All Forum Posts by: Kris Kraatz

Buying in a mostly owner occupied has a few more advantages long term.  

You may want to look at buying a new construction home and doing a self-manage for the first tenant.  You'll need a realtor for the lease up, you'll need a background check service, I would place a Blue I Box so only realtor can access with a rental prequalified tenant.  There are many other benefits to this strategy.

PM does take some of the load off on the front end with new construction, but the new home builder warranties are good in Texas & their warranty services are online.

Good for you buying new!

Kris

@Elizabeth Seiferth You're brave!  Sight unseen and going to BP for GC contacts for a F&F, that's a high level of courage!  All the best to you!

@Avery Biles I would recommend finding a one on one mentorship.  I wouldn't pay for it either.  There are humans out there that will happily share their experience, strength and risk management, find those people in your local market.

@Miguel Del Real I'm an agent and I'm not sure how investors analyze wholesale deals with out MLS access and knowing local market nuance like not competing with new construction during dispo. this reply is specific to F&F.

Hello Elad!  Take a look at Texas, and secondary markets.  You'll need a team.

We just helped an investor purchase a property.  Buy price was $180k, reno was $42k & dispo was $281k.  Let me know if you have an interest in North Texas :)

Hello Jon,

Firstly, welcome to the forum! Selecting a market, especially when you're not local, can be daunting. Here's a quick rundown of things you might consider, apart from the price-to-rent ratio and appreciation:

1. Economic Growth: Look for areas with growing job markets, new business hubs, or major infrastructural developments. These often signify potential for renter demand.

2. Local Regulations: Some areas have landlord-friendly regulations, while others might be more tenant-friendly. Understanding these can save you potential headaches.

3. Crime Rates: A safer neighborhood often means stable tenants and fewer vacancies.

4. Supply & Demand: Consider if the area has an over-supply of rentals or if there's demand outstripping supply. This can influence your vacancy rates.

Now, coming to a tangible example: In Wichita Falls, Texas, we're buying properties every week. Just last week, we purchased a property for $86k, invested $15k in renovations, which pushed its ARV (After Repair Value) to $109,200, based on CoreLogic data. With a 75% cash-out refinance, that comes out to $81,900, and the property has a rent roll of $1,100 monthly. It's a practical example of the "cash in, cash out" approach.

If you're intrigued by this or need more insights into how we evaluate markets and properties, feel free to reach out. Wishing you all the best on your investment journey!

Best Regards,

Kris

Hey Jose,

I totally get the challenges you're facing with the 50% rule, especially if you're primarily relying on Zillow estimates. Sometimes, those estimates can be off, and it's always a good idea to corroborate with other local sources or recent sales/rent data.

If you're open to exploring other areas, consider Wichita Falls, Texas. Many properties here follow the 1% rule, which means the monthly rent is about 1% of the purchase price. For example, if you can invest around $120K, you can buy a property for $120k in cash, and it can potentially rent for $1,200 per month. If you then perform a cash-out refinance at 80%, you can get around $96k cash out, minus closing costs and pre-paid expenses. This approach aligns well with the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy, minus the rehab. A rehab/reno deal maybe even sweeter :)

I hope this gives you another perspective! We're actively investing in Wichita Falls and would be happy to assist or share more insights if you're interested. Best of luck!

Best Regards,

Kris

Hey Newbie Sean! Happy to hear you're making a fortune selling solar to folks. Texas, and specifically in North Texas you can find a brand new home to purchase for around $350k. You'll need to spend to cash flow, about a 35% down payment will be needed ($123K), for a LTV of $228k. Currently we're working with home builders that are buying our investors fixed 30 year rate down to 5.75% if they close escrow by the end of Sept. 2023 & use the builders preferred lender. If you pencil in 3% YOY price appreciation and commit to a 10 year hold, new construction works all day. Low to no cap ex, low maintenance and typically longer tenancy, can all be features of holding a new build in your portfolio.

North Texas is indeed a promising region for investing in new construction without heavily straining your finances.

**Cash Flow vs. Investment**: In light of the recent increase in interest rates, it's essential to recognize that one might need to invest more upfront to ensure consistent cash flow for any property. North Texas, however, continues to stand out as a promising investment location, especially with the booming job opportunities in the region. Furthermore, many builders in the area who collaborate with investors often offer attractive concessions. Through their pre-lender partnerships, they can provide opportunities to buy down your fixed 30-year mortgage rate, making the financing aspect more favorable for you.

**Professional Property Management**: It's essential to engage with a professional, local property management team, particularly if you're an out-of-state investor. They can handle tenant relations, maintenance requests, and other operational aspects of the property. This ensures that the property is well-maintained and any potential issues are addressed promptly.

**Maintenance & Warranty**: One of the primary advantages of new construction is the minimal maintenance required initially. For the first year, builders typically offer a "bumper-to-bumper" warranty with a few exceptions, ensuring most aspects of the home are covered. Once you cross into the second year, the warranty then shifts focus to the mechanical components, lasting up to the end of that second year. Finally, a structural foundation warranty is in place and extends up to the 10-year mark. These warranties provide a significant degree of comfort when anticipating unforeseen expenses.

**Home Insurance Perks**: Here's a little "insider" tidbit - the home insurance for brand-new homes is incredibly affordable for the first year or two. Yes, insurance rates have taken off like a rocket in recent years, and they do inch up annually. But oh, those first couple of years are a sweet deal! 😄

**Strategy for Capital Expenditure (CapEx)**: If you're contemplating a 10-year horizon, focusing on price appreciation, and then leveraging the 1031 exchange to upgrade or diversify your investment portfolio, your CapEx could remain relatively low throughout that period.

Best of luck in your investment journey!

Kris

Hello Adam,

Your opportunity brings to light some pivotal considerations, particularly for those who've had an inside look at the home building industry. Drawing from personal experience working at a home builder, there are a few nuances to be cognizant of when it comes to model leasebacks.

**True Cost of Model Homes**: Model homes are often the most expensive job cost in a community, primarily due to their showcase nature. It's typical for builders to factor in the potential costs of retrofitting these models into the initial price. With that in mind, could the $922k purchase price already include these eventual costs of adapting the property for standard residential use? If you're considering this investment, it's crucial to clarify this aspect, especially given the implications it has on the actual value you're getting.

**Maintenance and Upkeep**: With the frequent foot traffic associated with model homes, wear and tear is considerably more than in a standard residential property. Over the leaseback period, while the property might appear well-maintained on the surface, underlying issues might manifest later, resulting in potentially unforeseen expenses.

**True Value of Upgrades**: The $100k in upgrades, while sounding impressive on the outset, might require a closer examination. Often, builders have the advantage of leveraging in-house trade labor, which could substantially reduce the actual cost of these upgrades. If one were to replicate these enhancements independently, the cost could likely be half or even less of the quoted price.

**Transaction Costs**: At a purchase price of $922k, it's imperative to understand the full spectrum of transaction costs. These may include closing costs, commissions, inspection fees, and potentially more, which can significantly affect your overall return on investment.

Additionally, I'm curious about the acquisition strategy for the model home. Are you considering a cash purchase, or are you leveraging financing? Understanding the financing dynamics could provide more clarity for those of us evaluating the nuances of this opportunity.

If it's a cash purchase you're contemplating, have you ever considered diversifying with new builds in the DFW area? We've witnessed notable price appreciation and the inherent benefits of low maintenance that come with new construction. I genuinely believe there's robust potential there, especially with the prospect of acquiring multiple properties. It's a thought worth pondering, in my opinion.

Wishing you judicious decision-making!

Best regards,

Kris