Deal analysis in Lubbock, TX

[Jing Xu]

HI Bp,

First time investor here. I have a sfh in Lubbock Texas. So I would like to run it across people in Bp to get some opinion. It is a brand new sfh for 327.9k with tenants in place. The neighborhood is Quaker ave and 130th street.

Down payment - 65580  (20% down)

closing cost - 4000

total cash investment - 69580

rental income - 2500

tenant pays all utilities (electric, garbage, water)

vacancy - 4% - 100

management fee - 5% - 125

repairs/maintenance - 4% - 100

insurance - 110

property tax - 450

mortgage - 1215

total expense - 2100

Cash flow - 400 / Month

CoC = 6.9 %

Does my calculation make sense? If so, is it an good/ok/bad deal? Thanks!

[Stuart Chinworth]

@Jing Xu The two things that sick out to me are the management fee and the property tax. For those two items, I would personally be budgeting the following:

1. Management Fee (10%) - $250/mo

2. Property Taxes (Est. $7.200/yr, per LCAD) - $600/mo

That's an extra $275 in expenses, bring your cashflow down to around $125/mo. 

[Brittany Warner]

@Jing Xu like Stuart mentioned, unless you have a deal worked out with PMs already, expect 10%. Also, go to LCADs website and type in the address in the search engine. This will pull up exactly how much in taxes that has previously been paid on the house. I believe that is in the Lubbock-Cooper school district so expect the amount to increase as 3 new schools were just approved to be built.

[Shaun Morgan]

Just to add to what everyone else is saying, my insurance is higher than that and my house is much less expensive. Insurance costs are really high in Lubbock and surrounding area due to hail damage and the possibility of wind damage. I'm not sure where you got your numbers from, but those all seem way too low on expenses.

[Jing Xu]

@Stuart Chinworth @Brittany Warner

Thanks Stuart, Brittany and Shaun! 

The management fee, property tax and insurance cost are all from the turnkey company (Morris investment if it matters). 

They told me 

1) the management fee is low because a) the property is in Class A area. b) the property is brand now.

2) the property tax is low because they help to dispute the tax every year and almost every property they manage does this.

3) the insurance fee is based on similar houses in the previous phase.

[Shaun Morgan]

Personally I’ve never heard anything good about Morris Investments. I would do more due diligence on that company before trusting them.

[Jing Xu]

@Brittany Warner Thanks for sharing the coming new schools! Yes, it is in the Lubbock-Cooper school district. Do 3 new schools indicate a growing population in the area and it is a positive sign for the realtor market there?

[Brittany Warner]

@Jing Xu, I don't know much about Morris investments, but you should do a quick BP search on them, they have been discussed previously. Are they the ones managing or do they higher out? There is only so much you can do to avoid taxes, but I would look at other properties in the neighborhood in LCAD and see what they are being taxed at, remember you won't get the homestead exemption.

[Brittany Warner]

@Jing Xu Lubbock-Cooper school district is an excellent area to invest in, lots of growth! Personally, I just closed on an investment property in that school district.

[Jing Xu]

Thanks for the reminder, @Brittany Warner @Shaun Morgan. Searching MI in BP.

@Brittany Warner Yes, MI will manage the property. Sounds good. Looking up in LCAD.

[Jing Xu]

Thanks for reminding me to do the search. I am newbie for re investment. I would rather staying away from morris investment for my first purchase..Thanks again! 

@Brittany Warner Lubbock does seem like a good place to invest though. Brittany, do you mind sharing your route to invest there?

I am pretty new to re investment world. I am looking for passive incomes. The only route I learned so far that is very passive is turn key properties. The only two companies I have initialed conversations are MI and REI Nation.

[Shaun Morgan]

if you want to invest out of state passively I would could consider trying to connect with local investors to create a partnership instead of going turnkey. That is another option which could potentially get you better returns. Just another research opportunity for getting started.

[Brittany Warner]

@Jing Xu Of course! We (my husband and I) are buy and hold investors. The property we just purchased was a new built, but we went straight to the source. I highly recommend you reach out to @Matt Moreland, he is a local investor/real estate agent who I have worked with and highly respect. You can search his posts here on BP to get a feel for his knowledge base.

[Ondrej Gargula]

Lots of good points here! @Brittany Warner @Shaun Morgan @Stuart Chinworth.

@Jing Xu one thing I would add to watch out for using any turnkey company is to double check the price you are paying for a property they are offering. I understand everyone has a different goal and some are satisfied with a smaller return then others but it wouldn't be the first or second time for me to hear from an investors to be upside down on a property they have purchased as a turnkey. 

To point out few things on your numbers

Taxes - property in that school district tax valued at $260K will have about $6500 in taxes annually ($540ish/m)

Insurance - looks right for a new built but will go up a little bit every year

Management - 5% - you will get what you pay for here

Vacancy - I like to be more conservative on that personally as your 4% (about 15 days) is pretty accurate with the current market but maybe 5%-8% long term is more accurate.

I am a property manager here in Lubbock.

[James Wise]

@Stuart Chinworth @Ondrej Gargula @Shaun Morgan @Brittany Warner @Jing Xu 

Folks. Click the links below. You are welcome.

Clayton Morris / Morris Invest House of Cards starting to fall.

Clayton Morris Loses $7.2 Million Lawsuit against HoltonWiseTV

[Stuart Chinworth]

Yes, it is widely known that this is a company you want to stay away from. 

[Bonnie Adkins]

Best property management firm in Lubbock is Tristan at Rent-LBK. He charges me 5%. Excellent management style! Yes, taxes are high in Lubbock; possibly the highest in Texas. 

[Bonnie Adkins]

I agree with JWise. Do your own homework; don’t rely on the Builder’s suggestions.