Check my work please
Hello everyone! My name is Kendrick and I am new to real estate investing and im practicing my deal analysis, using the rental property tool on this website and using rentometer for an average rent rate. I found a single family home 3116 Wesleyan Dr S, Fort Worth TX 76105 to rent.
Purchase price: $155,200
Down payment: $0 (Im military so i plan on using the VA Loan)
I would love any advice on this. I did a 3% interest rate, vacancy of 5%, management fess $0 (because i'm local and would manage it myself), tenants would pay for the rest of the "custom expenses" (gas, electricity, etc).
Any help would be awesome! Thank you so much!
Thank you!
Kendrick Pratt
OK.
1. Where are you getting a 3% interest rate from still?
2. If you assume 0% management fees, that probably means your model won't work unless you manage it forever.
3. You have no funds for capital expenses (capex) - roof, HVAC, etc - or maintenance/repair.
Just based on what I can see from your limited posting I would not do this deal.
@Kendrick Pratt. What work needs to be done to make it rent ready ? What class neighborhood is it in ? That will dictate the maximum rent.
Welcome to BP! @JD Martin hit the nail on the head, especially related to interest rate and capex. You'll definitely want to factor those in to your numbers.
Keep in mind as well, VA loans are designed to purchase a primary residence. That may be your intent (to purchase the home, live in it for a year or more, and then rent it out), but from your post it sounds like you may be planning to make this a rental from Day 1. If that's the case, you'll need to look at other financing options besides the VA loan.
Hello everyone,
Thank y'all for your input and the additional points.
I do have some questions from what y'all said.
1) How much should i plan for CAPEX (5-15% monthly)?
2) How do you determine what type of class neighborhood is it in?
3) Okay, thank you very much on the VA loan aspect, yes my plan would be to rent from day 1, but with what you said then that makes sense and I would have to live in it for a year prior to renting it out.
4) Any other additional information that you think I should consider?
Hi Kendrick!
I agree with what the others said regarding your loan and needing cap ex. That area (Morningside) is typically a C-D neighborhood, meaning that you're tenant quality is not great. I checked the listing and it says multiple offers, so $165 would be what I'd run numbers against. Vacancy I would put at 10% because you are much more likely to have a nonpaying tenant in that area. I also saw that there is no stove or fridge from the pics. Typically these renters do not have additional money to purchase appliances, especially right now. Taxes will be higher because of your new purchase price as well. I noticed a few gaps around outlets, which indicates that the work that may have been done was pretty shoddy. I also see horizontal cracking in the brick on the front, which means you likely have foundation issues. It's probably a pier and beam. If you do take on a property like this I'm happy to send you my foundation guy's number. He handles the Ft Worth side of the metro.
THank you so much for your response and your attention to detail on this property. Those are some things that I didn't consider, and look at, so i greatly appreciate your help with that.
How do I figure out if a property is in an A, B, C, or D neighborhood?
Also, i'd love to connect with you sometime if you have the time. Also, yes please send over your foundation guy's number that would be very helpful!
Thank you so much!
I'll PM you so we don't clog up your thread.
Quote from @Kendrick Pratt:
THank you so much for your response and your attention to detail on this property. Those are some things that I didn't consider, and look at, so i greatly appreciate your help with that.
How do I figure out if a property is in an A, B, C, or D neighborhood?
Also, i'd love to connect with you sometime if you have the time. Also, yes please send over your foundation guy's number that would be very helpful!
Thank you so much!
Housing grades are best done locally, as "A" housing in one community might be "C" housing in another. But a general guideline:
A: The best housing available. This is where your doctors and lawyers live. Highest priced housing in the community both for sale and for rent. Relatively few rentals available. Investment returns excluding appreciation usually not that great since housing costs far outstrip what you can charge for rent. Tenants tend to want the best and don't mind paying for it. Tenants can be picky. Unless the entire community collapses, you'll always have housing value appreciation in A-class housing.
B: Good professional/upper blue-collar housing. This is where the bulk of your middle-class lives. Mostly owner occupied but enough rentals to mix in. Houses tend to be a little bit older but well kept and updated. Most of your renters will be responsible people with jobs that pay on time and want to live in good, clean neighborhoods. This is my personal favorite class of housing. Decent returns on investment without a ridiculous amount of work. Housing values typically appreciate well.
C: Lower blue-collar housing. Most people here have jobs but they may not be stable jobs or pay very well. Some crime but usually not out of hand or violent in nature. Housing stock tends to be older and may have had some poorly done renovations. Renters are more on the bubble but are usually reasonably reliable in payment as long as they've been screened well. More money to be made here than in B housing but more work on both the houses and the tenants. Neighborhoods have a lot of rental properties mixed in with older long-time residents who just want to live somewhere cheap or can't afford to move. C neighborhoods are usually transitional - they're either declining to D or being rejuvenated to B. C neighborhoods that aren't transitioning upwards usually have little to no housing value appreciation.
D: One step above the war-zone (F). Lowest income residents. A lot of Section 8. Housing stock tends to be very old and most people are renters. Homes aren't well cared for and there's a lot of crime. If you own rental property here long enough you'll get familiar with the eviction courts and with law enforcement. Lots of money to be made - arguably the best return on investment of all property as far as cash flow - but you are going to work for that money. Virtually no housing appreciation and often housing depreciation.
F: The war zone. Rampant crime and drugs, abandoned houses, homeless bums and squatters. If you can get someone to pay for housing in the war zone, it won't be for long. You won't go into these neighborhoods without the police or being armed yourself. Housing is worth virtually nothing in this class and will not appreciate unless the entire neighborhood is revitalized. Paradoxically, F-class housing often has the best chance of vaulting to A or B class housing because it is often in highly desirable geographic locations and no one cares if it gets bulldozed and they start over. Unfortunately that often means a whole lot of absentee landlords only holding property as speculation if/when that ever happens.