New builds in the suburbs

14 Replies | Dallas, Texas

Morning BP'ers

First post here. I've been patiently saving and researching for about 6 months and I'm getting a little "analysis paralysis". I grew up and currently reside in Dallas proper and work in McKinney and it seems like rentals are maxed out due to high property taxes. My next-best strategy was to live-in flip on a 9 to 12 month turn around, but I'm finding that lenders don't like to shell out cash to first time flippers. Explored house-hacking a MF but I haven't seen any ~$250k / $300k inventory from SMU up 75 to McKinney. So my next question becomes, does anyone have experience / recommendations for buying new from a homebuilder? Some new builds around 380 are selling quickly and slightly under market, but I haven't seen much discussion regarding those properties as investments. 

Appreciate any thoughts!

Steven 

Hi Steven! So your long-term goal is to aquire a rental property? Or looking to flip for some cash, maybe live in something for a little while and capture appreciation and sell? 

We purchased a 3 year old home in Melissa just north of McKinney on 75 7 months ago. Thry are still building out the rest of our neighborhood and still doing the same floor plan we have but it cost $75k more then what we paid for a 3 year old well maintained home. 

I helped some clients (I am a realtor, personally invest in rentals and flips and work with investors as well) purchase a new home in Mckinney just north of 380. They love it have experience a small bit of appreciation but the numbers there for rentals would not quiet cover your expenses. I know some California investors in that same area that bought new, will rent them for two or three years loosing a little bit each month and then plan on selling them and cashing in on the appreciation. I am a fan of cash flow with appreciation as a bonus but they have had success in the past making some decent money 

Hi Steven, You can still find reasonably priced new construction that cash flows South of I20 in Fortworth. These are typically small builders that buy a lot for cheap, build a new SFH or duplex and want to sell it quick.

New to this myself as I'm buying a new constructed house.

I'm currently under contract on a house in East Point, Georgia a suburb of Atlanta near the airport, lots of employment in the area with a need for housing.

4 Bed; 3 Bath; 2 Car Garage; 1,805 Sq. Ft. (To be completed by mid July) 

B Class Property

Celebration Series 1805-B (The House Model) Wade Jurney Homes

Wall to wall carpet in the living room area. I wanted vinyl plank, but unfortunately I have no say in the input or control into the materials used in various places in the home. These have already been determined by the builder. This house was under contract with another investor who pulled out.

Carpet #729 (Fortune Cookie)

Vinyl #AC432 (Sandy Brown)

Tops #7734-58 (Jamocha Granite)

The house comes with a 10 year warranty and all future repairs must be done through the company or the warranty is void.

COST - $150,990 ($95.00 deposit holds the home with approved lender and attorney) 

ESTIMATED VALUE - $153,000

RENT - $1,325

CASH FLOW - $364

I got financing for a 30 Year Fixed loan for 5.25% at 25% down 

Now waiting until July before I can do anything else.

@Steven Atkins  What makes your budget $250-300k for a MF house hack? You can find some duplexes in the Richardson area near 75 for $350k or so. I have a duplex near 75/635 that's worth about that.

What is the draw to buying a new build as an investment? Appreciation play?

@Cory S. Thanks for sharing, I'll have to check with some family I have in Georgia to see what they think of the area. Would you mind sharing the numbers that you used in your analysis to come out with $364 of cash flow on that deal? It seems like with my usual 5% vacancy, 15% capex/maintenance and property management that deal would sink. 

@Account Closed I hope we are all missing something. I am sure you spent much much more time looking at it compared to the 5 minute analysis I just gave it. Curious how this all turns out.

@Colin Conn , you are talking about LGI homes in Melissa? How is rental market in that Anna/Melissa?

@Krishna Chava , Can you please forward some details about FW new construction homes. I am interested in exploring that as i can see very good growth in that area... I own few in Crowley and Burleson area.

@Cory S. Thanks for providing detail numbers. Sounds good long term investment.

Finally done, inspected, and appraised!

Got a smaller interest rate 4.875%

Loan Amount $113,242

Cash to closing $46,323.30 (Closed Aug. 2)

Estimated monthly payment with loan, insurance, taxes $796.33

Rent $1,325

Right at 50% on my income to debt ratio so the lender wanted to see some reserves which I did.

After inspection had to fill in the holes. Don't think they were fully done when the inspection took place, but it is done now.

Punch List




EXTERIOR
Seal all seams in siding
Seal all gaps on trim and where trim meets siding material
Caulk all doors and windows where needed
ROOFING / GUTTERS
Seal over all exposed nails
Repair flashing around vents where needed
Add kikk out flashings where needed
PLUMBING
Adjust hot water temp 110 - 120 deg.
Repair plumbing leak From upstairs bath (note living room ceiling)
ELECTRICAL
Remove paint from outlets where needed
Add missing light bulbs
Repair / replace GFCI in kitchen
HVAC
Add missing HVAC registers
INTERIOR
Caulk around all tub and shower trim
Add missing door hardware

Then to get it ready for a tenant...

Washing machine over flow pan
Co detector (garage)
Garage Door Opener
Appliances 18 Cu Ft Refrigerator
Blinds (14)
Lock Changes: (smart key system) Four Sets of Keys

Got a new PM and smaller fee, about to hit the market!

PRICE: $150,990

HOUSE APPRAISAL: $168,000 

Very pleased!

@Shital Thakkar I have not had any clients purchase from LGI yet but I am familiar with their work. They are the most affordable new construction I have seen. Nothing fancy and no changes but if you want a new house on a budget they are the way to go. Rental market is good in Melissa/Anna. Lots of growth and people moving out this way. They are planning on building a hotel off 75 in Anna and the collin county outer loop that is between Melissa and Anna is supposed to one day go all the way around and down to i20. Now would be a great time to get in on a rental, make some decent cashflow and then get great appreciation down the road. 

@Cory S. Just wanted to ask some questions on your estimated monthly payment with loan, insurance, taxes of $796.33. The loan payments are $599.28. Without a homestead exemption on the property (only available if it is the owner's primary residence) the tax rate will be approximately 2.7% (I looked this up on the Williamson County Assessor's site and it depends on the MUD, Hospital District and School District you fall into) which would be $4,050/year or $337.5/month (this may not get reassessed until next year since it is a new build and this is assuming that you will get a valuation of only the $150k not the appraised value of $168k). Insurance will run anywhere from $800 - $1,500/year depending on your deductible. Assuming the low end that would be $66.67/month. 

This puts your PITI (Principal/Interest, Taxes, Insurance) at $599.28 + 337.50 + 66.67 = $1,003.45/month.

I am assuming you are using the tax number from when the lot was a vacant lot with no improvement on it. That will change by next year and will increase your expenses substantially. It may even get reassessed before the 2018 taxes are due in January. I don't know when they are able to reassess based on improvement during the current taxable year. I just want to make sure you are aware of that so it doesn't sneak up on you.

Then you will want to have some sort of lawn care and general maintenance budget for tenant "uh-ohs" of about 5% of rent which is another $66.25/month. I think you are safe not assuming any Cap Ex for the next 4 years as it is a new build but you will want to start saving for when those do come up. Using the standard vacancy rate of 8% of rent gives you $106/month and a standard property management rate of 10% of rent gives you 132.50/month.

Adding these normal operating business costs give you $66.25 + 106 + 132.50 = $304.75

Your total all in expense at $1,308.20/month.

**I used all your numbers, public info from the Bigger Pockets mortgage calculator and public info on the Williamson County Tax Assessor's website. I did make assumptions on insurance but I feel that $800/year is very low and that you would have 5% of rent in lawn care, professional fees for tax software and other, and a small budget for small repairs. 10% for property management is the norm until you are managing 5+ properties then you can start to get some breaks.

I hope that you are able to make this work for you but it will be tight even with your 30% down payment which is a lot of cash to tie up. If you have any questions about my calculations or numbers, please give me a message or ask them in the boards.

@Cory S. 

***Update*** After posting I saw this house is not in Leander, TX and is in the GA area. I am not sure of tax rates in GA so that needs to be disregarded but insurance, repairs and maintenance, and property management will still be fees that will need to be considered. Sorry for not reading fully about the location of the home and assuming it was purchased locally.

Just wanted to ask some questions on your estimated monthly payment with loan, insurance, taxes of $796.33. The loan payments are $599.28. Without a homestead exemption on the property (only available if it is the owner's primary residence) the tax rate will be approximately 2.7% (I looked this up on the Williamson County Assessor's site and it depends on the MUD, Hospital District and School District you fall into) which would be $4,050/year or $337.5/month (this may not get reassessed until next year since it is a new build and this is assuming that you will get a valuation of only the $150k not the appraised value of $168k). Insurance will run anywhere from $800 - $1,500/year depending on your deductible. Assuming the low end that would be $66.67/month. 

This puts your PITI (Principal/Interest, Taxes, Insurance) at $599.28 + 337.50 + 66.67 = $1,003.45/month.

I am assuming you are using the tax number from when the lot was a vacant lot with no improvement on it. That will change by next year and will increase your expenses substantially. It may even get reassessed before the 2018 taxes are due in January. I don't know when they are able to reassess based on improvement during the current taxable year. I just want to make sure you are aware of that so it doesn't sneak up on you.

Then you will want to have some sort of lawn care and general maintenance budget for tenant "uh-ohs" of about 5% of rent which is another $66.25/month. I think you are safe not assuming any Cap Ex for the next 4 years as it is a new build but you will want to start saving for when those do come up. Using the standard vacancy rate of 8% of rent gives you $106/month and a standard property management rate of 10% of rent gives you 132.50/month.

Adding these normal operating business costs give you $66.25 + 106 + 132.50 = $304.75

Your total all in expense at $1,308.20/month.

**I used all your numbers, public info from the Bigger Pockets mortgage calculator and public info on the Williamson County Tax Assessor's website. I did make assumptions on insurance but I feel that $800/year is very low and that you would have 5% of rent in lawn care, professional fees for tax software and other, and a small budget for small repairs. 10% for property management is the norm until you are managing 5+ properties then you can start to get some breaks.

I hope that you are able to make this work for you but it will be tight even with your 30% down payment which is a lot of cash to tie up. If you have any questions about my calculations or numbers, please give me a message or ask them in the boards.

Your numbers are off and this is not in Williamson County, it is in Georgia.

None of my properties are in Texas, 2 in Georgia, 1 in Alabama, and 1 in Ohio.

THIS HOUSE IS BRAND NEW, JUST BUILT and is under Warranty

EAST POINT, GEORGIA (Fulton County)

4 Bed; 2.5 Bath; 2 Car Garage; 1,812 Sq. Ft. (Built 2018)

PRICE: $150,990

PAID: 25% Down ($37,747.50) 4.875% Interest Rate; 30 Year Fixed (Conventional Loan)

APPRAISAL: $168,100

OWE: $113,242

RENT: $1,425

PRINCIPLE & INTEREST: $599.29

PROPERTY TAX: $146.90 (This is not based on a vacant lot)

INSURANCE: $50.14

MANAGEMENT FEE: $128.25 (9% with Property Frameworks)

TOTAL: $924.58

CASH FLOW: $500.42

LAWN CARE: Tenant responsibility 

MAINTENANCE: $1,000 prepaid in escrow

It is a good deal and I'm happy with it