers could look more appealing. Really depends on your risk tolerance!