All Forum Posts by: Andrew W.

How would you value this and determine how much to offer?

I am hoping to make the move from residential (househacking and BRRRR) to mobile home parks. I came across what looks like a solid deal. I have thought of 4 ways to value it, but curious how other would approach it. The long term play would be to sell off the mobile homes and build more pads to bring in more tenant owned homes.

Facts: 

• 30 acres total 
• Front 10 acres have 9 park owned mobile homes, all rented out, dirt road, no amenities
  
• no tenant owned homes
• Back 20 acres are raw pasture land
• City water and electric, sewage on septic

I have thought of 4 Valuation Approaches

• Method 1: Sum the assets (30 acres land + 9 mobile homes) 
• Method 2: Pure as is Cap Rate (Value = current NOI/Cap Rate)
• Method 3: Value the Front using Cap Rate + Value of Raw Land in back 
• Method 4: Assume homes are sold, then value the Front using Cap Rate (estimate NOI using market lot rents for the 9 lots) + value of raw land in back + Proceeds from sale of the 9 mobile homes

Great thought here and I'm sure its often true. Unfortunately in Austin this is usually not the case. Since home values are rising faster than rents (yay appreciation!), property taxes are also rising faster than rents, so cash flow is not really getting better. 

This is the ultimate question that you have to decide for yourself based on goals and risk appetite! 

#1 (Appreciation) is many many times more powerful than cash flow. This is especially true due to leverage. If you buy a $100k property with 20% down (leveraged 5 to1) and it increases in value by $5k you didn't make a 5% ROI, you make a 25% ROI! (5k/20k). I.e. the change in value is 5x'd because you are leveraged 5 to 1. This works on the way down too though! Which is why you need to be cash flow positive to ride out any bad times.

However, #2 (Cash Flow) is required to scale and stay alive. 

#2 (income replacement) is what will eventually make you financially free, but focusing on #1 first will get you there much much faster. 

So I focus on being in good areas where #1 is likely, but I also have the discipline to only buy deals that are cash flow positive. Buying below market value is key. You can earn 100% ROI in the first year with a deal where you for example put in $30k to get $60k of equity. Let's say it then appreciates by conservatively $7k per year, that is 23% ROI on your $30k investment each year before loan pay down and cash flow. For this I focus on Austin suburbs homes under $220k and target rent to price ratio of 0.8% and up. Austin homes may appreciate faster but defensively choose cash flow positive options to reduce risk. I have also invested in Killeen but even there cash flow isn't great unless you are off market. Or, buying low end properties that requires a lot of work to manage.

I would also caution that many deals that looks like they cash flow super well on paper, probably don't in reality. They are often in bad areas where it takes a long time to fill vacancies, or where you struggle to collect rent, your property gets damaged, and you have to evict sometimes. So even if you want to chase cash flow, I would not recommend going for maximum cash flow. I would look at cash flow relative to the stability and easy of managing that property. 

If you really want to go for #2 only you may want to look at states other than Texas that have lower property taxes. I would even argue that 1-4 unit residential is not ideal for cash flow due to inefficiency of managing and maintaining them. If you truly only care about cash flow it may make more sense to get into apartments, mobile home parks, self storage, car wash, etc. 

I think Diego can answer all of your questions from experience but I would agree with Jordan's comment on the upper limit. 

Congrats on learning about househacking and wanting to get after it!

I have been househacking in a duplex in NW Austin for 3 years and it's been super powerful to reduce my expenses and learn to manage tenants, which has allowed me to buy more investment properties. I cannot recommend it enough!

Diego is an Agent who has done a lot of by the room house hacking and helped other people to do it. I highly recommend you work with him. 

https://diegocorzo.com/

What area is this post about? It's in the Austin, TX forum. 

I would recommending connecting with other investors to figure out how to find off market deals on your own or through wholesalers. Buying from MLS and then doing BRRR or Flips doesn't seem like a good strategy in a hot market.

Hey @Aaron Gordy, for sure, buy and hold all day! Transaction costs are high when buying and selling, and debt is super cheap. All the more reason to buy and hold. 

Great to hear that your friend was successful and so were others on this thread over the past 10-20 years. However, let's all keep in mind that what worked 10-20 years ago in Austin does not necessarily work now. For example, many buy and hold investors now find property taxes rising faster than rents, so cash flow actually declines each year. 

I think it's still doable, but much harder. Keys for me now are: buy below market value, tie up as little cash as possible in each deal (BRRRR), buy only where rent/price is at least 0.8% (I am currently only finding this at price points below $220k), vet tenants well to minimize turnover, set up systems to efficiently self manage (Zillow rental manager, Cozy, Stessa, etc), build relationships with reliable, affordable HVAC, plumber, electrician, etc.

Would love to hear what is working well for others right now! 

The highest volume wholesalers I think are Net Worth Realty and New Western Realty. There are also a bunch of other ones regularly posting deals on the Facebook Group "Investor Underground" and other Facebook groups. My favorite so far is Net Worth Realty. 

Hey Gary! 

I have a similar portfolio of 3 SFH's in Cedar Park and Leander. I think Neil, Ronald, and others on here are spot on. Austin and most of its suburbs are appreciation markets at this point. Population growth, job growth, along with super low interest rates should give those of us who hold for 7+ years very good returns. My goal is to hold these to get my net worth to a particular goal amount, then sell and buy income producing assets to live off of. These may need to be in a state with lower property taxes.

How much equity do you think you need to achieve your goal of $10k/mo in income? Using the 50% rule, that would require paid off properties with rents of 20k per month. Using the 1% rule (not realistic in Austin), you would need properties worth about $2 million. 

My only other tip is meet wholesalers and buy these homes off market. Doing that, I have been able to buy my 3 homes all under $200k each. With the most recent deal, I bought at $175k (+5k rehab) and have it rented for $1650. This deal only tied up $33k for me rather than the usual $50k+ because I bought it with hard money that will lend 70% of ARV (not purchase price), then refi'd to conventional.

@Joe Scaparra 

I generally agree with your thoughts on duplexes.

But why not take this logic further: fourplexes, apartment buildings, etc?