All Forum Posts by: Chad Benedict

Thanks again, everyone. I'll let you know if I hear what the resolution is.

Thanks, guys. And @Rick H. -- S.O.L. is actually the first thing that came to my mind, too!

Hi James,

I lived in Houston for 15 years. Right now rental demand is huge all around the city, particular inside the loop. The colleges add to that in different areas, but demand and price tend to rise and fall somewhat independent of the universities.

The exception are the universities near the med center, including Rice and all of the graduate schools. The med center continues to grow so much that it is driving significant demand south and east of it.

It really depends on the area. Areas around Rice, West U, and Montrose are incredibly expensive to buy, and I can't imagine the numbers work to purchase rental properties there right now. Whereas around UH and TSU, the numbers likely work better because the neighborhoods are different. And UH has big plans to continue growing in prestige, which will include new buildings and additional growth in the area. The real question is whether or not you want to rent specifically to college students, even commuters. You can find pros and cons on that in other posts.

Either way, rental demand is big, and until new building catches up (which, with all of the complexes going up, I think may happen soon), there's a premium. As long as you're not in a Class C neighborhood, you'll be fine -- although the numbers are good there as well, if you want to put up with the hassle.

Good luck!

Chad

Hi Rami,

I agree that climate change will have an effect on most parts of the country, some for better and others for worse. The southwest will definitely be getting hotter, and the drought will not be going away anytime soon. And all areas of the country will have more extreme weather (hotter summers and harsher winters). It won't be uniform from year to year, but it's already happening. Unfortunately there's no place free from mother nature. Earthquakes, droughts, snowstorms, hurricanes, tornadoes, mudslides -- there's no perfect location to live.

That said, from what I've read, migration will continue to be driven more by economic factors than weather. Even if the south gets hotter and the northeast gets snowier, people will still go where there are jobs and where it makes sense economically, which right now are the more business-friendly states like Texas and the places where people will always want to live (California, NYC). Whatever eventual migration happens will occur slowly and unevenly over the next several decades, so I don't personally think it's something worth worrying about for real estate investors, unless you're planning on holding onto a property for 50 years. And even then, you'll still make plenty of money before you have to sell it, even if you sell it at a loss in 2050. Most investors operate on a much shorter timeline.

If you're looking for buy-and-hold, I would focus on making your property as eco-friendly as possible as a way to reduce your own costs, and tailor it to your area of the country, wherever that is. What will eventually prompt people to migrate will be higher utility bills, the higher cost of water, higher cost of gas, gridlock in suburbs, etc., and also businesses relocating to cheaper areas. A favorable tax climate comes into play there.

People may eventually move out of the South and Southwest and into the Midwest, but it's many years off. I applaud you for thinking ahead but wouldn't worry about it right now! Focus on demand over the next 5-10 years, then adjust as needed.

Cheers,

Chad

Hey BP,

I'm trying to help a seller out of a bad situation. The current owner bought a house dirt cheap at a foreclosure auction several years ago in Dallas. It was an HOA foreclosure, so the underlying mortgage stayed in place. The new owner felt bad for the original owner and let her continue to live in the property while she paid her mortgage and also paid him some nominal rent, I think.

Now the women has stopped paying him rent and also stopped paying the HOA fees, so the HOA is threatening to foreclose again, but this time on the new owner. The guy just wants out.

In addition, the woman living in the house actually refinanced her original mortgage last year. After running comps, the new loan appears to be 30-50% above the home's current market value. I don't know how this happened, and I didn't realize you could refinance a loan and pull out money if the collateral property is no longer in your own name? The deed is in the new owner's name who wasn't even aware of the refinance. 

Anyway, I feel like this guy's just out of luck, so any thoughts from y'all would be appreciated. I've already told him he needs to get an attorney.

Thanks!

Chad

Hi Igor,

It depends. Generally speaking, for single family homes where the tenant is paying utilities, you wouldn't include it. For multi-family units, where you as the landlord are paying for some or all of the utilities, you would of course include them as part of your expenses.

Keep in mind that the 50% rule is just a rough guide meant to be done on the back of a napkin. Every investor uses it differently, and it's not a substitute for a complete budget based on the particulars of your area and the individual property. I don't own any multi-family, but from what I've heard from other investors, small multi-families can be more like 60% for expenses rather than 50%.

In your example, if we use the 50% rule, we know that the combined monthly rental income for the duplex is $1,600. Therefore, you can assume roughly $800 a month will go toward expenses (property taxes, insurance, maintenance, capital expenditures, vacancy, utilities, etc.). Take the remaining $800 and subtract your estimated monthly mortgage payment (principal and interest). Whatever is left over after all of that is your combined monthly cashflow. Divide that by two and you get your cash flow per door. I personally want a minimum of $100 per door per month, preferably more.

Best of luck!

Chad

Lee Warren. He's a great guy and also an investor himself: http://www.prospectinspectors.com

Nice timing: there's actually an article in the Times today addressing this exact topic.

http://www.nytimes.com/2014/11/14/business/economy/lower-oil-prices-give-a-lift-to-the-american-economy.html

I lived in Houston for 15 years and have many friends in energy and engineering, and I agree that it will weather any decline in oil prices fairly well. Don't forget that Houston also is a global leader in medicine, and the Texas Medical Center is the largest medical center in the world (it's actually bigger than all of downtown Dallas, for those keeping score in the long-running Houston vs. Dallas feud). And that doesn't take into account the massive medical complex expansion--and thus new jobs--in all of Houston's suburbs.

@Eric Tait is right that if there is any softening at all, it will likely be felt first in commercial office space, as that's what was hit hardest during the Enron, et al. busts in the early aughts, although that was arguably about mismanagement unrelated to energy prices.

Keep in mind that the major energy companies are ridiculously profitable at any oil price. It's also important to remember that the lower gas prices are, the more money people have in their pocket to spend on other items, which stimulates the economy. In car-dependent cities like Houston and Dallas, where people spend a lot of money on their commute, lower gas prices will definitely improve consumer confidence and pocketbooks, thus potentially offsetting any negative effects from a slight downturn in the energy sector.

Let's hope we're all correct!

@Stephen Camardo 

Don't know if they will insure down in Port Lavaca, but you could try Bill Wilkinson Insurance in Richardson, Texas. They are a sponsor at one of the local REIAs here. I have never used them and have no affiliation with them, but I know for sure they provide vacant property insurance. PM me and I can send you their info as I don't think BP will allow me to post a phone number here.

Chad