Can't seem to find deals that cash flow

[Steven Gillmer]

Hello San Antonio investors!  I have only been in the market for a few months, but I was super excited about living in a market that would allow me to invest locally.  Unfortunately, every deal I analyze ends up in either miniscule or negative cash flow.  Here is a sample of a single family home in northeast S.A.:

Purchase price $110,000

Rent $1250/mo

Mortgage $594/mo

Insurance $100/mo

Taxes $267/mo

Repairs (5%) $62.50/mo

Capex (5%) $62.50/mo

Vacancy (Varies, but for this example 7%) $87.50/mo

Property management $104.70/mo

Net ($28.20)/mo

So, obviously there is a way to make money here or nobody would be inviesting.  Please let me know your thoughts on my assumptions and how I can find deals that will provide a cash on cash return of at least 10%.

Thanks!

[Seth Teel]

@Betty Cruz  If they were chopped up into multiple units prior to the City of San Antonio's adoption of the new Unified Development Code (UDC) in 2001 which re-zoned the entire city, they are likely "grandfathered" in and are considered "legal but non-conforming."  The burden of proof for this falls on the property owner, not the City, and the City can choose to except or deny your proof, should an issue arise.   

For those properties illegally, converted after the adoption of the UDC, they are considered in violation and non-conforming.  Technically illegal, but they aren't going to file criminal charges or anything, however City Code Compliance and Zoning can issue violations, which can result in fines, hearings, and ultimately court dates and even condemnation.  

Not to fear, though, you can always request a variance, special exception, or zoning change for the subject property.  A zoning change is best because it stays with the property after the sale; variances and special exceptions can sunset or terminate with the sale of the property.   CoSA Development Services has some really great people and they are happy to advise on your best option and they are willing to work with you to get your desired outcome.  That being said, zoning changes and variances are reviewed by boards appointed by the City Council and there is no guarantee the board or dissenting constituents/neighbors will agree with your request.  

Now on the financing.  If you pay cash for a non-conforming property and don't plan to refinance, you're fine.  However if you finance (Hard Money or Conventional) the purchase or plan a cash-out refinance, you may run into underwriting issues.  

Scenario: You may have a 4 plex, located in an R-4 zoning (Residential Single-family up to 4 units per acre) which does not allow for multifamily properties (RM-4 zoning or higher would be required).  Your lender's underwriter may disqualify the loan due to the improper zoning.  Often times, property owners think they are fine because BCAD says "Duplex" or "Multi-Family Use," but BCAD does not control zoning or land-use and although the Use may be correct, the City zoning may not be.  I have had clients run into these issues from time to time.  

One last item to mention.  If the property has been chopped up into more than 5 units, this may also preclude you from obtaining your desired financing as 5 units or more is considered commercial property. Additionally, the City requires fire suppression systems (FPS) for properties with more than 5 units.   FPS is extremely expensive and can turn a great investment into a costly liability.

Understanding proper zoning and land-use prior to purchasing a multi-family property is paramount to a successful investment.