A rudimentary first analysis of a rental home in DFW, Texas.

Real Estate Deal Analysis & Advice
12yFollow

A rudimentary first analysis of a rental home in DFW, Texas.

Zachary D.
Arlington, TX · Member since 2014 · 68 posts · 7 votes

So, since I live abroad, I thought I would run some numbers on a run down place in my hometown. I hope everyone can pull back the curtains on this property. I feel like I'm barking up the wrong tree because this definitely needs a lot of repairs. But, the gap in cost and ARV seems attractive.

Property Features:

Address: http://www.zillow.com/homedetails/821-Running-Cree...

3 Bedroom 2 Bath

1986

Estimated ARV: 114,000 ( Based on redfin.com and zillow.com research )

Estimated Rent: $1300 / Month ( Based on similar criteria from around the city. )

Selling Price: 77,500

My offer: 70,000

Repairs: 7,500 ( arbitrary )

My down payment: 14,000

Payment (Including taxes, insurance, per willow) $501

Closing costs: not assumed

Commissions: not assumed

1. Determine if the selling price is reasonable considering the bad condition.

Looking at the follow numbers leads me to believe that this is a possible deal.

My offer: ( ARV$114,000 - 70%Rule ) - $10,000(Repairs) = Appx. $70,000.

2. Determine Cash Flow ( Based on area average rent and 50% rule ).

($1300 The normal rent in the area / 2 ) - $500 Mortgage = Appx. $150 of income.

3. Determine the cash on cash return, or how much of my downpayment I earn back in a year.

Yearly Income / My down payment = Amount of downpayment recovered yearly.

 $1,800 /  ($14,000  + $7,500) = 8% of the down payment and initial repairs recovered each yearly. (CoC)

Conclusion

If I used the rules correctly, I think I might have a ballpark outlook on this property as a single family rental. I can't use the BP calculator anymore and I'm not ready to go pro, so this is what I have for the moment. 

If I included the above not assumed commissions and fee, I feel like the deal might be fruitless. :( sad face.

Any insights would be helpful!

0Reply
81 views

Most Popular Reply

Jackie Lange
Investor · Central America, Panama · Member since 2010 · 423 posts · 293 votes
12y

Keep in mind two things

1.  All homes in Arlington Texas either have or will have foundation problems.  Foundation problems are very expensive to fix.  Figure $500 per pier - assuming double shaft pier.  The foundation work alone can cost you $10,000.

This house probably has foundation problems.  The foundation problems happen in the DFW area when the soil is not kept at a constant moisture content.  When it get to 100+ in the Texas summer, it is necessary to water your foundation every day to keep the foundation from cracking.  If the house does not have a working automatic sprinkler system which can be set to water automatically, you will need to either install one or at the very lease have soaker hoses put around the perimeter of the house and set up with an automatic timer.  Most tenants will turn off the automatic timer to avoid the very high water bills in Arlington.

If you decide to write a contract on this property, include in the special provisions area that you want a structural engineer to inspect the property.   

Do not, I repeat DO NOT, get a foundation company to inspect the property because they are in the business of selling piers and will always recommend foundation work.  If 10 foundation companies inspect the property you will get recommendations for anywhere from 10 to 40 piers.  If they know you are not local, they will probably lean more towareds the 40 piers.  

2. Property taxes are higher in Arlington than any other city in the DFW area.  You're looking at 3%+ on the value.  

1Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Bryan L.
    Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
    12y

    @Zachary D. - This may or may not be a good deal.

    First, don't trust Zillow's "Zestimates" - neither for value or market rents.

    Second, I've found it to be a very rare case where one can buy a fixer that needs less than $10,000 in repairs.  They do exist, but those types of deals are usually snatched up by owner-occupants and they run the price up too high.

    0Reply
  • Zachary D.
    OP
    Arlington, TX · Member since 2014 · 68 posts · 7 votes
    12y

    Thanks for replying, Bryan.

    I agree that Zillow is not gospel. As I'm living abroad right now, I'm just using the surface data available to put my mind to work. 

    Your comment about the repair work is appreciated. Even guessing rehab costs is totally out of my league at this point.

    Thanks again!

    0Reply
  • Bill Jacobsen
    Salem, OR · Member since 2013 · 701 posts · 159 votes
    12y

    You state the monthly payment which is PITI. Taxes and insurance are actually included in the 50% rule so you have actually counted them twice.

    This property meets my criteria which is that NOI/(price+repairs) is 3 percentage points above my cost of money.

    Good Luck

    Bill

    0Reply
  • Joseph Weisenbloom
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    12y

    You are living abroad? How did you get the estimate for repair costs? I would have 3 general contractors do a walk through to get a ball park estimate. 

    I assume this property is in Arlington? That is a pretty good area for rentals.

    Like has already been said don't rely on rules of thumb or information from zillow or trulia. Get the real numbers because costs are often higher down here in TX because of our astronomical insurance and taxes. Zillow and trulia are based off of algorithms and not real data.

    0Reply
  • Jackie Lange
    Investor · Central America, Panama · Member since 2010 · 423 posts · 293 votes
    12y

    Keep in mind two things

    1.  All homes in Arlington Texas either have or will have foundation problems.  Foundation problems are very expensive to fix.  Figure $500 per pier - assuming double shaft pier.  The foundation work alone can cost you $10,000.

    This house probably has foundation problems.  The foundation problems happen in the DFW area when the soil is not kept at a constant moisture content.  When it get to 100+ in the Texas summer, it is necessary to water your foundation every day to keep the foundation from cracking.  If the house does not have a working automatic sprinkler system which can be set to water automatically, you will need to either install one or at the very lease have soaker hoses put around the perimeter of the house and set up with an automatic timer.  Most tenants will turn off the automatic timer to avoid the very high water bills in Arlington.

    If you decide to write a contract on this property, include in the special provisions area that you want a structural engineer to inspect the property.   

    Do not, I repeat DO NOT, get a foundation company to inspect the property because they are in the business of selling piers and will always recommend foundation work.  If 10 foundation companies inspect the property you will get recommendations for anywhere from 10 to 40 piers.  If they know you are not local, they will probably lean more towareds the 40 piers.  

    2. Property taxes are higher in Arlington than any other city in the DFW area.  You're looking at 3%+ on the value.  

    1Reply
  • Zachary D.
    OP
    Arlington, TX · Member since 2014 · 68 posts · 7 votes
    12y

    @Jackie Lange Thank you so much for the rundown on the foundation issue and to @Joseph Weisenbloom for the reality check.

    I didn't do a good job of communicating that as I'm abroad for the time being, I'm just using the data at my finger tips to do simulations and practice the math. I'm sorry if I made it seem like I was actually shopping.

    When I come back to Arlington next year, I want a lot more wisdom on my side. Thus, the study.

    Would anyone have a more accurate way to run myself through scenarios? I'm already reading BP everyday and listening to the poscasts.

    Thanks again to everyone!

    0Reply
  • Joseph Weisenbloom
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    12y

    @Zachary D. Great question on how to accurately run scenarios. I am currently looking for another property as we speak so I will walk you through my process. Some stuff you are going to have to just save a percentage of monthly income for and others you can get a real number.  I typically account for 10% vacancy, 15% maintenance/capex, 10% management. I then try to get the exact insurance and tax numbers. For insurance call around and get some quotes. Tax numbers can be found on county tax assessor websites. Keep in mind if you buy a house for significantly above assessed value your taxes WILL go up the following year when they re-assess it so account for that.

    For determining rent I like to use rentometer.com and also look at the rentals section on realtor.com. When looking at realtor.com try to keep in mind the square footage and age of the comparable property. I personally try to envision myself undercutting the competition by at least $50-100 per month in rent. The more competitive you are the lower the vacancy cost. Once you know an area well enough you will know what to look for.

    0Reply
  • Zachary D.
    OP
    Arlington, TX · Member since 2014 · 68 posts · 7 votes
    12y

    @Joseph Weisenbloom Thank you so much for taking the time to help me out! I'll try to reevaluate my techniques according to what you said on my next day off. 

    As far as rental price goes, you're saying that one or two months of non-vacancy is better than potentially more months of vacancy's due to higher rent.

    I imagine there are thresholds that you have to consider often, but I think I see how it works.

    Thanks again!

    0Reply
  • Joseph Weisenbloom
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    12y

    Personally I would rather have a property rented at a lower rate then vacant at a higher rate. Real estate only makes money when it is occupied. Put yourself in the tenants shoes at the end of your lease agreement they are going to look elsewhere. If they take a look elsewhere and they find your property is nicer and cheaper than the competition they will never move. 

    Obviously things are different in all markets but if you can have a property rented for 2, 3 or 5 years without any turnover that is huge.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free