Help with exit strategy for SFH

4 Replies | Houston, Texas

Hello BP'ers, 

I am newer REI in H-town, and I would like to get opinion from fellow REI on exit strategy for SFH in Clear lake, TX.

Goal: My current goal is to take action and learn every aspect of SFH REI ( acquisition, rehabbing and exit process) and potentially make some profit from my first deal. My long time goal is to have enough passive income through rentals ( SFH and then eventually to MFH), so that I can replace my current W-2 income.

Background: For past 6 months, I have been learning ( books, podcast , local seminars etc.) and recently started to search for deals. Made couple of offers, but always beaten-out by time or overbid price. I guess that was part of learning curve. Last week, I finally got my first SFH under contract. It may not be a home run deal and but good enough to get my feet wet.

Project: SFH: Its a 1410 ft2 , single story ,3 bed 2 bath, 1983 built in clear lake TX area zip 77062.

Purchase price : $80K

Major Rehab: $ 40k - $50 k (depending exit strategy)

ARV: 170K-175K

Rent : $1600/month

  • Neighborhood: ZIP 77062
  • Median rent: $1800
  • great school  district ( 7/10),
  • median home value $175k , average home value $219k. 
  • owner occupied 69% renter occupied 27%. 
  • median income $ 88k, average $ 117k. 
  • population growth 0.9%/YR
  • crime: safer neighborhood (per trulia)

Exit strategy: 

  • BRRR strategy: potentially 5k-7k profit after refinance, cash flow $100/month (including PITI, capex, maintenance budget and property management).
  •  Owner/Seller finance  :potential  17k profit and cash flow $400-$500/month.
  • FLIP: potential 20k- 25k profit .

Please advice. thanks

Congrats on your first deal PJ! 

You didn't mention how you plan to acquire (e.g. cash, HML, etc). That does factor into the profitability as well as timing for your BRRR option.

Also, don’t forget if you hold the property you also get tax benefits (depreciation) and principle pay down from your tenants. And when you sell down the road you’ll be taxed on long-term gains at the lower rate. Some good perks to the buy & hold strategy beyond the immediate.

Congrats @PJ Singh , I am very familiar with the Clear Lake area and your numbers indicate you made a very good find.

If you longer term goal is to generate CF to replace W2 income, then I would say this is a keeper. You may also consider what I kind of see as a modified BRRR, where you leave some of your capital in the deal in exchange for a projected higher CF per month - your CoC is not as great, but you ultimately pocket more each month.

As mentioned by @Tony Castronovo , how you plan to acquire the property also impacts exit strategy. If you are buying and rehabbing with cash, another option could be to set up a LoC against the free and clear asset. This way your CF each money is higher, but you are also positioned to make future acquisitions with the LoC as they come along.

Best of luck!

Thanks @Tony Castronovo and @Juan Monge for your feedback. For acquisition, I have few options:

  1. Trying to get  convince seller to delay closing, so that I can get renovation loan with lender (30 day closing).  
  2. combination of my private money and HELOC. Refinance after seasoning period (6 months). 

I am inclined towards buy and hold strategy ( CF, depreciation, Appreciation and low taxes) , however with CF @ $100/month, it would be a long road to replace W-2. I understand, that first few properties may not make a significant difference, but you learn the processes and network. 

I am thinking of keeping cash reserve of 6 months PITI on each SFH rental for future economic upsets. Is that enough?

Juan M, for HELOC I am trying to find a lender who can give HELOC on investment property. So far I am not able to find one. They say in Texas, it is not allowed, but I reading in BP forum , that it is allowed. If anyone has reco, please let me know. Thanks

@PJ Singh , it is also my understanding that you cannot get a HELOC against an investment property in Texas.

If you make the acquisition in an LLC, what you can get is a business LoC - I have spoken to several (smaller) banks which are willing to do this. Another added benefit is that they will have there own seasoning requirements. Please PM me and I can pass along names.