All Forum Posts by: Pete Harper

I wanted to give an update.  I was in the ATT store yesterday looking at phones.  Browsing on an Android phone I was able to download the BP App from Google Play.  It appears as if BP is maintaining the App on Android but not Apple.

What gives BiggerPockets?  Are you IOS haters?

Quote from @Tim Rostro:

Pete Harper,

I have two properties in nearby Copperas Cove right next to Killeen, my first house I purchased back in 2005, and the other a duplex.  I've been stationed there twice in my military career, the first time in 1997 and the second time in 2005.  I've seen this place grow and I don't think it's a bubble.  From what my property manager has told me of the increased growth, people from North Austin, Pflugerville, Round Rock have decided to move to the Killeen-Fort Hood-Copperas Cove area for the lower home prices and rents which ended up driving the prices in that area.  One of the reasons was Tesla's move to Austin and their new truck plant.  People are willing to commute from that area.  It may not be the hi-tech workers but the ones who cashed out and the ones who need affordable housing.  

As for a "boring drab little town."  What?  Soldiers doing crazy dumb sh#$ on the weekend?  Typical Killeen and Fort Hood, "The Great Place."  

Not to diss Killeen but it has little to compare to 6th Street in Austin. ;-)

If you haven't been back in a while things have changed. The old North part of town has gone downhill. There was a recent article describing North Killeen as a "food desert" with grocery chains moving out of downtown to the suburbs to the South and West. Driving around I saw a Jack in Box going out of business.  

You make a good point about the knock on effect of working class families being displaced out of North Austin-Round Rock market.

Austin is another White-hot market. I lived in Austin in the early '90s and experienced the S&L crisis first hand. Every week there was a new foreclosure in our North Austin neighborhood.  People lost homes. I know of investors who lost everything when prices dipped. We were renting at the time and our rent payment wasn't covering the landlords mortgage. This is part of the reason I'm being cautious. 

I never thought I would be joining the chicken littles of the world but the Temple-Killeen Market sure feels like a bubble.  I own property in Killeen and have been following the market closely.  I have bid on multiple properties over the past three years and feel I'm familiar with the market, what areas to invest and the types of properties, rent trends and property values.  I've been focused on small multifamily duplex and four-plex.  We purchased a four-flex in 2019 and the property has more than doubled.  It's time to buy more; Right?

The current market is absolutely insane. I just tried to schedule showings on four potential purchases. My agent came back with sellers are no longer doing showings. You need to be under contract before you are even allowed in the front door. Even under these conditions sellers are still getting multiple offers, over asking price, and sight unseen. There are normally bidding wars with the property on MLS only a couple days. IMO this is totally insane! Who buys a property, waiving all inspections, paying all closing costs, at over already inflated asking price, with all cash? This is not a healthy market. This feels like speculation/gambling not investing. It has been my experience in business when you find yourself in an untenable situation the Market always corrects it's self. For these reasons this particular market feels like a bubble about to pop.

Don't get me wrong, I liked this market.  However the fundamentals don't add up.  Killeen is a one employer town with Ft Hood.  Ft Hood remains stable, war currently very bullish.  I don't see it closing however I don't see it growing either.  Meta just announced a new data center in Temple set to open in 2024.  It is expected to add 100 new jobs.  That justifies 100-200 new homes maybe.  Nearby Austin is going gangbusters with hi-tech.  I don't see these high wage earners living in a boring drab little town driving an hour plus to work every day.  OK, to the North you have Waco with the Chip and Jo Anna factor.  Dallas is too far away to be factor even for the most dedicated commuter.  

What are your thoughts?  Smell like a bubble to your too?

I'm evaluating two commercial deals and looking for feedback.  This will be our second commercial deal. Previously we purchased a 12 unit property off-market.  Both properties are in super small markets, city size 3000-5000 people, hence the road less traveled.  Being a small market there are no recent comps other than our own purchases over the past two years.  I'm having a bit of trouble coming up with a cap-rate; numbers range from 6-10%.

Property A 1985: 24 units, 2B/1BA, asking $800K, Rents $600-650, 90%(est) occupancy, water-sewer-trash provided, onsite laundry. Gross Rent=$180k (est), Expenses=$104k(est), NOI=$76k(est). It needs a new roof $100k, Closing cost $16k, all in $916K asking Cap-rate 8.3%

Property B 1981: 60 units, 2B/1BA, asking $3M, Rents $440-725, 82% occupancy not including 27% delinquent or 55% paying, separate meters, in-unit W/D. No amenities (pool etc). Gross Rent=$434k, Expenses=$289k, NOI=$145k From the curb I can see a lot of issues; boarded up windows, fogged windows, feral cats living in crawlspace and etc.. A couple things struck me going through financials. They are paying 7% PM fee to out of state company plus another 17% to on-site PM. At 24% PM fee I would expect better management. All-in $3.1M asking Cap-rate 4.7%

Other things to consider.  We currently own 18 units in the same city as Property A.  We have had near 100% occupancy for the past year. In fact we have a waiting list even pulling tenants from property A.  The only open units have been undergoing renovations.  If we purchase property A we will be the #2 landlord in the city. Property B is in a neighboring town about 25 miles away.  I can tell they have struggled to fill their vacancies by the "$675 first months rent free" signs all over town.  The numbers scream "miss management" to me.  Property B is the largest property in its city. (Big fish little pond?)

Thoughts?

This is small-town Texas. The majority of our tenants don't have bank accounts. They do everything in cash. I had to convince them to do money orders rather than cash. Out of 18 units I only have two that pay electronically and one writes a check. I asked one of the guys why he doesn't have a bank account. He said the bank fees are too high if you don't maintain a high enough balance. It is cheaper for him to buy money orders. You say Zelle, Venmo .... and they look at you strange. Crazy in today's economy, right?

I have good repairmen; plumber, AC, electrician and appliances. PM would just need to call and let them in if the tenant is at work. My wife and I have been doing most of the renovations. We have updated 14 units in the last two years. I have a contractor that we are subbing out more of that work to. 

My original goal was to build this business up over three years. We are recently retired and wanted to secure a passive income stream. Now it is up and running it is time to make it more passive. 

I'm looking for advice on hiring an on-site PM. We are in a super small market in Texas and there are no good options for a local PM. I'm currently managing 18 units myself and looking to acquire 24 additional units. I was thinking with 42 units it would justify a live in PM. The four properties are all within a 2 mile radius of each other so it would be easy to manage. Duties would be fielding calls, rent collection, renting units, light maintenance and arranging repairs  

How would you structure an agreement. I don't want an "employee" with all that entails? I was thinking of offering free rent for 2 bedroom unit; $700/month value.  

The other option is to go with a large PM firm from out of town. The closest would be over an hours drive away. I've seen a couple of other properties managed this way. My issue with out of town PM is they seem out of touch. They consistently show vacancies when I can keep my properties full with a waiting list. On the plus side we own other properties in a different city that are professionally managed. It is nice having the day to day management taken care of.

Advise appreciated. 

I'm looking for some feedback on deal analysis for a small commercial property.  This will be our biggest deal to date so I want to make sure I'm running the numbers right.  We have a total of 28 units so I'm fairly confident on my cost numbers, taxes, insurance, utilities, maintenance etc.  I have a few questions on the deal, see bellow.  

Asking: $800k

Gross Rent: $173k asumes 10% vacancy

Expenses: $93k

Net Income: $80k

CoC: 9.8%, Cap: 11%, $/door: $278, GRM 8.5: $1.468M, "1% rule" 2.2%

First question is does anyone use GRM anymore? I pulled this number from a bank appraisal on another property. Isn't this just another way of looking at "1% rule" GRM of 10 is 1%?

What is a good Cap Rate? We are a super small market and I don't have any sales comps to compare.  There are only 4-5 similar sized properties in town and I already own one of them.  

Our business model is to pour back any cash flow from the property back into renovations.  We want to drive appreciation.   Figure for every $100 in rent I get $10k back in property appreciation.  I estimate from other properties if we put $5k into light renovations we can get $100/month extra rent.  We wait for the units to come open and do the renovations on turnover.  It typically takes 2-3 years to update an entire property.

What if I take $120k in cash flow and reinvest it into renovations over the next couple years?

Gross Rent: $201k

Expenses: $110k

Net income: $91k

Cap: 12% $/door: $316

For CoC do I include only my out of pocket cost or do I include the renovations? Since the property self funded the renovations I only include my original acquisition costs.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Fairfield.

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is a 1960's all brick single story Ranch; originally built with two identical 1200sqrft 2 Bedroom/1 Bath units. Original owner who had cats; reeks of cat urine.

What made you interested in investing in this type of deal?

We saw potential to add bedrooms and bath. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms.

How did you find this deal and how did you negotiate it?

Found the deal on MLS. We were originally the 2nd place bidder. The first place bidder backed out after they discovered a gas leak on inspection. We didn't care because we were going to make the property all electric and capped gas lines.

How did you finance this deal?

All cash deal. Money for purchase and renovations came from previous BRRRR. We used cash out refinance to fund. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

How did you add value to the deal?

We will rebuild as a 4 bedroom/ 2Bath with laundry. Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

What was the outcome?

We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast.

Lessons learned? Challenges?

Painful lesson in dealing with contractors. Do a criminal background check before working with anyone.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Local agent Angela Kennedy

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Fairfield.

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is going to be our most ambitious real estate project yet. This is a 1960's all brick duplex. It was originally build as a mother in law property with two identical 1200sqrft 2 Bedroom/1 Bath units. It was most recently occupied by the original owner who had cats. The place reeks of cat urine. She has moved to an assisted living facility and we purchased it from the family. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms. We will rebuild as a 4 bedroom/ 2Bath with laundry. This will make the property family friendly in keeping with the residential neighborhood.

Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

All-in cost $145,000
ARV estimate $225,000
Rents $2200

After reno is complete and we have the property fully rented we plan on doing a cash-out refinance and go find another deal. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

Update: We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast so everything worked out in the end.

All-in cost $185,000
ARV estimate $250,000
Rents $2550

What made you interested in investing in this type of deal?

We saw the potential to add additional bedrooms and bath.

How did you find this deal and how did you negotiate it?

Found the deal on MLS. We were originally the 2nd place bidder. The first place bidder backed out after they discovered a gas leak on inspection. We didn't care because we were going to make the property all electric and capped gas lines.

How did you finance this deal?

All cash deal. Money for purchase and renovations came from previous BRRRR. We used cash out refinance to fund.

How did you add value to the deal?

Complete renovation from bare studs. We added a bedroom and bath, opened up wall between kitchen and living room.

What was the outcome?

Long term buy and hold.
ARV $250,000
Plan to cash out refinance and do another BRRRR.

Lessons learned? Challenges?

Painful lesson with dealing with contractors. Do a criminal background check before working with anyone.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Local agent Angela Kennedy

Never ask a fisherman where his favorite fishing hole is located.

Killeen is my second favorite. We purchased in 2019 and we are up over 65%; solid appreciation.  Rents are trending upwards we are sitting at 1.4% deal after cosmetic renovations; paint, flooring, and built in microwaves.  Everything has stayed rented and we are able to raise rents whenever they come open.  That being said Killeen is a strange market. You really need to watch neighborhoods.  A block or two makes a huge difference.  I highly recommend you drive around and get a feel for the area before purchasing.  Not long ago an out of state investor posted on BP he just complete a big reno and couldn't fill the unit at market rent.  He did a great job on reno with A-class upgrades.  The problem was he was in a bad area, nobody wanted to live there no matter how nice the place was.  

Some of the comments have been true of the past. Killeen was an overlooked market.  Sure it is a military town but none of our current tenants are military.  We are seeing some spill over from Austin market as people look for cheaper housing.  I haven't had any luck in Temple.  Everything I've looked at is older and needs a lot of work.  I looked at a 4-plex in Temple and the tenant complained about a leak from upstairs.  He had buckets set out to catch the water.  Looking at upstairs unit I thought we were going to fall through the floor.  Other properties were in old town, build in the '30s and '40s, way over priced.