Check My Numbers - Rental Property - DFW

52 Replies

Hello All,

I would humbly ask for someone to double check my numbers on a potential deal I am working on. (Sorry if this is not the proper thread, this is my first post, other than new member post).

Details:

  • Not on MLS
  • Arlington, TX
  • 4 Bed, 2 bath
  • 1875 SF
  • Built in 1981
  • Class A-/B+ neighborhood
  • asking price - $200,000 (I estimate it is truly worth $220,000).
  • Good schools close by.
  • I will self-manage.

My numbers:

Thanks!  Let me know your overall thoughts of this deal in today's climate.

Forgot to mention that they installed a brand new 40-year roof.

Also, this would be me and my wife's first rental property.  We just don't know if the numbers are "worthy"?!?

I don’t see any property management expenses. As is your return is awful at 6 percent. I would pass on this deal

I'm seeing plenty of people happy with 1% and cash flowing around $200 a month, but thats with a 15 year note. Why is the interest rate so high for 30 year fixed? 

Originally posted by @Caleb Heimsoth :

I don’t see any property management expenses. As is your return is awful at 6 percent. I would pass on this deal

 I plan to manage the property myself, since this is our first property and I will actually have the time to do it.  

Originally posted by @Ronald Rohde :

I'm seeing plenty of people happy with 1% and cash flowing around $200 a month, but thats with a 15 year note. Why is the interest rate so high for 30 year fixed? 

 I honestly thought that is what the current rate was for a rental.  I have excellent credit, but I don't see it going any lower than maybe 4.75?  What are you seeing these days? 

you have your cash on cash return listed at 4.875 percent.  Which is awful.

You should include the PM expense even if you self manage as one day you probably won’t be self managing 

Originally posted by @Caleb Heimsoth :

you have your cash on cash return listed at 4.875 percent.  Which is awful.

You should include the PM expense even if you self manage as one day you probably won’t be self managing 

 I understand.  I have thrown in a number now.  However, this is pretty much how our market is at this moment.  The rent cant go higher, the sales price cant go lower (asking price is  beneath current value by 10% - aka instant equity). The property is a few minutes from my office, a few minutes from my house, and is actually nice enough to possibly warrant living in the house in the future.  Didnt know if this one made sense, but I sure did get the feeling that it was a pretty good deal in our current area.

Originally posted by @Preston L'Ecuyer :
Originally posted by @Ronald Rohde:

I'm seeing plenty of people happy with 1% and cash flowing around $200 a month, but thats with a 15 year note. Why is the interest rate so high for 30 year fixed? 

 I honestly thought that is what the current rate was for a rental.  I have excellent credit, but I don't see it going any lower than maybe 4.75?  What are you seeing these days? 

 Yeah definitely 4.XX%... with strong credit

@Preston L'Ecuyer yeah man I get it I used to live in dfw.  I took a couple looks around and decided to go out of state.  The property taxes there alone will really hurt your cash flow 

Originally posted by @Ronald Rohde :
Originally posted by @Preston L'Ecuyer:
Originally posted by @Ronald Rohde:

I'm seeing plenty of people happy with 1% and cash flowing around $200 a month, but thats with a 15 year note. Why is the interest rate so high for 30 year fixed? 

 I honestly thought that is what the current rate was for a rental.  I have excellent credit, but I don't see it going any lower than maybe 4.75?  What are you seeing these days? 

 Yeah definitely 4.XX%... with strong credit

 Good to know.  Thanks for catching that. I was a bit too conservative.

Originally posted by @Caleb Heimsoth :

@Preston L'Ecuyer yeah man I get it I used to live in dfw.  I took a couple looks around and decided to go out of state.  The property taxes there alone will really hurt your cash flow 

 Property taxes are killer right now...

Originally posted by @Caleb Heimsoth :

@Preston L'Ecuyer I don’t think those will be going down anytime soon 

I definitely agree with that sentiment. So if thats true, it mitigates his downside risk of property depreciation. The fact is jobs are coming here, more demand for housing. Its not unrealistic to bet on increasing rents and increasing OO housing.

I would pass on this deal. Not enough cash flow to have $40k wrapped up in it.

Regarding the rate, I’m seeing 5.125% on 30 year fixed (no pts) and my credit score is 800+. Maybe the difference is mine are always cash out refinance (delayed financing).

@Preston L'Ecuyer I know some people are telling you it is terrible. I don't think it is quite that bad but it's not great. I think you are smart for asking for extra eyes on the deal. I wish I could help you out more but I am very new to rentals. I don't own any and have only recently started taking notice on rates, returns, and the current market. I think you can do better.

I agree that the market is tough right now. The downside I see is that you are putting in $47k and don't really expect to make it back for 20 years. I understand that at that point you will also have roughly half the principal paid back but I would look for property where you can get 1% of the purchase price (maybe even 1.25%) back in gross rent.

Also, where are you getting your property tax number? My house is assessed at $274k and my taxes are $6,500. Seems like you might be a little high for a property selling at $200k. Not sure about the special assessments or rates in the Arlington area.

Good luck!

Originally posted by @Preston L'Ecuyer :
Originally posted by @Ronald Rohde:

I'm seeing plenty of people happy with 1% and cash flowing around $200 a month, but thats with a 15 year note. Why is the interest rate so high for 30 year fixed? 

 I honestly thought that is what the current rate was for a rental.  I have excellent credit, but I don't see it going any lower than maybe 4.75?  What are you seeing these days? 

I am doing the same thing   ,   My wife and i have 815 , 817  credit,  and  I was expecting lower than 5%  interest rate for my investment  property  Pre- App  letter.   But   i got a quote for  5.75%.    very disappointing   But part of that is it was a  loan of less than 100k . 

Good luck , It's a hot market out there for sure. I rarely get excited about the numbers I'm getting ( ROI) .

Originally posted by @Ronald Rohde :
Originally posted by @Caleb Heimsoth:

@Preston L'Ecuyer I don’t think those will be going down anytime soon 

I definitely agree with that sentiment. So if thats true, it mitigates his downside risk of property depreciation. The fact is jobs are coming here, more demand for housing. Its not unrealistic to bet on increasing rents and increasing OO housing.

I totally  agree with this.  Houston's still not that expensive compared to DFW  or Austin , but it's going up steadily. 

It's already been noted, but...

I'm seeing $0.00 down for property management and that you plan on doing that yourself.

So, if everything goes well... you've bought a second job.


On the other hand, if your wildest dreams come true and you own the entire neighborhood by this time next year, you need to hire a property manager to handle your two dozen units at 10% each.... and this one is netting -$5 a month.


Or something goes horribly wrong, (Illness/Injury/Drafted into a secret army to fight vampires).

You can't defend America's precious bodily fluids and manage property effectively. So you hire someone at 10% and again lose $5 a month.

As for the 'instant equity'... meh. I guess that's nice, and it would give me the warm fuzzies too. Heck, that's the entire basis of Flipping, but that's not what you're going for.

It doesn't raise your rent though, so it's not helping pay the bills yet.

Rent is the wool, you can sheer that sheep forever.

Equity is the mutton, it's nice, but you only get it once.

Note: I'm a complete newbie, and wouldn't be surprised to be told I'm completely wrong.

I advice NOT to buy SFH that rents close to 2000 for first investment property. You have fewer eligible renters at that price compared to sub 1200 rental. if you look hard, you should be able to find duplexes for 200k close to Arlington in cities like Forest Hill, Burleson and South Fortworth. You will make 1000 on each side which is still 2000, but you have clear upside to go up to 1400 in 2-3 years. It's unlikely you can rent your SFH for 2800 2-3 years from now.

Are your property taxes really 3%?     2.5% is probably about right.  1k a year insurance might be low though, I have house valued at less than half that paying almost as much.   I agree with others, your cash on cash is really not high enough.  To have 47 grand out of pocket only bringing in 190 bucks a month, I'd pass.  

Maintenance expense and capital expense seem a little low for a property over 100 years old.

@Preston L'Ecuyer

Since this is the SF built in 81, you will definitely need to set aside more than $1200 per year for Cap Ex. 

I always look at DCR of above 1.25 before even looking into COC or Cap rate. Unless you can do a land play, this deal may not be right. My rule of thumb is at least 10% on COC. I am also a bit worried about vacancy with SF where if you only get 1 month out of the year vacant, that's 8.3% vacancy.

Please be sure to take into account of Rehab cost in down payment when you calculate COC.

If you are starting out, I would strongly recommend hose hacking with FHA. Since the down payment is very low, you will be able to get positive cash flow on FHA property with much lower down payment.

Your rehab costs better be on point, we all know how that goes... If your rehab costs are $5280 you no longer have any cash flow, just appreciation (maybe 3% in a year?), and who knows what the market will do.

First off, thank you to everyone for your input! I have adjusted my numbers based on a number of your suggestions and now the property shows to cash flow at -$194/mo! Even if I got the house for $140K, I'm still only at 2.37% COC. The interest rate (5.2%), property management (10%), CapEx (10%), Vacancy (8.3%), and Maintenance (7.5%) absolutely kill the deal. In this case the 1% rule ($200K renting for $2K) absolutely fails miserably. I'm a bit perplexed, but I have to hand it to the community here at BP. Y'all overwhelmed me with responses, thank you all for taking the time!

Thanks for taking the time to respond in depth, and for your opinion! I will tweak my numbers and reassess.

This is technically a 1% Rule follower (200K renting for 2k).

@James Destef

5.75!!! Yikes, maybe my number is too conservative...  I'll use 5.2 for the moment.  I saw that rates were at the 7 year high this week.

@Wesley Williams

I appreciate your viewpoint, and you are correct.  The numbers need to be good even with 10% management fee plugged in.  The numbers are not looking good lol.

@Krishna Chava

I think this is really good advice. Sadly, the duplexes that hit the MLS are gone instantly (a day or two, with multiple offers), and at full market value or even pretty close to ARV. Looks like I'm going to need to start "driving for dollars" and getting my mail marketing going...

@Roger S.

I live in Arlington, within Kennedale ISD, and my rate is 2.79%.  Even if I take 2.7% of the appraised value (220k) I still come up with $6k in taxes.  I feel like this is a solid conservative number.  As for the insurance, my house is 5 years old, market value of $270k and my insurance is $865.  I'll bump to $1200 to be safe.  I'm guessing insurance goes up the older the home is?  This would actually make some sense... Thanks for the comment!
@Ken Nyczaj

The house is only 37 years old.  You may have been looking at the SF number instead of the year?  I've bumped up my maintenance number.

@Thawda Aung

What is a "land play"?  I have adjusted my capex up to 10%.  Thanks for the comment!  Don't think I can convince the wife to go for a house hack.  Infant child and we are living in a 5 year old home with many luxuries that we would definitely lose by going for a house hack.

@Brian Ellis

I haven't actually gone in the house yet.  I have a walk through in the next few days.  I will definitely know more after that.  I'm hoping that since it is in a nice neighborhood that it wont need a whole lot done.  House looks great from the outside haha!

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