San Marcos, TX Buy and Hold opportunity - need advice!

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San Marcos, TX Buy and Hold opportunity - need advice!

Timothy Edwards
Real Estate Investor · Kyle, TX · Member since 2014 · 33 posts · 4 votes

I am considering my first purchase for buy and hold and found a potential deal, but there's a caveat. I plan on living in one side of the duplex for the first 1-2 years. By doing so, I will "reduce" living expenses by $800/month. Here are the numbers that I have. I would appreciate any feedback from all the BP'ers that are out there.

Asking price: $82,000

Located 5 minutes from Texas State University. Hays County, projected to be THE fastest growing county in Texas based on state projections over the next 30 years.

MF 2/1 and 1/1 duplex. Built 1986. 1,400 sq ft. Natural gas. No central air (window units)

Taxes $1,400 year

*Price has come down twice from $89,000 since listed three weeks ago.

The neighborhood (short street actually) consists of homes 500-900 sq ft, with one MH at 1,200 sq ft. In the area surrounding this street, the only homes listed are in the neighborhood of $90k-110k. This one would price no more than $95,000 and would probably be pushing it at that price.

Rehab is minimal - paint and laminate flooring for interior, paint exterior and minor landscaping. Total rehab $5,000 worse-case scenario barring any unforeseen issues (offer would be contingent on home inspection, obviously).

Rent potential for 2/1 side of duplex $650-725.

Rent potential for 1/1 side (I will occupy for 1-2 years) - $450-500. However, the value of me living there versus present rental is $800 month as I stated previously. Am I wrong in factoring $300 cash flow based on this reduction in living expense?

Based on the asking price having been adjusted twice in such a short time frame, the seller apparently wants out sooner rather than later, and has room to move on price.

Assuming I can get them lower, what price pencils out to where this is a good long-term investment?

I need a fresh set of eyes - way to much eraser math done already and I'm afraid I've lost perspective. I apologize in advance if I'm leaving out key information; like I said, this would be my first REI and just needing some advice.

Thanks in advance!

Tim

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Daniel Kaminske
Residential Real Estate Agent · Austin, TX · Member since 2013 · 11 posts · 4 votes
12y

Hi Tim,

I'm an investor currently living in San Marcos. I started out living in my first duplex also. It can be a great arrangement. I'd be happy to meet up to discuss this one with you. send me an email.

Cheers,
Dan

[email protected]

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  • Kevin Brown
    Rental Property Investor · Dallas, TX · Member since 2013 · 114 posts · 38 votes
    12y

    If ARV is $95k tops, Id be nervous to pay anything in the $80s. I know you said rehab was minimal, but Id have a hard time seeing the place rent well or sell without central air; (it also seems odd that a property built in 86' doesn't have central air) I know youll be saving money living in the smaller side, but factor in taxes and insurance and I don't see enough cash flow there to justify investing $80k or so. It by no means seems to be a BAD investment, but I know you can do better in Texas, especially in a small(er) city like San Marcos

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  • Daniel Kaminske
    Residential Real Estate Agent · Austin, TX · Member since 2013 · 11 posts · 4 votes
    12y

    Hi Tim,

    I'm an investor currently living in San Marcos. I started out living in my first duplex also. It can be a great arrangement. I'd be happy to meet up to discuss this one with you. send me an email.

    Cheers,
    Dan

    [email protected]

    1Reply
  • John T.
    Rental Property Investor · Central U. S. A. · Member since 2013 · 296 posts · 149 votes
    12y

    @Timothy Edwards I always do a quick analysis for screening purposes using the 50% rule.

    The 50% rule, which is generally considered to be fairly close to actual expenses, states that …

    50% of your gross rents will be taken up by expenses...
    property tax
    insurance
    vacancy
    property management
    maintenance
    capital repairs
    legals and accounting.

    From the remaining 50%, you service your debt, if any, and the remaining is your profit. It is a guideline. After a number of years you will get an idea of the percentage of expenses for your property, but experience shows it will be close to 50%

    I assumed that you will purchase the property for $82,000.00 cash and that you make $5,000.00 in capital additions for a total amount invested of $87,000.00. Next, I assume that your monthly scheduled rent will be $1,225.00 ($725 for the 2/1 and $500.00 for the 1/1).

    Total Gross Income $14,700.00
    Less Total Expenses 7,350.00 (Assume 50% rule)
    Net Operating Income 7,350.00

    Your cashflow before taxes is $7,350.00 annually or $613.00 per month. The Capitalization Rate on this property is 8.4483%.

    I would not factor in the $300.00 that you will be saving by living in the 1/1 unit. The money that you are saving by downsizing into the 1/1 is not "cash flow" resulting from the investment.

    Bearing in mind that I have not seen the property nor the surrounding neighborhood, I think the proposed investment may be acceptable. It would certainly pass my initial financial screening. You can make the investment better by paying less purchase money and/or by managing your property in such a way as to lower your expenses from the assumed 50% down to 30% or 40%.

    As a side note, I think San Marcos and Texas State University are great areas for real estate investment. As others stated, however, I do have a problem with the lack of central air.

    Good luck and keep us informed of your progress.

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  • Jacob Forbis
    Investor · San Antonio, TX · Member since 2014 · 78 posts · 12 votes
    12y

    @Timothy Edwards Just checking to see how this went? I am looking to move here in a few months following a similar strategy and would like to here if it was a successful deal.

    What part of town did you buy in?

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