All Forum Posts by: Brad S.

 Great job Sean! That's a great early start! I did my first flips at 21, without knowing what I was doing.  I did ok, but would've done much better had I focused and continued on that path back then, and had some guidance. There was no BP or web, etc, then, just the "No Money Down" TV guys. 

You are fortunate to have resources like BP and others, to help guide and motivate you toward your goals. Keep leaning on us as you need to.  :)  Good Luck....and Good Skill!

It comes down to what your goals and plans are. In my experience, I've learned there are different "types" of cashflow. Typically, the areas you are talking about have less "passive" cashflow and more "active," meaning more management, property and tenant issues, etc, then typical. Be wary of the gross #'s and make sure you account for the unforeseen and typically unaccounted for expenses in those areas. I've had tenants break faucets, put their fists through walls, neighbor and city complaints about cars on lawns, etc. And these were not even the "war zones," they were marginal, but not too bad. And, if I didn't repair the items, the property would lose its' section 8 eligibility. The tenants usually didn't care, because they would just go find another place to rent, with no repercussions (at least in the areas where my properties were).

I decided a while ago, that I'd rather have quality cashflow then quantity, because at the end of the day, the quantity you should be getting is often not equal to the amount you actually net.

Plus there seems to be less options later, if/when you decide to make some changes (sell, exchange, etc). As @laura williams said the properties may be worth less after they have been messed up. You may even have to pay to sell them. Not pay someone to buy them, but put so much money into making them sellable, that it is not worth it. At least the moderate appreciation of some areas, helps to mitigate that problem somewhat.

If you ever wanted to sell it, you may have to put some money into the repairs, in order to salvage any value. I imagine, it would be somewhat disconcerting to pay more to fixup a property, than it is worth (or what you paid for it).

Example: I finally dumped 2 properties I have had for almost 20 years, where I was getting decent cashflow, but I realized they were more of a liability than an asset. It only takes 1 or 2 things requiring repairing, to significantly affect cashflow. Also, in order to sell those properties, I had to put in about 20% of their values, into the repairs. And after almost 20 years and the cost to repair/rehab, I barely broke even on 1 and lost a little on the other. Not a very uplifting experience. Meanwhile, I've had other properties where they doubled and more, in only a few years, after buying in better areas and for not much more money.

But, that is my choice and I am sure there are those out there doing very well in those "war zone" areas.

By the way, don't forget about the other creative options, like Lease Optioning the property. You can even set up the deal, so the Lessee/Optionee agrees to do the fix-up, and you'd also get an option consideration fee upfront, and possibly higher than market rent. That would raise your rental return and reduce your original outlays.

I'm with Ken, it greatly depends on what your goals and preferences are, as well as your present situation. If you are not at a point where you can easily put the $25k rehab money in and leave it, then that will influence your decision right there. 

On your #'s, since you didn't account for the rehab costs or potential property management costs (unless you are managing it yourself) in your "Fix and Hold" scenario, your #'s would be different. If you are managing it yourself, there is a cost in that, whether it is in your time, energy, or stress, or all the above. In other words, it is not necessarily a hard, tangible cost. The #'s are not always the most important thing. 

Also, might depend on what your future outlook is on the area, whether you think it may appreciate, or rents may grow, or if it has had a recent run-up and may start to soften, etc, etc.  Also, if you need the money for new deals, and how profit you are giving up on potential deals you may not be able to do if you don't cash out, etc.

I apologize if this is not what you were looking for, since you were looking for more local responses, but I hope this is somewhat helpful.

Is this a new purchase or something you've owned for a while?  When did you purchase and what was your acquisition cost...and you loan balance, terms, etc?  What area is the property located? I don't mean to pry, and, of course, you don't have to answer, but it is difficult to offer an opinion without an idea of the #'s.

Historically, I have had very little vacancies in my Austin properties. But, the rents you are describing are relatively high, from my experience there. So, I assume your property is in a prime area, possibly near downtown or in South Congress, near Travis Heights, etc. 

Is that insurance # from an actual quote, or what you are currently paying?  TX, in general, has one of the highest insurance rates in the country.  A few years ago, it was the highest in the country, per an article, I read. The reason, is they have a lot of weather issues. We are currently having to replace a roof, due to hail damage (not uncommon). While $88/month may be your rate, it sounds lower than typical, based on my experience. And remember annually, those rates increase.

Same with property taxes. They are relatively high, in my experience, typically between 2.6-3.0%. That eats up a lot of rent. So, you should keep some room for the increase. And they are rising every year, to keep up with values, and to make up for the lack of state income taxes.

I like Austin for appreciation and long term growth. Although, it has had a lot of growth recently, it is still getting a good amount of incoming migration and growth happening, with business growth (Oracle's new campus, etc). 

But, your decision would be based on your specific costs, equity, and specific goals, etc.