For some of the more seasoned buy/hold investors in the houston area:
I'm looking at picking up some rentals in A/B areas, ~1500 sq ft, built in 2000+, mostly in the suburbs.
If you have properties like this (or close):
What sort of expenses are you seeing for maintenance and insurance?
If you're using PM, how do you like them, what are they charging you?
Are your rents hitting 1% of purchase?
What are you finding gets you the best returns?
Hey @Benjamin Ouderkirk , I don't have any rentals in Houston quite that new but I have a couple in Spring and North Katy that I consider B class areas. There are many opportunities to find B class areas with 1% rents but the cost of property taxes, HOA, insurance, etc usually eat into it enough to leave you without much cash flow. You can usually expect insurance to be around 0.75% of insured value. I use @Jerry Ta at PropertyCare for property management. He charges flat fee management of, I think, $75 or $80 per property which is great for properties in B and A areas because percentage based companies will cost much more due to higher rents in those areas. He does a great job of communicating with the owner and tenants on a timely basis and making sure to keep maintenance costs low.
Thanks Waylon. Actually Spring is the area I'm looking at anyway. Good to know about the PM too, I appreciate the insight.
I have been finding that yes taxes and insurance are a heavy burden..reason to keep the other costs as low as possible
The standard rule of thumb for property maintenance is 5% of the annual gross rent, but theoretically with newer built properties the maintenance expense will be lower (assuming the construction quality is there). Maintenance may not be lower if you're buying a newer all-frame house built with low quality materials.
For insurance, a typical single-family rental < $150k ARV will run you between $500 and $1,500 depending on area of town, carrier, and coverage options. We typically run our rental calculations using $1,000 as the annual insurance figure. You won't run into this much up in Spring, but there are areas of town that are located in flood zones, which will require flood insurance if you're financing the properties and also areas further south that require wind storm coverage as well (haven't ever run into this in Spring).
Most property managers charge in the neighborhood of 10% of the gross monthly rent. I typically refer my investors to @Steve Rozenberg of Empire Industries.
Rents in the 1% of ARV range are very realistic in most parts of Houston. There are plenty of areas where you can get > 1%.
I think, without exception, the best single-family rental returns come from buying distressed properties, rehabbing them, and then leasing them out to tenants. Your relative returns will almost always increase when you're using some sort of financing to leverage your purchases, especially if you're able to re-finance into long-term (30-year) fixed-rated financing to maximize your cash flow.
1% rule is not a problem in Houston area. But like others said, tax and insurance are the factors determined your cashflow. Property tax has increased in a much faster pace than you can raise your rent in Houston in 2013 and 2014. (at least for my cases)
@Lyall Storandt Thanks Lyall for sharing. Good to know that my numbers and assumptions have basically been lining up with what you say. And yes I have met Steve at Empire, great guy. Thanks again
@Nate Paoinchantara Thanks for sharing. Yeah property taxes are significant, too bad to hear that they've been going up faster than rents too...
@Benjamin Ouderkirk I am in a similar search phase as you, I think. Have you looked into duplexes? They seem to cash flow better but from what I can tell, they are most clustered in the class C areas. Do you have any concerns about that?
@Iman Yu Yes I have looked at duplexes and up too, they're much less common here in Houston in decent areas as you mentioned. I wouldn't be too terribly concerned with it if I found one with good returns because I'd likely also use @Steve Rozenberg 's Empire to manage it.
If you were going to manage one yourself, it would almost certainly require more of your time/effort to manage, and it depends on the person whether or not the finances justify this.
@Benjamin Ouderkirk you are on the right track. I like the cash flow from those multi's better but the ones in Houston tend to be in class C or worse. Therefore, it does help to run those by the PM first and see if they think it's okay. I've run a few by Steve and didn't give it the thumbs up lol I also run them by Jerry Ta as well.
yes I've heard great things about jerry ta's management as well!
@Benjamin Ouderkirk ha yea :-) I am glad we got a good BP community going here. It's important to work with the right team. That takes you to onto the right track.
Have you made any deals yet?
Good deal of knowledge here. Thanks guys.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing