All Forum Posts by: Jonathan Williams

@Tyron McDaniel glad to see what appears to be a quality rehab. Great job. Do you plan on holding for rental or will you sell? I'm very curious what neighborhood you're in.

Did you permit your work with the city? If so, could you go into some detail as to your process/experience doing so?

Real weird. I don't know @Jerk.

I'm with @Shaun Vembutty that $21k margin is a bit tight for me personally. More downside potential than upside if flipping is primary exit. So if this property is in a great rental area, I'd rather BRRRR the property and hold it. But to each his own.

To answer your question directly, I shoot for 25% minimum ROI. But @Tom Cooper is right that this is project dependent. I have built a flip calculator in Excel not too dissimilar to the BP flip calculator to help me analyze my investments, working in holding costs, etc. If you're buying and selling off the MLS, your 10% figure gives me pause. This covers transaction costs on both ends, but likely not the entirety of holding costs if the rehab requires a longer duration.

It sounds like you are an agent working with investors (and not a wholesaler who tends to mass-market their deal), so you should consider catering the property to your individual investors. We wish wholesalers would do this (and some might...). Get to know your flippers and their own criteria, and send them deals you know fit their criteria. 

@Account Closed I suggest you do an IRR calculation to model those two investments (new build vs. buying a B/C apt) side by side. You can do this in Excel by using 3 columns: 1st column put successive months starting say in January 2017 and go forward however long of time frame your "timeline" is (say 5 years for now). The 2nd column will be a series of cash flows for your New Build scenario. So in your first 6 months you are paying for land, permitting, and other soft costs that you've outlined in your budget. The second 6 months you're paying for construction cost (or payments to your construction loan). In Year Two and beyond, you've transitioned into longer-term financing so you can use your NOI minus debt service for your monthly cash flows (but this might be a slow ramp up). Now the 3rd column will be purchasing an apartment with immediate cash flow, so show a series of monthly cash flows all the way down. If you plan on improving the Apt. then you might show some investment in the property reflected in the cash flows and also resultant improved NOI - but be conservative. Then in 2 new cells (maybe under the string of cash flows) use the XIRR function in Excel to calculate the IRR for each scenario. The reason IRR is especially important in this case is because it accounts for time value of money. The cash flows in the nearest term have the greatest impact on IRR. Cash flows in the New Build scenario are generally all very negative in the near term and burden a project's overall profitability. I'm not discouraging development at all, because the numbers will speak for your specific situation. The New Build can have lower CapEx and repair costs since everything is new, and fairly quickly can have better vacancy numbers compared to the Class B/C apt. BUT the Apt. should cash flow immediately which is one obvious benefit. Development projects here in Houston are generally 1 year in length for the simplest ones just to get through city permitting then construction, as I'm sure you're well aware. And at the end of that year....who knows. Maybe the market is healthier and you've got a nice, shiny property to rent for the long haul, or the market may have turned south and you don't meet your original projections.

I have a property in Sawyer Heights with a perfect view of downtown that I picked up from the Harris Co. tax sale. It has two little houses on it that we've rented both. Properties are not in good condition and the rents barely cover taxes and insurance. I bought it for the obvious development potential. They also are probably not financeable in their current condition. I say this because a) sure its a nice property with upside, but b) more importantly I'm carrying it (with a partner) in cash and when we kick-off our project it'll be another 1+ year before we have something complete for sale. The above IRR calculation might have prompted me to not pursue this property. Plus opportunity cost of a big chunk of money tied up.

As far as your budget above, I don't have a good feel for most of them not having been in the game long. Sounds like you're more comfortable with this part thanks to your profession. Is Water/Sewer permits inclusive of an impact fee? And $32,600 sounds like a crazy high number for an architect...unless you are paying yourself? Maybe you are just that good :)

@Kevin Wood I'm using Spotfire. A Tibco product. Its not cheap, but I use it for my day job. It operates "over" a data source, such as a simple Excel spreadsheet (my case) or a SQL server connection. There are other programs like it, but I think it was one of the first that took "big data analytics" to a higher level than MS Excel. All of the maps/charts are interactive, where I could click on one of those bar charts and it would highlight all of those properties on the map and then I could also have a sub-chart then show a breakdown of what those properties are or whatever really. But as with anything, its only as good as the data going in. 

My biggest annoyance with the process thus far is that the MLS doesn't output lattitude/longitude coordinates for each property (that I can see, at least), so I have to use the property addresses copied from my Excel spreadsheet over to a web-based program that converts to Lat/Long. Then Spotfire can place properties on the map after it has that info.

Digging through the archives, here is a DOM analysis (I think for inner-loop) that I did within the program, applying a Gaussian curve distribution to a bar chart of how many days properties took to rent:

I also had build a dashboard of sorts for Fix & Flipping here in Houston, but I don't have it on me. We were looking at expanding a bungalow in the Heights and needed an idea of how much added value there was to adding sq. footage. We're right in the middle of that project now, and between that and my family I haven't done too much of this stuff above.

That's great that you picked up a few MFH's in the Heights. Most people say that can't be done, as I'm sure you've heard. I'll be curious if your property taxes jumped over the moon at change of ownership, and if so how that has affected your cash flows.

@Greg Wang let me know if I can help, or if there's anything specific that you are interested in seeing. Honestly, I'm still looking for my "target area" too. We started a year ago, and I've followed value as I come across/created it. Everything we've done so far has been inner-loop. And as far as deal flow goes: 2 from the courthouse steps (tough, but doable), "unique" MLS properties like our 4-plex that required some creativity, our current flip that was on the MLS but couldn't be sold for 6 months since hung up in a probate case and required some persistence. I don't intend a shotgun approach, and if anything, the engineer in me prefers to systematize. But I'm getting a feel for "what works", and I know my shot pattern will draw in:)

@Account Closed Sure thing. I only do this sort of market analysis on an as-needed basis, but I'm glad to share! I was looking at a duplex in the 3rd Ward at the time and trying to make a comparison with our current investment neighborhood (Eastwood) and others. One thing I've been considering is taking my analysis a step further by calculating the average rent/sf and also average purchase price/sf, dividing the two as a ratio, and outputting that ratio for comparison across Houston (i.e. where does one get most rental bang for purchase buck). 

RE: Heights and Northside, I like both of these areas for different reasons. We are currently doing a flip in the Heights, which the neighborhood has just about the strongest demand in the city (though cost of doing business is significant). But having a buy-and-hold there is really tough to cash flow as you can imagine. Northside I've looked at but am not terribly familiar with. It's gotten some recent attention w/ development projects like Hardy Yards and White Oak Music Hall. I really like Lindale in the Northside area. Its a nice little neighborhood. The entire area will likely see some Eastward expansion from the Heights. When we lived in the Heights in 2008-2010, you didn't even go across Main St. into Brooksmith Heights. Hindsight is 20/20, but that area saw more appreciation than Heights proper because it went from barrio to largely developed. I think same thing is happening in the Northside area (shown in brown), but it just depends on your time frame for target returns and what your investment strategy is. 

If you're looking for buy-and-holds in Northside, your renter demographic will be different than the East End/3rd Ward originally discussed.

@Sarah Kline yep, MLS. It was odd in that the extra land made it slightly more expensive, but in this case the sum of the parts was much greater than the whole.

Hypothetically if you're looking for a duplex that you can rent for $0.90/sf and you want to make 1% of purchase price in gross rent (I suggest a higher target since you'll likely pay for water, but that diligence can be performed when you locate a property of interest. This is a simple rule of thumb for screening). That tells you not to pay more than $90/sf for the property.

@Sarah Kline we are in Greater Eastwood. To each his own on focus area, really. I had done some MFH market analysis when looking at a duplex in Eastwood (lighter yellow) and a duplex in 3rd ward (blue). The top row of data shows average rent $ for a 2bed for each zip code (color coded on map), and the bottom row shows the number of units on the market over that time period (I don't recall what the time period was exactly - maybe mid-2015 to mid-2016?). 

3rd ward had a lot more on the market and commanded a higher rent, but if you've spent any time in 3rd ward you know that those MF properties that border the museum district tend to be the nicest (hence the higher rent, closer to amenities) and as you go East you start to lose neighborhood quality - this is a gross generalization, of course, and just my observation. *Keep in mind the blue data set above (zip 77004) includes museum district and mid-town, so that average rent is way higher than you see in third ward. I had looked specifically at MFH's in 3rd Ward and remember averages around $0.91/sf rent for a 2/1 and $1.00/sf rent for a 2/2.

I liked the idea of grabbing an Eastwood MFH and eventually getting "run over" by EaDo expansion. And I do think EaDo will grow faster than 3rd Ward (development speaking) for various reasons. But neither will grow as fast as you want, and expectations should be tempered.

MFH deals....ours was an oddity. It was on a double lot, but had renters placed. We were able to create value by parsing out the development opportunity and the buy-and-hold opportunity. There are deals every once in a while on the MLS, but if you have "another route" that is almost always more favorable. "other routes" are really just local relationships or marketing, of which we've only been in the neighborhood a year and are still building. But I'd say if you can get your 1% of PP in gross monthly rents you're doing ok. We're renovating the 4-plex now and will do better than that after rehab (and have "free land" on the vacant lot), but we worked pretty hard for that deal.

We've had one set of tenants and had great luck. Both college (one set under grad, one set grad students) and were very respectful and we had a good thing going. But we needed to reno because of some known issues with the property, so we're right in the middle of that now. We'll be marketing the duplex for rent next month and it'll be first of next year for the 2 studio's out back.

@Account Closed I am building two town homes on our vacant 5000 sf lot near UofH for around $120/sf. We just go through permitting but haven't broken ground yet. This includes a turnkey cost to the builder and his fee included, permitting, architecture, impact fees, etc. I own the land in cash. If you self manage as a GC proficiently (keyword), then you could build for closer to $100/sf for a nicely-finished space. But there is a steep learning curve there that most people shouldn't expect to immediately realize that cost savings. I don't have any new construction experience and have a full-time job, so I opted for a project structure  that places more responsibility on the builder. 

We have a 4-plex that sits on a 10,000 sf double lot (why I bought it) and all structure is offset on one of the two lots. 5000 sf lot is standard for neighborhood. So I subdivided the lots, and holding that land in cash will be collateral for the construction loan. I'm partnering with a developer I met along the way who specializes in town homes, so that is the direction we went. I looked at this as a way to use the development profit (i.e. town homes) to pay down our 4-plex. You're right that the Houston market is iffy right now, but given the agreement I have with the developer, this is profitable for me to go forward with. If I hadn't partnered with the developer and instead developed myself, I might have built another 4-plex with nice parking in-between to buy and hold....hindsight is 20/20 I suppose. And if you're developing with a buy & hold strategy, its pretty obvious that reduces your risk immensely.

I really like the idea of developing new construction to buy and hold (quality of tenant attracted, reduced maintenance cost...long list). I'm going to begin some market research here pretty soon to see if there are any pockets here locally that could support this model, but it really is tough to make work comparatively.

@Dustin Cavalier Do you have access to the MLS here in Houston? If so, I recommend using "Fusion MLS" to export to Excel for your raw data. Can get historic data (solds) or current. But to my knowledge, its unfortunately difficult to export historic rent data.

I get excited about similar things, and being an engineer its in my DNA to over-analyze. I use Spotfire for data analytics, which seems to handle the data relationships/manipulations more efficiently than pivot tables/charts but that's just me. I've built some templates within Spotfire to where I export from the MLS to Excel, and a quick load into Spotfire to see the output I want. I've used this to study Days on Market (both rent & solds) for different neighborhoods, avg. rent $/sq.ft in a neighborhood and how consistent or variable that is, regression analysis of a scatter plot of data to tell me for each neighborhood how much value their might be to adding square footage on a flip, etc. I've got a number of analysis project ideas, but we've got two "real projects" going right now here in Houston that have demanded my little free time. I've really only performed the above on an as-needed basis for my own RE ventures and not much more.

@Carlos Johnson seems to have something up his sleeve too.

@Robert Youngquist It would help to give some context of your business goals. I see from your title that you're an "Investor/Flipper". If you always have a flip going and plan to for the next number of years, then I suggest the cash-out refi to lock in a low interest rate and have that cash to put to work. Conversely, if you do one maybe two flips a year and you need spurts of large capital, then go for the HELOC.

We have a good bit of equity in our house, and I elected to do a HELOC. Since are doing about 2 flips a year, the time we aren't "strung out" with regard to capital I've found that NOT paying a note that month(s) outweighs the benefit of a fixed rate. Secondly, you can get a HELOC done these days with no closing costs, and by nature of the HELOC, it is an interest-only loan. So there isn't any financial impact to opening one, while the closing for your cash-out refi might be $4-5,000 hit to your home's equity. I would suggest wrapping those closing costs into your loan if you do go that route as to pay that price incrementally.

You should think about structuring financing around your business model, and not looking for a silver bullet financial vehicle.