Our newest BRRRR in Texas

[Jeff Richardson]

We have a contract on rental #6. Cash out of pocket $15,000, Purchase price $89,000, rehab $23,000, ARV $135,000, capital gain $12,000, 80% return on capital gains, monthly cash flow $463, 37% cash on cash return, total return for year 1 without appreciation: 125%. We have or are looking to invest in DFW, dallas, Fort Worth, Texas, Houston, garland, mesquite, Rowlett, Katy, sugarland, haltom city, Denton, Waxahachie, Waco, Austin, San Antonio, round Rock, Gainesville, Justin, Arlington, Grand Prairie, Irving, farmers branch, rockwall, Corinth.

[Cameron Tope]

Originally posted by @Jeff Richardson:

@Cameron Tope We list the properties ourselves and typically get the tenant in place without incurring any costs, by setting up group showings. As far as Cap Ex, we replace everything that will go out in the next 7 years upfront and factor that into our rehab (We will sell within 7 years to trade up to apartment complexes when Cap rates are higher). As far as vacancy goes, we typically have the highest quality property in the area at the best price to get the largest tenant pool possible, we then screen them thoroughly and check with multiple personal references and we go back to 2 of their previous landlords for recommendations, to date we have not had any vacancies, not a single day except for the marketing time after the properties were rehabbed (typically 2 weeks). We have another property in Houston that our monthly payment is $603 PITI, and rent is $1,150, so the $463 is on the lower end.

Jeff,  that's a solid answer! But I have to admit, in my experience even if we replace all the major items, we still have repairs or small expenses that can add up over the course of a year. Here are some examples of small issues we've had to address over the past few months; leaking sink, lint buildup in dryer vent, clogged garbage disposal, ants and cockroaches, and broken sprinkler head in irrigation system. 

Now these are small and relatively inexpensive issues spread out over several properties, but they add up, especially if you're not handy and need to hire out the work. 

My real fear comes from a newbie who reads your post and thinks $1350 gross rent minus $887 PITI equals $463 in his or her pocket every month.

You have a strategy that works for you, which is great. I just wanted to shed some light on the cash flow details. 

Best of luck on future deals and especially investing in the Houston market!