All Forum Posts by: Jeffrey D.

@Mark Brown

Thanks. I didn't buy the house as an investment, just a place to live. I would love to keep it to rent out now that we are moving to a new house. But like you and others have pointed out, the numbers don't seem to be making sense. I think I could stomach the negative cash flow if there was a lot of potential for appreciation, but I guess I'm not convinced of that potential anymore having been there for 5 years and not seen much appreciation despite a lot of businesses coming in. Hoping I'm not missing something. Wondering if it's the East River, POST HTX, or Houston Post development or something else that still has people excited?

@Jesus Roman

Good call accounting for capex and vacancies. Glad I came here for advice.

@Matthew Rolf

Yea, I will try to get a few more quotes on the shower. The stucco has been independently checked and is in good shape now. My main reason for not wanting to sell, as you pointed out, would be the closing costs. 

Maybe we can talk about EaDo some more? Have homes in EaDo appreciated? We bought our place in 2016 hoping our home would appreciate in value, but it has also been affected by the whole development getting major stucco repairs because of the bad window installation. Is it just our home or have prices been stagnant in the whole area in the last 5 years? I think the area is great - has fantastic highway access and it has been developing steadily. Only thing it lacks is a decent grocery store. When I moved here in 2016, I saw lots of potential, but it hasn't panned out for us. I think there's more potential for developers putting up the new houses, because they seem to be raising their prices. To my knowledge, I have not seen resale value of EaDo homes increase in the past 5 years, but maybe I am not looking hard enough?

Looking for some guidance on my situation.

Currently in EaDo - 3bd, 3.5 bath, 3 story single family, built in 2014. We bought in 2016, PITI - $2350/month on a 30 year loan + HOA $110/month (gate and lawn care). Only put down 10%, currently have about 20% in equity ($75k)

We are moving and now need to decide what to do with the house - sell or rent out. I like the idea of renting out in general, having someone pay the mortgage while it appreciates. I think I could get $2600-2800, which is kind of tight for cash flow, but still positive and not something I need. My main concern is potential costs for repairs. I don't think the house is constructed that well. It was our first home and we didn't really care about who the builder was, but we have learned how important that is. We have had a crack in the stucco patched up in 2016, then major exterior work done in 2019 to our house (and our whole development due improperly installed windows, no drainage, rotting wood/stucco damage - builder fortunately paid after getting lawyers involved). Primary bath shower doesn't drain that well, and quotes to fix it are $10k. At this point, the house is in good shape (except shower), but almost feel like waiting for something else major to happen. The homes in the development have actually depreciated since they were built based on tax records and recent sales even despite the hot Houston market. $374k brand new to now $345-370k, most recent sale probably $370k, but average probably $360k over past 3 years.

Anyone have experience renting out similar homes? My impression is a lot of the new 3 story homes in the loop are not built that great and potentially a money sink. 

Would you sell and buy another investment property with better build and appreciation potential or keep and rent it out? Thanks in advance.

I do think EaDo has decent short term rental potential. I rented out a room in my house for about 6 months. Steady stream of people staying for various conventions at GRB. Was also able to make out quite nicely during Super Bowl, Final Four. I stopped doing it a couple years ago, but I bet the World Series would have been a decent pay day. Stopped because didn't want a stranger in the house with a kid on the way.

One idea I had was to make a new construction 'mini hotel' with a quadplex in EaDo and only do short term rentals. But I have no idea what building something like that might cost and have shifted my focus elsewhere.

I think these areas have been over hyped the past couple years. A lot of people trying to 'get in' while it's hot and drove the price up initially, but things have cooled down. Specifically for EaDo, there is still so much undeveloped land/properties. New construction constantly popping up for the same price/or slightly more than homes that are 1-3 years old, so the new homes will sell a lot better driving the slightly older homes down. As an example - I bought my EaDo home in 2016. It was a year old at that point and it sold for 20k less that what the previous owner bought it for.

I still think there's potential in EaDo, but it's going to take some time for it to appreciate. I think it needs to run out of undeveloped land/abandoned warehouses. It's also crying for a decent grocery store. But it has great access to all the major freeways, better parking than in the Heights.

That's a really good question. I am trying to find a good deal myself, but you are right that fixing up a house will make it more likely that you find that 1% house. I think Spring Branch is doable, but may be on the pricey side. You are more likely to get 1% on houses below 200k. 

Finding a good deal is not easy, in my experience. There are probably hundreds or thousands of investors in Houston looking at rental properties to buy. Some of these investors work with property managers that find them good deals or some of them are real estate agents with access to the MLS and can see deals when they first hit the market. Good deals will not last long. You may need to work with a real estate agent knowledgeable in rental properties or wholesalers to help you find these deals.

I believe it's currently a seller's market as well, making it harder to find deals. Houses that I saw for sale in Pearland for $100k a year ago are going for $120-130k now, while rents have not caught up.

I feel like my post is discouraging overall, and it's not my intention. Rather, just don't want you to waste time/money on a bad deal or worse, a money pit.

That's a really tight margin. I think most people would also try to set aside a portion of the rent for possible repairs, capital expenditures, vacancies and property management. If you include those things, you would actually be negative in cash flow. 

For instance, if you had the tenant move out after a year and it took 30 days get it cleaned up and another tenant moved in, paying the mortgage, insurance and taxes on it that month would already wipe out half of your "cash flow", not to mention any repairs that might come up.

It's tough in Houston, but a good rule of thumb for a "deal" is about 1% of the price of the house, should be the rent you receive. So for this house, you really need to be trying to collect closer to $2,750 to make it a good buy. I would pass on this. Your money would probably be better off invested in something else.
 

Is the median SFH lease price information available?

I live in EaDo and know there is a good market for AirBnB there for convention go-ers. Hotel prices in the area can be pretty high.

I'm pretty sure the medical center would also be a good area for medical people, traveling nurses, students. The Heights and Midtown also has a lot of visitors. 

You can go to AirBnB, look at someones calendar, see their nightly rate and get an idea of how much business/potential you can get by doing an AirBNB. 

You should start with the 1% rule. The monthly rent should be at least 1% of ARV or purchase price.