Dallas SFR House Hack Analysis

[Jerry Thompson]

Hey Everyone! I'm running the numbers on my first property in the Dallas area and figured I'd try and get some feedback on my approach and numbers. This will be a house hack, with 10% down and I'll rent a room in the house to offset some of the debt service. I'm running my numbers on renting out the full home when I leave (in about a year) so until then, I'll be building equity and making small improvements to the home. I don't have any budget for rehab at the moment so these homes are in livable shape now. Goal is to cashflow at least $100 on this first property after move out. I've been determining my offer price by looking at rental comps in the area and dividing that number by 0.015. Essentially I'm trying to make each offer a 1.5% deal for me- would definitely like some advice to see if that is a good way to approach it. I'm not counting on appreciation at all even though the areas I'm looking in are growing. The locations I've chosen are ideal for getting to work in under a half hour with traffic so I'm not planning on moving to the sticks where good deals may be easier to find :)

I've been using the BP rental calculator to help so here it goes:

Purchase Price: $80k

Rental Income: $1,200

Rehab: $0

Taxes: $1k

DownPayment: $8k

Loan Amount: $72k

Rate: 4%

Term: 30 yr, fixed

Utilities: $0 (renter will pay)

Insurance: $125

Vacancy: 7%

Repairs: 10%

CapEx: 10%

Property Management: 10% (will manage myself but that could change one day)

**Monthly Expense: ˜$1000

**Monthly Cashflow: ˜$200

COCROI: 18% (would have to be recalculated for any improvements I make to the home)

Would love to hear if there are any numbers/details I'm not including!

Hope I'm doing this right. As I keep doing analysis I'll see if it makes sense to change that 1.5% expectation if my other expense assumptions seem solid. Rents are also an estimate so I'm being cautious. My focus is to definitely cashflow after I move out. 

side note: a small multi family would be ideal but they market here is hot and I have no rehab budget.

Cheers and thanks!

[Kenneth McKeown]

@Jerry Thompson do you mind me asking you where you're buying a house for 80k in the Dallas metroplex that is livable right now? I just closed on a deal in south Dallas for 90k and it was a complete gut job. Are you talking about a smaller home, 2 bed / 1 bath? Not looking for an address but I'm curious at the area you're looking at. I assume it's not anywhere in North Dallas as I don't see these numbers anywhere in that area.

[Andrew Herrig]

@Jerry Thompson Your analysis looks pretty good. Taxes seem a little low. If you have a homestead exemption, I usually assume 2.1%. Once it's a rental, more like 2.7%. 

Make sure you research the neighborhood and are comfortable with it. A house under $100k and at a 1.5% rent/price is a red flag for a potential war zone. 

[Account Closed]

@Jerry Thompson

Finding a good deal is really what matters. It's tough to tell how good of a deal this would be. I don't know Dallas well but would agree with others comments that you are potentially buying in what is probably an area most do not find desirable. I would highly recommend making sure your numbers are accurate. If you are wanting to landlord, you need to get houses where people need to live near good schools, universities, etc.. Flipping is wherever you can liquidate, right now that is anywhere in Waco under 150k.  Where you are I have to assume you are describing a not so hot area or a dump because Dallas is I think like Austin- where 250k houses are scarce. 

If this is off market, I can totally see you picking up a house for 80k that rents for $1250 or will sell as is for 125k. I just did that last week. But I live in Waco and it is Midway ISD, the school district here where every kid gets an ipad. So while it is technically a 2/2 (with a cute 3rd bedroom that was permitted but is kind of a patio so I am using 2/2's for comps) @ 1316 sq ft it is as nice as the comp that sold last Thursday that is a 2/2 1195 sq ft for $124,700- IF I do zero repairs

So if your rent is accurate, you should know about your deal what I know about my deal that- that it's a killer freaking deal! Families can't get into this school district and trip all over themselves for affordable housing. I'll probably get 135k cash to an investor off the MLS! Do you feel yourself as excited as I sound? Then you need money for repairs because again, no way you don't have a slam dunk if you could buy it and get it to $1200 in rents.

If the place needs repairs, I'm not sure how you make it happen. If it needs no repairs why not list that sucker for 125k after you buy it? Then do a couple more. Have you looked at why it might be available? For how long? Does it back up to a busy street? Across from a school? Garage conversion? Sit at that "T" thing where the stop sign is in front of your house? Have the ugly facade in the neighborhood that none of the buyers or tenants want and you're using comps with the premium cut stone builder upgrade? I just realized most of these don't apply to what is likely a sugar shack but I just started hammering away on this contraption. Good luck either way, your attention to details shows why you are in a position to make investment decisions. 

[Jerry Thompson]

Thanks @Andrew Herrig ! And you're right, the taxes are a bit low for this one. It's a transitioning area so a lot of investors have added rooms/bathrooms/sqft that aren't in the tax roll yet. I did some sensitivity analysis.. and taxes don't have as big of an impact on cashflow as purchase price, loan rate, and rent so I make a note of where I think taxes are behind on my list of properties just for awareness [ie: property is a 4/2 but last evaluated as a 2/1]. 

@Kenneth McKeown @Account Closed - nothing to get excited about here, I'm not finding any deals at that price! This is basically how I know how much to offer on a house. All of these properties are livable with granite countertops I just have no regard for the list price lol, this is how I'm finding my offer number. The price for this may have been $120k or something and I put in my offer at $80k. Dallas is crowded and competitive right now, but I'm solely focused on the purchase price that works for me to cashflow. A SFR appreciation play is more risk that I can understand at the moment.

I've gone through a few variations of this, trying to understand analysis, so I really appreciate the feedback. This will be my final model for now and it may turn out that 1.3% meets my needs, making my offers more competitive. Even though I'm trying to do this 90 Day Challenge, need to move anyway, and am super excited about real estate.. I'd rather not have a property than a bad deal :)