Do I continue with this deal...

[Auryana Faramarzi]

Hi all - first time investor here (well, almost). My offer was accepted for a SFR in Houston (zip code 77007, near Houston Heights). I wanted to share the details with my fellow BP investors and get your opinion on whether I should move forward with the deal or not. This will been my first property purchased. I currently live in CA and this will be out of state investment property. So here are the details...

Details: 3 bedroom, 3 bath SFR listed at $365K - I got it for below asking at $355K. The seller's have also given me credit towards closing of about $5K. Property tax rate is about 2.29% (so I will be double wammied with state and property taxes).

Homeowners insurance is $183/month (includes also Flood Insurance)
Taxes $680/month 
HOA $75/month
Monthly rent ~$2600

I have run the #'s through BP "rental property calculator" and would be cash flowing $75/month (after expenses, vacancy, etc.). This is only a 1-2% CoC situation and obviously not ideal. But in this market, I'm having a hard time finding much that does cashflow.

I'm a young working professional who has been paying rent for years now and my purpose in buying this property is to build equity and get those tax breaks. But a cash flowing property is also a goal of mine. I know HTX has slow appreciation YoY so I am not counting on massive jumps like we're seeing on the West Coast. 

In addition, in this particular zip code, I'm seeing home drop in price which seems like a red flag....

Please let me know what you think of this particular situation, I appreciate all of the wealth of knowledge this community has to offer. (If I left any information out, please let me know!) 

[Lee Hampton]

@Auryana Faramarzi  

Superb question! Concise, yet sufficiently detailed combined with thoughtful and accurate analysis (says a lot). Given your thoroughness, I believe you’ve answered your own question, but I’ll add some insight.

$75/unit/mos is an extremely low bar for a "cash flow" play. You have zero room for error. You are an HOA assessment, a minor repair, or a flood insurance increase (FEMA redraws flood map) away from being cash flow negative There are legitimate reasons for investing in a property with no cash flow, but none of those reasons apply here.

77007 is fine, however, IMHO, townhomes in the area are not wise appreciation plays. There is shift in preference to properties with a yard even if it is a small one, the shift is partially due to Covid. And when the market cycle turns, townhomes will get hit 1st and get hit the hardest. Real estate is forgiving over time, so I’m not suggesting that you would lose money, just that this deal does not align with a cash flow strategy. I hear someone saying “good cash flow deals are hard to find in this market”; Hard, yes! Impossible, no! I own double digit units in Houston, and while I still peruse Houston, I have turned my attention and am targeting two OOS markets that I believe have value and where I can meet my cash flow criteria. Finally, I'll leave you with this;

“The hardest test in life is having the patience to wait for the right moment”