Rental property numbers - what is wrong here?
Looking at a potential rental in the Houston Area. My agent is telling me there are multiple offers above list. I can't seem to make the numbers work. Any thoughts as to what I'm doing wrong?
https://www.biggerpockets.com/calculators/shared/4...
Thanks for any feedback.
I’ve been seeing you looking for deals. Is this your first? If so why not just self manage it?
In this market it's very hard to find properties that work for buy and hold. Houston has lots of condos in the Willcrest area in the $50s that you can make a good return on.
@Ryan Johnson, yes, I've been trying to find my first deal for a while. I do plan to manage this myself, but I'm trying to follow the biggerpockets "rule-of-thumb" to include management in your expenses even if you plan to manage it yourself. I hope at some point in the future to have enough properties to hire a management company. Or should I just include that in my cashflow and count on rent escalation to cover that when the time comes?
Thanks
@JR T. Thanks for the tip. I'll start looking in that area. I've looked at some condos and townhouses previously, but the maintenance fee seems to eat up the cashflow. Are they lower in that area?
Your agent isn't going to help you pay the note. Stick to your numbers.
@Mark Sewell, good advice. I want to make sure I'm not overlooking good properties, but I also don't want to make a mistake on my first deal.
I did a flip on my first deal and I managed to talk myself into a really marginal deal. Lost money on it. Worst thing is my HM lender tried to tell me. He was right.
Better to sit alone at the bar a few more nights than go home with that quirky strange one with real issues.
My understanding is that there is a real shortage of housing at that price point in our metro area. Just super high demand right now. At your deal appears to cover all your costs.
@Brian Reichardt
Real estate investing requires critical thinking its fine to use a particular platform on ROI but you must cater it to you and your program. Most platforms are designed for your safety in investments. Take away the safety features and trust your instincts after your due diligence and you're going to have more deals then you can handle and when that happens reach out to me I'll JV with you..Lol
Best of Luck
I run numbers almost daily. On anything that comes up on the MLS and anything that my realtor has as a pocket listing. Practice makes perfect. I've made 10-12 offers this year and haven't gotten one to sell yet. But I'm not willing to compromise my numbers to get a door and make 25 a month after expenses. My money is better spent elsewhere for the time being.
You're running your numbers correctly and the results don't lie - this isn't really a deal at all. As newbies, we tend to get analysis paralysis but this is not it. Remember also that if any of your numbers are even slightly off (arv, repairs, etc), you'll be in the red.
You don't need to land a perfect deal on your first but you don't want to be in the red every month either because that's gonna lead you to quitting this business altogether. Houston is a really tough market right now which makes buying right difficult. Just keep trying and don't despair!
I’m trying to get started in Houston and thought maybe I was over analyzing deals. Everything I’ve run numbers on so far has shown similar marginal opportunity. Good to know I’m not alone.
Why only 10% down? As an investment property you should need 20-25% down. It'll lower your COCR but increase the cash flow.
This seems really tight. But you have some equity through forced appreciation. You will also have the tax advantages and principal pay down by your tenant. It’s important to look at many angles and your ultimate goal. Your first deal is likely not going to be your best deal. But it will help you build confidence and education. You can spend thousands on training courses. But you’ll learn best by doing. I’m not advocating this particular deal, but just trying to add some perspective.
@Tony Castronovo, I've found a portfolio lender that will do 10% down on a 30 year with no PMI which allows me to increase my leverage. I've run my numbers with 20% down, too, and at this price range it doesn't make a whole lot of difference, $30 or so a month.
Originally posted by @Brian Reichardt:
Looking at a potential rental in the Houston Area. My agent is telling me there are multiple offers above list. I can't seem to make the numbers work. Any thoughts as to what I'm doing wrong?
https://www.biggerpockets.com/calculators/shared/4...
Thanks for any feedback.
Properties will sell in excess of the price that makes sense as a rental all the time. Remember you’re competing most often that want to buy it to LIVE IN. So if you told them “why are you paying so much. At that price it’s only an x% cash on cash return...” they’d say “uhhh. So?”
Why it’s better to stick to investment properties. You still get people buying and bidding for emotional reasons but for the most part you’re competing with others that need (or at least want) a return
Originally posted by @Brian Reichardt:
@Tony Castronovo, I've found a portfolio lender that will do 10% down on a 30 year with no PMI which allows me to increase my leverage. I've run my numbers with 20% down, too, and at this price range it doesn't make a whole lot of difference, $30 or so a month.
You’re thinking the right way. Don’t let someone tell you to put more down to increase your return. That’s just buying cash flow. It’s the easiest way to have a small handle of properties 10 years later (though if that’s all your trying to do go for it)
Originally posted by @Brian Reichardt:
Looking at a potential rental in the Houston Area. My agent is telling me there are multiple offers above list. I can't seem to make the numbers work. Any thoughts as to what I'm doing wrong?
https://www.biggerpockets.com/calculators/shared/4...
Thanks for any feedback.
This doesn't look like a good deal to me, but I'm curious who your lender is who is giving you 5.25%? I'm in TX as well.
Great that you have a lender offering a competitive interest rate with only 10% down. Please note that I was not suggesting you put more down on the property. It was just a question as I have normally seen higher down payments required by lenders for investment properties. You have to do what makes sense for your situation.
1% property? yes barely.
Value add? yes. $33K.
If I BRRRR at 80% LTV what is my in costs: $4K + refi costs.
Does it cash flow: Yes without the refi, but minimal. Probably not with the refi because larger loan equates to higher payment. If it has a little negative cash flow you have $33K of value add to compensate for any negative cash flow. The projections show $850 cash flow at year 5. Add in equity pay down to that for a better monthly return.
I do not understand why so many are thinking this is not a decent deal. Based on the numbers, if it were on my market I would look at if it met my non-financial standards because it meets my financial standards.
I have purchased a cash neutral property that I BRRRRed taking our ~$100K. With the increased loan my conservative estimates have it at -$300/month (cash negative). You know how many months at -$300/month can be compensated by $100K?
$33K of value on that size purchase is not far different than the $100K value add on my purchase ($390K purchase + $60K cost of value add = $450K total).
I am the contrarian but I like the financials because of the $33K value add. The cash flow alone would be a pass.
Good luck
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@Brian Reichardt you have some interesting psychology going on with your numbers. You are looking closely at the cash flow but the largest and most important # in this theoretical purchase is the overall rate of return on your money invested.
If you trust your numbers, this is a screaming deal...47% return in one year with a 23% annual return over 5 years?! Cmon folks, how much better do you want to do? Maybe thats why there is so much interest. That is, if those numbers are solid....
So you clearly don't trust your numbers, and I think you may have good reason not to. Its the rehab and value add numbers you should be focused on to decide the purchase...don't step over dollars to pick up pennies:
Can you really get that kind of immediate value increase out of 12K repair? Are you paying retail rates for contractors? What are you planning to do?
Have you considered the costs of exit? At least 6% and likely more if you have to juggle vacancy and sales and refresh.
There are going to be some lawyers and accountants in their somewhere, make sure they are tallied. We add in a category for EOFT (every other f#$%ing thing--you get the idea)
General holding costs count too, and landscaping gets overlooked. But, again, focus your attention on where you think the money is. Your own numbers tell the story of a "sell it sooner rather than later" property, so whether or not it cash flows break even, $125 +/- is not the important thing to focus on.
Good luck.
@Clint G. I just PM'ed you the lender you asked about. I hope it helps you out.
Brian
@Tony Castronovo, Thanks for the clarification. I'm happy to pass along the lender if it will help you out. PM me.
Brian
@Jonathan R McLaughlin, Thanks for you comments. You've given me some things to consider. I have been looking primarily for cash flow as I'd like to retire someday with enough passive income to cover my living expenses. That said, when I run my numbers I do keep the forced equity in mind in case i need to flip as a plan "B."