All Forum Posts by: John Franklin

I’m a big fan of data driven analysis, but as some mentioned, the Harvey anomaly drives a fork into accurate extrapolation.

I love Grimes county but schools end up being an issue for many renters with kids.  Personally, I’d focus on the Montgomery/Magnolia market and make Anderson my north most point.  

As for College Station, I measure the market health by Apartments and they are struggling to maintain occupancy at the expense of increasing concessions.  I anticipate continued flat to negative rent growth for 2 more years, min.  Ideal time for long term holders to invest but cash flow will suffer.

If you do opt for BFE rentals, I recommend properties where tenants can park an 18 wheeler or have horses and trailer without flack from city/HOA. Those fetch a premium rent and stay leased.

Lots of good ideas here. If it were me, I’d give tenant notice of intent to evict because they lied and sublet then immediately try to negotiate a mutual lease termination with loss of deposit and penalty with enough prepaid future rent to cover the cost of you releasing.  

Keeps you out of court and they avoid devastating their Air B&B biz from negative guest feedback.

A lot of this going on these days.

You didn’t say what type commercial property; retail, office, multifamily, industrial or a special use, but having appraised many commercial properties across the country, I would suggest that  valuing commercial RE is a vastly more involved and complex process compared to evaluating a 1-4 unit SF residential.  

If you expect to profit on the deal by more than $10,000, Calling on a certified commercial RE appraiser would be a wise and money saving move.

Which state you live in can also add or reduce complexity as many do not record commercial RE sale prices.  That makes finding comps a nightmare.  

I’ve seen may RE mistakes made in over estimating resale value and underestimating repair, remodel, holding, selling and marketing costs.  Starting with an accurate valuation mitigates a large amount of that risk.

Two questions I’d want answered before making a purchase decision. 

1. What is the market rental rate based solely on other leases of similar properties nearby?  2.  What are homes of similar size, age, location and condition being listed and sold for over the past 3-9 months.

Know those and you can determine the appropriate purchase price price.  If you can’t find the info, bring in a Realtor or appraiser.

Many a sad investor has purchased a property based on above market rents only to find them fall back to earth at the end of the lease term.  Don’t be that guy.

Brie is correct, the Realtor is not.  

Price PSF works for comparing owner occupied SFR but if you apply that data to a multi family income property, you're not considering the potential value to the most probable purchaser, who is almost always an investor, not an owner occupant. The first cares more about cash flow, the latter not so much. Makes a big difference.

Save yourself loads of future agony and call a local RE appraiser and for a few hundred dollars they can appraise it “as is” and after renovation” using only 2-4 multifamily comps (sale and rental) Then you’ll know your numbers.  

MFR and SFR typically rely on different approaches to value.

I’ll just add this footnote for Texas RE (and only TX).

When you file to protest, you can choose from 12 “reasons”.  In addition to any others that may apply, always include the first two boxes (1) the value is incorrect, and (2) the assessment is unequal to similar properties.  This 2nd one is much easier to research and prove up.

You can file your protest, then assign it over later to a property tax agent to represent you.  Deadline to file form is May 15 , so if in doubt, just file the form.

TX law says your property should be assessed at 100% of market value annually.  The value should be the value on Jan 1st, that tax year.  

If you really don’t know what your property is worth, appraisals on 1-4 unit residential properties can generally be done for $1000 or less, just call around to local certified appraisers.  Ask the appraiser to make the effective date of value Jan 1st.  If the value is much lower, go argue.  If the value is close, you may do better finding similar and nearby properties assessed at a lower price PSF.  That supports the second protest reason.  

I recently offered some similar advice in the post below.

There are thousands of out of state investors buying up all kinds of TX RE  and very few understand how to model tax expense growth.

Bottom line, if you invest in TX real estate, your tax expense will generally grow at the same rate as your appreciation.   So, if your property increases in value, so does your tax expense.  This kills cash flow down the line if rents don’t grow at same rate.

This is one reason cap rates always seem a bit higher in TX.  You can’t accurately model tax expense during an investment holding period. (So more risk).

With those numbers, I’d immediately hire a tax consultant to protest.  Deadline to file is May 15, I believe it changed.  See if you can get them to do it for 30% of savings the first year of protest (some will negotiate).

https://www.biggerpockets.com/forums/760-fort-worth-real-estate-forum/topics/693360-property-tax-sticker-shock-appraisals-have-been-mailed-out?page=1#p4095795

Uncertainty of tax expense has been an issue in Texas RE for years.  Tax rates mean little, it’s your assessment that matters. 

The State has been lobbied hard for years and they’ve only taken action to protect home owners, not investors.  I doubt that’ll change much.

Ways to lower the shock:

When buying, Always pro forma your tax expense using an assessed value at least 90% of sales price.  If it’s not there now, it will be soon. 

Multi property investors should hire a Tax agent to protest each year.  They usually take a contingent % of the tax savings so no cost up front.

I’ve always had better luck arguing the equal and uniform case vs. the value is too high.

If you really want to imagine a scary scenario, how do you think schools, cities and counties will react if their budgets get cut 30-40% in a 2-3 year RE downturn?  Yikes!

No, annual assessment is not a healthy and sustainable practice, but apparently neither is Prop 13, judging from CAs budget woes.

I see the greatest disparity in value to assessment in large commercial properties that are harder and more costly to assess.  They should start there.

I would not contact the neighbor, or the tenant and hire an attorney to defend the lawsuit immediately.  

In Texas you can file a lawsuit for a bad cornbread recipe.  

Many frivolous suits are filed as scare tactics in hopes of a quick settlement.  Some neighbors and tenants are simply habitual victims and have filed dozens of suits over the years.

If you’re in RE long enough, you’ll be sued.  You and your attorney should always be prepared to fight a lawsuit, regardless of insurance. It is simply a cost of doing business in RE

My $0.02; You should always hire your attorney and CPA before you ever purchase a rental property.

Never assume your insurance or LLC will prevent you from being sued.

Check with your broker for sure.  In TX Liabilities to the agent and broker increase exponentially when negotiating with an unlicensed individual.  

In my firm we had a policy for dealing with this and we provided separate agent representation for the seller.  

The added cost was a tiny fraction of the cost incurred responding to a state complaint.