Starting out with a 1-4 multifamily property in DFW

Starting out with a 1-4 multifamily property in DFW

Fort Worth, TX · Member since 2018 · 20 posts · 7 votes
Hello BP community members, I'm a long-time BP lurker having browsed the discussion forums numerous times in the past but finally decided to sign up and join the community as a small step towards RE investment action. I relocated from the south Texas McAllen/Rio Grande Valley area, where 4plexes are abundant, back up to DFW within the last year. I have never owned a property so my initial strategy for breaking into the RE investing world was to go the 1-4 multifamily owner-occupied FHA route as my initial investment, using my one FHA "silver bullet". My question is whether that is a viable strategy in the DFW area given how hot the market is here and the seemingly uncommon nature of 1-4 multifamily properties? In the south Texas/ Rio Grande Valley area fourplexes are extremely common with entire subdivisions being comprised solely of fourplexes rather than large apartment complexes and the builders there keep on building them. Here in DFW these properties seem few and far between. The other issue in regards to the viability of the owner occupied 1-4 multifamily strategy are the skyrocketing property prices here in the DFW market which leads me to wonder if the numbers on such a property, if one were to turn up, would even make sense? Would a 1-4 multifamily property with good income metrics be a decently nice one to live in? I appreciate any insights on this or getting started with investing in the DFW market in general. Kind regards, Mike K.
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Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
8y

@Michael K.. I'm certainly not an Expert on the DFW Market - however there are some basic things you can do to enhance your chances of acquiring a 2-4 Multi-Family property. These are:

1. Get PRE-APPROVED for a loan, NOT just Pre-Qualified, so you'll know you can buy a property, and how much money the lender is willing to loan based on your credit, income, etc.  

2. Educate your self on the market. Know where properties similar to what you are interested in acquiring are located. What is the Sales history - typical Selling Price, Days On Market, How many were For Sale over last 6 months, last 12 months.  What are typical rents for these properties. Create an Excel Spreadsheet of these facts. Just the process of documenting these facts will help solidify the info for you.  

3. Find yourself a REALTOR you feel comfortable with. Someone that will assist you with your quest. Notice, I said someone you are comfortable with, that is patient, works on your time frame, and someone you feel is not just out to make a quick commission.  If you don't have an Agent, or need assistance in finding an agent, I can refer you to agents I've worked with before in the DFW area.  

3. Armed with this info, wait for a property to come on the market in your target area. And when it does, DON'T PROCRASTINATE about making an offer. If you are not aware, in Texas, we use an Option Contract. so you have an easy out if you find something during the Due Diligence (Option Period) that might be surprising.  

4. If you want to be more aggressive in your search, find the names and addresses of property owners, and send them a letter asking if they are interested in selling.  

Good luck, Be patient, and happy investing. 

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    8y
    Originally posted by @Michael K.:
    Originally posted by @Stephanie P.:
    Originally posted by @Michael K.:
    Originally posted by @Jason Ray Richardson:
    Originally posted by @Michael K.:

    I'd prefer to stay near the Fort Worth area since I work in downtown. What is this house hack you speak of? Renting out rooms?

     House hacking is where you buy a du, tri, or quad plex and you live in one of them while renting out the others.

    Ok, then house hacking was what I meant as my initial strategy when saying I was intending to go the owner-occupied 2-4 multifamily route via FHA.

     Here's one from a quick internet search.  Not sure where you work, but this price point is the max I'd go for a rental.  At 4.5%, principal and interest would be $2913.  Add taxes and insurance to it, and don't forget .85 MI monthly and you're looking around 3K for a monthly payment.  What would the property bring in for rent on one unit while you live in the other?  What would both units bring next year?  What would it cash flow?

      https://www.realtor.com/realestateandhomes-detail/...

    After doing some number crunching assuming the following:

    5% down payment

    5% interest rate

    0.9% annual PMI payment

    2.6% annual property taxes based on sale value

    $480/month property insurance (1% of sale value ÷ 12)

    Total estimaestimated PITI = $5,123

    Rents assumed at $1750/ month for each unit based on the rental ad they have for 1 unit.

    Monthly Cash flow if BOTH units were leased after only subtracting PITI is estimated at $(1,623). Annualizing everything and assuming just $480 in yard maintenance yields an estimated NOI of $(11,737) which would give a CAP rate of -2%. Based on those assumptions it would take a down payment of 39.5%, or $226K, to have break even NOI.

    Am I missing something major in my estimates/analysis or is this marketed purely as a "buy for appreciation cash flow be damned" investment ? I have to have screwed up with my numbers somewhere...

     Your numbers are kind of accurate.  I calculated a monthly payment of about $4312 all in.  If you're only getting $1750 for each unit, I'd walk away.  If the property doesn't pay for itself at the very least, then move on.

  • Member since 2018 · 19 posts · 6 votes
    8y

    Hi from Better Coast Capital. I'm not sure we are hitting your price point, but we do have some duplexes that have been successful north of Fort Worth in Denton County. 

    We don't do rehabs, we do new construction. New constructions provide a lot of benefits for investors like low maintenance, home warranty, premium rental rates, and customization for use as a rental. If you're going to have to spend $40k rehabbing something in this market, you might as well just buy new. 

    Our strategy does rely on appreciation, as any good investment should, and we pick our communities with that in mind.

    Our properties are cash flow positive, even with an FHA at 5%. Ultimately the real return on these units comes when the property is sold, again the newness of the property really helps get a premium price. We are currently building duplexes in Sanger for $189,500 per door, and the rent for these will be $1600-$1650 per month. We expect rents to increase due to the strong job climate and related population growth. Search "denton county economic growth" in google and it's easy to see the area has promise.

    We've been successful in this area with other developments over the last several years and I'd be happy to talk about our strategy and show you pro forma analysis.

    -Rod at Better Coast Capital

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