All Forum Posts by: Alfie Park

I get it's hard to find these days, so asking for specific TH/condo community recommendations if you know of any. Excellent schools, units selling for less than $200K (and preferably less than $150K). Would be greatly appreciated! 

Hi everyone,

Asking for some advice on specific condo/townhouse communities you are aware of in Coppell/Plano/Frisco ISD which have units priced at <$200K (preferably <$150K) and would attract higher-quality tenants with school-age kids due to the excellent schools. First time investor so wanted to start with a condo/townhouse so that it would be easier to maintain vs. SFH. I understand townhouse/condos are more of cash flow plays (vs. appreciation) so wanted to get in at lower price to be cash flow positive...hence the recommendation ask.

Specific community names would be appreciated...e.g. one I'm aware of is Meadowridge townhouses in Coppell. Also your experience in managing similar condo/townhouse investment properties in the north DFW suburbs. Thank you!

@Rachel: which two price points are you referring to? I agree that $2000+ might be a bit pricey for rents in my MPC but the average rents I see on MLS are $1,600 to $1,800 per month and tenants seem to be accepting these rates.

@David: Good point about not letting emotions get in the way (although hard to persuade wife to potentially move away from our current house given the hassle for her hahaha). What are concrete action items you would suggest for the "forced savings and debt pay down" purpose?

Thanks again for all the helpful suggestions everybody, extremely helpful!

Great, thanks for the input everyone. 

@Marco: minimum rents in my MPC is $1,500, and averaging more in the $1,600 to $2,000 range, so your idea could certainly work out although a $150K house here would be probably the smallest house that needs some TLC. But I'm willing to wait around for that kind of deal to come around and put in some work.

@ Everyone else: I know most people think I should sell the current house and buy another one that is more suitable for investing purposes. To add a bit more color, I generate enough income to afford two mortgages and provide down payment for the second house, so don't have to sell the current one. To get creative, let's assume I don't sell my current house (but i don't have to live in it). What would be the best thing to do given this constraint? 

Again, thank you for all of the very helpful comments! That's the kind of stuff I was looking for when I originally posted.

That's some tough news to swallow. If I refinance to a 30 year at 4% interest rate, then I could lower the PITI for my current house to ~$1,600/month, which would bring me to basically break-even currently, and then expected to start cash flowing a few years down with rental rate inflation.

I'm just cognizant that there are significant transaction costs involved in real estate, which sometimes means I can't just keep churning to optimize the #'s but may have to do the best with what I already have? I'm looking at the current house as a "sunk cost" and thinking about how to maximize my INCREMENTAL cash flow situation, which I think I can do by adding rental income from my current house which would be bigger than the PITI commitment to my new smaller house.

@Anant: Your points about accounting for the management expenses (even if I do it myself) is valid and would further reduce the COC return and IRR. Also other costs like tax and title would reduce IRR as well.

I was doing the IRR on before tax basis since my alternative investment outlet is the stock market and capital gains there are taxed at same rate as capital gains from real estate.

You are right that if I buy and hold for 30 year duration then I should get 15% return minimum with the 80% leverage and the 3% appreciation. But I was assuming a 10 year holding period here which reduces the IRR below the 15%.

@ More generally, I decided not to pursue this deal as I realized a couple things:

1) I asked some folks involved with the manufacturing facilities where newly relocated coworkers chose to live and realized these workers are actually buying in established communities in nearby suburbs (i.e. inside the Grand Parkway 99 loop) instead of moving out to the exurbs closer to their work.

2) Existing zoned schools are admittedly not great at present, and future plans of close-by MPC's won't get to the areas I'm looking to invest for another decade or so. Too much time waiting for schools to improve for my risk tolerance

But it was great to get all of y'all's input. I'm looking to invest now closer to where I live (actually in my own master planned community), which already has great schools, rapid retail development, and still affordable prices.

@Anant: The one negative for the refinancing move would be I would probably have significantly higher interest rates with the 30 year I'd think (Quicken Loans quotes 4.125% for 30 year vs. 3.375% for the 15 year). That's a big factor for me favoring just keeping my existing 15 year loan, especially since it's at a better rate than I can get in today's rate environment.

But I think it's worth checking with my bank to see what the rate impact would be so thanks for the suggestion. 

@Luke, so it seems like you support the idea. I'm just trying to see if this is the best alternative staying in the current house and finding a true investment property to rent out, or even selling the current house and finding a new house + a new investment property.

As you can see from the numbers, on a stand-alone basis my current house is not a great rental property (monthly mortgage is higher than expected net rental income, granted it is a 15 year mortgage so I'm paying it off sooner vs. typical 30 year mortgage). My thinking was, though, that I like the house for long-term appreciation and got a great mortgage rate on it which isn't available any more with increase on rates. So assuming I'm keeping the old house, then the proposed plan will bring in more income vs. expenses so is incrementally cash flow positive.

Also, given I'm new to investment properties, this seems like a good way to ease into it, especially from the financing side where I can get a conventional mortgage vs. investor loan. For the new property I'm buying, I'll try to find a good potential rental property so when I move to my 3rd house down the road, I can keep both my 1st and 2nd house as rental properties...

Houston BP community,

I wanted to get people's advice / thoughts as I try to get started with my first investment property. I'm leaning towards buying a smaller house for my family of four with a conventional 20% mortgage, and renting out my current home to get started, the reason being:

1) Conventional mortgage can get me much lower interest rate (I've heard a full 100 bps lower vs. investor loans- someone please verify)

2) Current house is a bit bigger than we need (2,800 sq ft) and by downsizing to a smaller and cheaper house (thinking <2000 sq ft, $175K target price), we can get more in rental income from the bigger house while assuming a smaller monthly obligation from the new smaller house

Below are some numbers to clarify the situation. Thanks in advance for your insights!

1) Current home (to convert to rental)

• Bought for $245K a few years back, monthly PITI of ~$2,000 per month (3.125% rate 15-year mortgage with 20% down)
• Can fetch fair market rent of ~$2,000 per month once we move out and put on rental market; with some vacancies and maintenace built in probably more like $1,500 per month in net rental income per month
• Great neighborhood in NW Houston suburbs with lots of nearby commercial/retail development as well as excellent 10/10/9 schools, so good price appreciation potential

2) Target purchase home (to move family into)

• Looking to buy ~$175K home, much smaller square footage, with monthly PITI of ~$1,300 per month (assuming 4% rate 30-year mortgage with 20% down)
• Probably will buy in same neighborhood given great schools and retail development
• Essentially, I would gain $1,500 per month of rental income from the old house and assume an incremental $1,300 per month in PITI from the new house, so this would seem to help me generate some income

@ Patsy: Agree that the margins are pretty thin. Seems like Ohio has better rent / price economics vs. Texas from what I've read but I want to invest locally...