All Forum Posts by: Nick S.

@Bryan Tasumi A few things could be happening here: 

1) They bought on a mortgage when the prices were significantly less than $200k

2) They bought with all cash, so there is no mortgage payment

3) They used to live there and have moved and are holding on, possibly hoping for appreciation and living with no or negative cash flow

Remember there are 4 aspects of buy and hold investing to consider, and cash flow is only one of them: Appreciation, cash flow, mortgage paydown, and depreciation. After considering all 4 aspects of a buy and hold investment, sometimes it's still a net positive to hold a property even if the cash flow is low or negative. I'm not saying I would invest in one of those condos, but someone else might be doing OK with one of the 3 scenarios above. 

@Bryan Tasumi I agree with your analysis. You can rent near the medical center for cheaper than you can buy a condo, even after considering everything like opportunity cost of capital, appreciation, and loan pay down. If you want to live in the med center and still invest in real estate, it would make sense to rent close to where you want to live and then invest in cheaper properties that cash flow outside of the inner loop.

If your goal is to build a new home and sell, then it really comes down to what you think the final sale price is, and then you work back from there to get the profit you want. 

Basically, you would calculate how much you can pay for the land by estimating the numbers below:

Final sale price - Build cost - demo cost - permits - holding costs - desired profit = “Lot value”

Now that would be the Lot Value to you. Someone else’s lot value might be higher or lower, depending on what they plan to do with the land. For example, a developer who is going to build 4 townhomes on that same lot can probably pay more for it and still make a profit.

Figure out how much you can spend and offer that much. You can use your estimates to justify the offer price. If they take it, great. If not then it’s not a good investment for your chosen strategy

Do you include all of the items below in your 40% expense estimate? 

• Property tax
• Insurance
• HOA fee
• Vacancy
• Maintenance/repairs
• Property management (I assume = $0, since you self manage)
• CapEx (different than maintenance/repairs)

I find it better to break down each item individually instead of using a % as a rule of thumb. When I plug your numbers in, depending on what I assume for some of the line items above, this deal is right on the brink of cash flow positive and negative. So COCR ~ 0%.

I guess if you only plan to hold it for a few years and you don't set aside any money for CapEx the numbers could look more appealing. Really depends on your risk tolerance!

Congrats! What an exciting deal. $500/month cashflow with no cash in the deal will make doing the next one(s) even that much easier

In looking through the HCAD records for Harris County, I'm trying to figure out what to make of the code that seems to go by many names. In one place, it's called "State class code", in another place it's called "State category code" and in yet another it's called "State category ID". These are the codes such as "A1 - Real, Residential, Single-Family", or "B1 - Real, Residential, Multi-Family".

Are these codes just a reflection of how the property is being used? 

For example, if a property is categorized as "B2 - Real, Residential, Two-Family" and you wanted to add a third unit on the property, what's the process? I know you would have to operate within any deed restrictions but other than that, how would you change to "B3 - Real, Residential, Three-Family"?

Another question is "B1 - Real, Residential, Multi-Family" seems similar or overlapping with "B4 - Real, Residential, Four- or More-Family". I googled around but didn't find a good resource that further explains these categories and what exactly they mean and how they are used.

Thanks @Elias Camhi, this is some good data! Just curious, you said the average time based on your data set is 2.4 years. Did you also calculate the median? Is your data only SFR's or is it a mix of SFR's and apartment units?

@Account Closed Your numbers are very much in line with what I've come up with for my assessment of the state of the market in the Houston suburbs. 

And I tend to agree that your capex allowance may be a bit low. I recently made a thread on that very topic. 

Are we both being too conservative? Maybe. But I don't want my first deal to be something I lose money on continuously. 

@Cody L. I agree! My goal is to understand all of the costs and benefits in as much detail as possible to assess deals. Another thing to consider is taxes and depreciation. 

Yeah I understand that CapEx isn't really related to rents, but it can be very crudely approximated as such for a given market. You probably aren't going to be replacing the flooring in a $1000/month apartment with the same stuff you would put in a $1500/month place. But things like roofs and water heaters are going to be pretty even across the board. Would definitely be better to assume a capex number based on 1) sq footage and 2) level of finishes.

I think I'll update my cost estimating spreadsheet to do just that