All Forum Posts by: Cary O.

@Heather Rodden

It sounds like you have made a selection on a qualified tenant. If so, congrats!  For the sake of discussion, just wanted to throw out another perspective. If the "cat lady" had been applicant #1, you could require a non-refundable pet fee or a combination of pet deposit + non-refundable pet fee ($350-$500 total is within the norm in our market). In addition, we are now seeing monthly increased rent by $25-$30/month per pet on leases. When we first started out as landlords, we were not comfortable with tenants having any pets. Since then, we have added a small dog to our family and consider our pet as a member of the family. We now allow pets on a case by case basis, typically small dogs (out of the puppy stage - to avoid chewing issues- and prior to elderly ages). We just mitigate potential future expenses with the pet fees /increased rent with pets. Cats may be a non-negotiable for you. If you are in a market where rents are increasing YOY at over 10%+ per year, you may not want to lock in a 2 year lease at current market rents, depending on if your rental is a class A or B class with higher rents. You can extend the lease and increase rent price to stay closer to fair market rents after the 1 year term ends. In the past, we would have agreed with the 2year lease term being preferable. Now that housing is in such short supply and home/rental prices continue to increase monthly, we expect more tenants staying in place this year and next year and see less benefit to us for a 2year lease as we expect most of our tenants to renew. As the saying goes, "Real estate is local", and changing all the time. 

Thanks @Anna Catron and @Matt Moreland 

Glad to hear that you're still acquiring SFRs in FW / DFW that cash flow well. The low interest rates certainly help. YoY appreciation has been an added plus! We also contest the taxing district's appraisal value each year to help reduce the rising tax burden from increased appreciation in home values each year. 

Congrats @Tiffani T. on making your offer! It sounds like what you are referring to is a "seller leaseback". According to the National Association of Realtors, nearly 20% of sellers move out after a leaseback period, so it sounds fairly common. Treat it just like any other lease, and clearly stipulate lease amount, security deposit, time period, who pays utilities, lawn care, etc. Do a walk thru before and after to assess condition of the property, and clarify insurance coverage. Usually, the agreed upon leaseback rental amount is paid at closing. The buyer may need the extra time due to needing the funds from the sale to close on a new property, or new property not yet ready, etc. Being flexible with the timing of closing and seller leasebacks can make your offer more competitive in a hot market with multiple offers. 

@Michael Hayworth

City A is in Collin County and City B is in Tarrant County for comparison.  Full disclosure, we have rental properties in Tarrant County and still cash flow nicely, even with the high property taxes. And yes, conventional financing does help to improve cash flow. The concern and question above should be rephrased as "can you STILL purchase cash flowing properties in both examples?" It does seem to be tougher and tougher. Given the pace of appreciation in home values coupled with high property taxes, how many investors are looking farther away from the main cities? How much is the property tax rate influencing your selection of investment property location? And how many are looking for lower property tax cities near DFW when considering potential investment property acquisitions? 

Everything is bigger in Texas, including the high property tax rates. While those of you considering real estate investing in Texas are aware of this fact, some of you may be less aware of the wide variance in property tax rates from city to city, let alone across the state. Texas property tax rates are generally comprised of the following: 1) County tax, 2) City Tax, 3) School District tax (ISD), 4) County hospital, if applicable,  5) community college, if applicable, 6) Special districts/MUD, if applicable. The School district (ISD) tax typically contributes to 50% or more of the overall property tax rate. Generally, the larger the city (Dallas, Fort Worth, Houston, Austin, etc), the higher the overall effective property tax rate.  Here is a comparison of the property taxes on a $200k property for 2 cities in the Dallas - Fort Worth area below.  Can you purchase cash flowing investment properties in both cities?

@Alexandre Marques dos Santos

 @Shahriar Khan

As other posters have mentioned, real estate is local. We are definitely seeing increased demand of both primary homes and rentals in the DFW market with the business friendly environment and continued population growth contributing to a short supply of inventory. The impacts of the COVID pandemic actually seem to have improved the desirability of SFRs with more people working from home and apartment dwellers wanting more space. We have been able to increase rents by 3-5% on our SFRs in the DFW area and could have pushed higher given how quickly leases were signed with well qualified tenants and 0% vacancy. We have also had 100% rent collection in 2020 and prior years. These are typically newer (less than 10 yrs old) B class properties for reference, with low annual maintenance expenses so far. In addition, we refinanced these properties in 2020 to rates in the low 3%s from 4.75% when the properties were purchased. Home prices appreciated by 10-15% YOY per appraisals. So, what looked like base hits initially are turning in to triples as we are benefitting from increased cash flow, better than average appreciation, depreciation, and mortgage pay down by our tenants. Yes, home prices continue to increase, but the low interest rates and rising market rent prices help offset that and opportunities still exist. We only wish we had acquired more properties in the last year or 2 as there continues to be intense competition from primary home buyers and investors for SFRs in the area with multiple offers on properties within the first day due to the lack of inventory. 

Hi, @Sheryl Sitman, 

Hope by now that you’ve placed a tenant for your property since this post was posted a few weeks ago. We purchased some investment properties in this zip code last year. While I do not consider ourselves as expert investors, I can share our experience so far. 

1. How is this zip doing investment wise and what do you expect appreciation wise? — So far, our investments are clearing net income of over $300/door per month. appreciation is 7-8% from last year. Typically, rents range from $0.85 /sq ft - $1.10 /sq foot for new builds in this zip code. Of course that depends on location, size, and condition of the property. You’ll also get higher $ / sq ft for single story homes compared to 2-story homes. Our properties are in the $1/sq ft range. There continues to be good job growth, population growth, and new development in this area, which should continue to promote solid appreciation growth annually. 

2. Are you seeing rents reduced this season - due to Corona? — Not yet, if anything, monthly rents seem to be increasing due to demand. 

3. Is it possible that the hot rental market was pushed back a bit and that it is just getting started now?   —the purchase market is hot in this area according to RE agents and mortgage lenders that we have worked with — they are swamped with business. Rentals are also in high demand, especially for “newer” turnkey properties. There seemed to be a “pause” mid-March thru April due to apprehension about COVID-19, but activity was back in full swing by May. 

4. Before you say the problem may be the PM, I will say that my impression is that they are doing a good job but maybe I miss something. — The other responders provided good info on the # of showings and qualified applicants you should expect. 

We are actively looking for more investment properties in this specific area if we can find a reasonable deal again. 

Hope that helps!

Thanks for the words of caution @Account Closed. Do you think that this is a change in the mindset that banks are now wanting to enforce the due on sale clause? The attorneys/loan officers/realtors that I have spoken with are all real estate investors themselves, and have stated that they have transferred many properties from personal name to LLCs without triggering the due on sale clause. They are aware of the fine print and the due on sale clause in the contract. It just seems that banks have not been enforcing it as other posters have mentioned. 

@Nick Bourgeois, @Carl S., @Scott L.   

A local RE attorney I met with recommended using a warranty deed, not a quit claim deed in Texas. The cost difference is negligible for the title company to file one for you. A warranty deed guarantees that the seller owns clear title to the property and that the property is free of all liens and encumbrances. A quitclaim deed does not guarantee clear and legal title to the property. 

As for the due on sale clause, the attorneys/lenders/realtors that I have spoken with all feel obligated to tell you that your loan could be called when you change title from personal to LLC, but they have never seen it happen as long as the lender continues to receive the mortgage payments. If the lender does give you notice of the due on sale clause, you have a period of time (usually at least 30 days) to transfer the title back into your personal name.

Hi @Cameron Marmon, 

The TAR lease agreement has worked well for us so far with a few additional items written into the lease agreement. For example, you may want to specify the following: 

1) no smoking 

2) expected frequency of sprinkler use for the lawn (if applicable)

3) if tenant or landlord will change AC filters and at what frequency

4) any penalties if tenant breaks the lease earlier than the stated contract end date 

Add anything else not specified in the lease that you have concerns about or want to clarify.