All Forum Posts by: Edward Liu

I would never put in more cash to get to positive cash flow.   There is opportunity cost with those cash - better off use cash on other investments.  This property would NOT cash flow no matter what, only hope is appreciation.  Now is already near top of the cycle.  

Another suggestion is for a near A area with good schools (family renters), then have at least 3 or more bedrooms.  You get better family and longer term tenants with that extra bedroom.  Some people might disagree with me, but I would not buy 2 bedroom properties in A area with good school as your tenant base is very limited.  Tenants will have the money to afford 3+ bedroom.

This condo with its size, price, and HOA is for the 'real' world buyers. Its cash flow (knowing the likely rent in the Houston area) that investors are not likely to bite. Long shot is see if he can find realtors that has a lot of dealings with foreign investors, and try to put it in front of them. This unit could be too small for foreign investors' taste, but who knows. I have heard stories of some foreign investors scoop up hundreds of properties in TX without ever looking (My wife actually has some clients who did that). Maybe this could be part of a package. Realistically, bite the bullet and lower the asking price - market value for this condo is not what your friend thinks.

There are many markets in Midwest and Northeast that can still get 1% plus, without doing much work.  If you want to buy in Florida, wait for the next recession.  Florida is known to have huge housing price drops during recessions.

I own properties in Sugarland and Richmond areas of Houston. 

I am not surprised by the number, it could be even higher in some areas.  There are too many investors and so many rentals on the market.  Recently I went to Zillow and saw sea of available rentals near my properties (B+ to A- neighborhoods), so vacancy rate got to be high.  This year, none of my rentals raised rents (rents were raised each of previous 3 years) and I heard from Property Management company that rents are actually going downwards in many areas of Houston.  I have been telling friends who are interested to invest in Houston that it might be too late.

RPM has not given me any problems. Only minor issue in the last 4 years is one time they fixed something without using the home warranty on one of the properties (higher repair cost in the end). They are fairly process focused and promptly communicate with me that needs my involvement, so I am surprised of your situation. Maybe I just have not had bad tenants in that area. You should talk with RPM operations manager and make sure everyone is on the same page on what is expected.

How is your contract with PM structured?  For me, all late fees comes to me (not just in Texas, also across all properties around the country), so there is no incentive for PM to purposely allow tenants to be late. Is this related to the location of your property?  I know in certain areas, hard for tenants to pay on time and hard to get good tenants.  So PM are lenient given these tenants could be as good as they come.  You should double check the area.  I do own properties in some C/C- neighborhoods in other states where similar issue with tenants not keeping up with rents at times.

I actually use Real Property Management to manage my properties in Sugarland and Richmond areas of Houston.  They have been okay for me over the years - quietly manage properties without issues.  I have been lucky with these Houston investments where tenants live 2-3 years minimum and never late on rents (probably due to location).

Your calculation on property tax is NOT correct. Your property tax for rentals are expenses for your investment, so not part of the $10k limit. Easiest way is to put rental properties in LLCs and all rental mortgage, tax, management expenses are part of expense for LLC. Even without LLC, you can still deduct above items. If your business rents your own property (such as office building), there are extra tax deductions depending on your income level in the new law. My wife is a partner in a mid size CPA firm, so we know these tax issues quite well.

I invest purely based on cash flow (after initial investment, typically positive cash flow every year).  Recent 'hot' investment areas are Cincinnati, Kansas City, Indianapolis.  Some New England cities also has strong cash flow, such as Hartford CT and Providence RI.  I have properties in all above areas, so I know these areas are doing well (some properties in mid west appreciated 25% to 50% within last 12 months alone).  I have properties in Texas, but it might be too late to invest in Texas major cities as too many rentals are on the market, so rents are going downwards.  Some people are starting to invest in Chicago and Cleveland recently, but be very careful of the area.  For example, I found some duplex in Cleveland for less than $20k (rented for both sides) with total monthly rent of $1k (can you believe it? Cost is less than $20k, I did not miss any zeros), but I can not find property management company willing to manage them because location was around warzone and there could be issues obtain proper insurance, so I passed on those deals.  

Typically appraiser will try to get close to what your buying price so you can qualify for loans.  They don't just use comparison sales, typically also based on cash flow (market rents plus typically expenses) for rentals.  For all appraisals I have seen, they used more than 1 methods of estimate for rentals.  Did your appraisal used more than sales comp?  If not, maybe get another appraiser who is more familiar with rentals.   If based on multiple methods, still $20k below your purchase prices, then double check your cash flow calculations.  Likely your purchase price is truly high vs. market.  The numbers used by appraiser are typically very generous so you can get the loan.