Buy and Hold Deal Analysis in Texas

Real Estate Deal Analysis & Advice
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Buy and Hold Deal Analysis in Texas

Geoffrey Jones
Flushing, NY · Member since 2013 · 221 posts · 29 votes

I have under contract to purchase 2 properties in TX. 

Here are the two properties

21530 Greengate Spring TX 77388
ARV: 200000
Price: 140000
Repairs: None
Rent: 1800

http://www.zillow.com/homedetails/21530-Greengate-...

&

1211 Westgreen Blvd Katy TX 7745
ARV: 210000
Price: 135000
Repairs 15000 to make rent ready. Pure cosmetic work.
Rent 2000

http://www.zillow.com/homedetails/1211-Westgreen-B...

Both look like they have an anticipated rent roll of about $2000 month each

I have a hard money lender ready to do the deal and my end goal is to refinance with a portfolio lender in the area at 80% LTV immediatly. This will help me recoup most of my costs of acquiring the properties.

Hard Money is requiring
3% Origination Fee
2000 in other fees
400 upfront for appraisals


I have comps that I have pulled from the MLS for both and it looks solid but again I want to verify everything. I have the cash for any repairs needed if I need to make fixes before receiving my draws.

Please let me know if you see any pitfalls in this deals. Please let me know if the areas are solid locations as I believe they are. Also Is there anything I should be careful of for any one experienced in these areas?


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Paul Ewing
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
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My first thought is that the ARV are highly overinflated especially for the Spring house. Do you have any real comps to support the ARV numbers? Just looking a the Zillow neighborhood I don't see much even getting close to $200k in value. I know Zillow estimates aren't worth much, but if the whole neighborhood is much lower than in claimed then I think the trend needs a hard look. Plus I didn't see any listings over $179k so I would really want three to five real comps from sold properties to support those estimates. taxes at the current appraised value of $148k for Spring are $3665 and for the Katy at $145k are $4117 which will take a big bite out of monthly rental income.

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  • Ross Schneider
    Fort Worth, TX · Member since 2012 · 72 posts · 29 votes
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    @Geoffrey Jones It looks like you are getting the houses and a great percentage. What are the taxes on the properties? Also, how do you determine what would be a good deal for you? Do you look at it from purely a cash flow stand point, or do you look at ROI?I don't know too much about these areas, but Katy, Tx is a market that is growing very quickly thanks to Houston and the oil market.

    One of my partners is from the Houston area.  He said to be careful around Spring, there are some very good areas, but there are also from very bad areas (that's about all he knows).  

    1Reply
  • Paul Ewing
    Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
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    My first thought is that the ARV are highly overinflated especially for the Spring house. Do you have any real comps to support the ARV numbers? Just looking a the Zillow neighborhood I don't see much even getting close to $200k in value. I know Zillow estimates aren't worth much, but if the whole neighborhood is much lower than in claimed then I think the trend needs a hard look. Plus I didn't see any listings over $179k so I would really want three to five real comps from sold properties to support those estimates. taxes at the current appraised value of $148k for Spring are $3665 and for the Katy at $145k are $4117 which will take a big bite out of monthly rental income.

    2Reply
  • Jar Crocker
    Contractor · Conroe, TX · Member since 2010 · 2 posts · 2 votes
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    I do know that Katy has had great growth lately.  Not sure about that specific area though. The house in spring is very close to the new Exxon Headquarters they are building and the north Grand Parkway Loop.  That area has seen tremendous growth especially in The Woodlands area.  That one is a little off the beaten path but close enough you should get some of the surge.  

    Good Luck.

    2Reply
  • Bill Mixson
    Spring, TX · Member since 2014 · 7 posts · 5 votes
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    I currently live in that zip code and have lived in the Spring area for most of my life. Spring has exploded in the last 10 or so years. Jar is correct about he Exxon office complex. Exxon will be moving approx 8000 or so employees from other parts of the country (Virginia I think) once its complete next year. Since everyone knows that, it has caused prices to become over inflated in the area. Just my .02

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  • Geoffrey Jones
    OP
    Flushing, NY · Member since 2013 · 221 posts · 29 votes
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    @Ross Schneider  Schneider, I look for a cash flow of at least 300-500 per door and at least 40000 equity in the deal. I also look at where there are great school systems in the area. Parent who are well educated will always want their kids to be educated too . Property taxes are currently around 2200 year for both properties and both properties look like 2000 month rent each. 

    @Paul Ewing 
    Here are the comps that I found

    1211 Westgreen Blvd Katy TX 7745
    http://s3.amazonaws.com/com.freedomsoft.production...

    21530 Greengate Spring TX 77388

    http://s3.amazonaws.com/com.freedomsoft.production...

    Please let me know if these comps check out fine.

    1Reply
  • Paul Ewing
    Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
    11y

    @Geoffrey Jones be sure that is all the property tax.  That sounds like just the school tax amount.  Many counties in Texas have multiple tax collection agencies.  For example in my county the Appraisal District will set the value and collect the school and a couple other little taxes.  The County Tax office will collect city, water district, college district, etc. 

    Here is a link for the Spring Property for the county taxes:

    http://www.hctax.net/Property/TaxStatement?Account=0964230000041 which adds another $100 a month in expenses.

    You can get full valuation and all the taxing authority districts and their rates at the Harris county Appraisal District site http://www.hcad.org

    1Reply
  • Paul Ewing
    Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
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    The deals still sound pretty good, but I just want you to know what you need to plan for.  Texas is a great place to earn income (no income tax) and buy property (reasonable prices) but the government taxes property pretty hard since it is the main income especially for schools.

    2Reply
  • Ross Schneider
    Fort Worth, TX · Member since 2012 · 72 posts · 29 votes
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    @Geoffrey Jones 

    Your rough cap looks solid.  Getting $300-$500 a door is very feasible.  Excellent point about the schools. I would look into what @Paul Ewing said about the taxes.  Sometimes they are not always on TAD (nor are they up to date).  Also be careful about repairs.  I don't know if you went to look at the properties or are basing the numbers off of someone you barely know.  If those numbers are correct on repairs, you should have a nice cash flowing property.  

    2Reply
  • Waylon Themer
    Banker · Dallas, TX · Member since 2013 · 158 posts · 129 votes
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    @Geoffrey Jones  I'm afraid you are only getting part of the property taxes.  The Westgreen house property tax is going to be around $4200.  The Spring property is around $3600.  Houston is tricky with property taxes because of all the MUDs.  Use www.taxnetusa.com to estimate total property taxes.  It's not always spot on but it is very close.  Best of all it's free and easy to use.  Careful on your ARVs as well. I know the Westgreen house is on a major thoroughfare through Katy so it will have a downward adjustment compared to comps that are on less busy streets.  I believe greengate may be a major thoroughfare as well.    Major thoroughfares are good for commercial but bad for residential.  I still think they are ok deals but I don't think you are going to be at 300 cash flow on Westgreen.  Not sure about Greengate.  When you start bumping $2000 in rents on Houston suburb properties the rental market is a little different and those renters usually prefer newer houses in neighborhoods with amenities.   I almost went after Westgreen myself.  It's one of the better Katy deals I've seen in a while.

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  • Michael Ran
    Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
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    @Geoffrey Jones the green gate property is not worth the 200k. If you look, the average listing is 120-160k in the area. In the subdivision, only 3 houses have sold in the past year and only one was built before 2000. Also, most people moving to the Exxon buildings are looking to buy not rent. The average income is 120k a year. They can buy nicer newer houses for the same price.

    If you are looking for a buy and hold, my opinion is not to buy a 1970 house without a garage for more then the house is worth and CoC return is only 7-8%. That's at market rent of 1600/month. But you will have a hard time renting without a garage in this range and area.

    Taxes in 2012 were $3,438+ 400HOA+ 3400 insurance due to flood and age. It just too much risk.

    Plus, if you haven't heard a lot of service and oil companies are starting layoffs or hiring freeze due to oil price drops.(insider info from exec. in the know) This will make things harder for this type of house.

    This is just my opinion.(i live just north of the Exxon and there are 1000 new houses being built up here for the 180-280k range. They will have access to the toll road that goes staight to their office.)

    1Reply
  • Michael Ran
    Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
    11y

    if you send me an email I can send my property evaluation.

    However, it will make $340/month before you subtract vacancy, capEx, ect; at 1600 a month.....

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  • Geoffrey Jones
    OP
    Flushing, NY · Member since 2013 · 221 posts · 29 votes
    11y

    @Michael Ran  Thank you so much for the reports on Green gate they are dead on. Looks like 1600 rent looks like a good ball figure for rent. I put in the new figures along with the rent and taxes I just might be able to break $300 cash flow if I refinance with the right lender. 

    @Paul Ewing , @Waylon Themer  you guys are dead on with the taxes.

    I may still end up with some of my initial funds locked in the deal but considering the neighborhood I may just stick this deal through. Plus I've learned so much already about the neighborhoods and what buyers and renters want in the area. 

    You guys are all awesome. I went ahead to get an appraisal before making the final decision. At the most conservative I'm looking at 185000 to 190000 ARV for Green Gate. Ill update you all on what the appraisals come back at.

    Anyone have any recommendations of Portfolio lenders in the area. I'm looking for 80% ARV with no seasoning if possible. I have a few under my belt now at 80% and are already in process for a pre-approval.

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  • Michael Ran
    Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
    11y

    James Coleman- 713-335-8745

    Drop my name MichaelRaney and see what you get.

    1Reply
  • Waylon Themer
    Banker · Dallas, TX · Member since 2013 · 158 posts · 129 votes
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    I am a portfolio lender but our bank doesn't work with "out of market" borrowers. From what Michael has told me, his banker seems like a solid guy. Most portfolio lenders are going to cap at 70% to 75% ARV especially with absentee ownership.

    Keep us updated on the deals.  I would love to know how Westgreen turns out.  

    2Reply
  • Michael Ran
    Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
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    @Geoffrey Jones ,

    @Waylon Themer  is right. And is another bank you should talk to about deal financing. I have talked to him about several different banking and financing things and he is very good and can help with "creative financing!" 

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  • Michael Ran
    Wholesaler · Spring, TX · Member since 2014 · 89 posts · 21 votes
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    I have credit backers that are top of the line and everything we get down here now are 75%.

    0Reply
  • Sandra Gibson
    Katy, TX · Member since 2014 · 134 posts · 18 votes
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    I would be concerned about the house having all single pane glass and double sliding glass doors and wood siding. Also, does this subdivision have gas? I would suspect foundation, HVAC and possible termites. I looked at a house in Katy around the same area and it needed all of the above including a roof. 

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  • Geoffrey Jones
    OP
    Flushing, NY · Member since 2013 · 221 posts · 29 votes
    11y

    I'm still waiting on the inspections to be complete. 

    In the meantime here are my options. 

    • I can buy and hold this property which was my initial goal
    • Or flip this to another investor
      • 21530 Greengate Spring TX 77388 - 155000 All cash
      • 1211 Westgreen Blvd Katy TX 7745 - 150000 All cash

      If any one is interested just let me know as I may consider it. I think that would be fair amount based on the I'm taking most of the risk getting appraisals and all.

    • Or Flip it retail at market value after repairs. 

    In any case I would be happy to make a little and move on to the next deal. Let me know if anyone is interested. 

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  • Geoffrey Jones
    OP
    Flushing, NY · Member since 2013 · 221 posts · 29 votes
    11y

    Looks like I have a buyer for Green Gate. I have gotten numerous offers above asking price but I took the first one that came along. So right now I am waiting on inspections on Westgreen. I'll most likely buy and hold this one. However I am waiting for my contractor to give me final quotes on the repairs. I am estimating that it will cost about 15000 in repair. Ill update you all once I get the final numbers.

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  • Ryan Harthan
    St. Petersburg, FL · Member since 2011 · 57 posts · 30 votes
    11y

    I personally like those deals better as a buy fix sell.... Texas is a place where you can buy houses in the 30-40k range and rent close to $900 which I like better as rentals.  You are capturing a good amount of equity and holding them for two years does make sense to minimize tax consequences.  

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  • Feras Mo
    Houston, TX · Member since 2014 · 7 posts · 0 votes
    11y

    Just curious, how'd you get these under contract? Given for example greengate is asking ~$190l, which your $140k is far from. Did you just submit that as an offer which they accepted?

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  • Geoffrey Jones
    OP
    Flushing, NY · Member since 2013 · 221 posts · 29 votes
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    I actually purchased these from a local wholesaler after some negotiation on my part. Also I received the appraisal reports for westgreene and it came in at $181000 ARV. I was hoping more for 190000 - 200000 so this came in a bit low. This now tosses my numbers off a bit. Here are the properties they used in the report

    21319 Park Wick Ln Katy, TX 77450
    Sales Price $188,500
    [email protected]%
    64.70/sqft

    21611 Park Wick Ln, Katy, TX 77450
    Sales Price $169,000
    Cash Sale
    58.50/sqft

    21331 Park Wick Ln, Katy, TX 77450
    Sales Price: $190,000
    FHA @ Mrkt%
    66.64/sqft

    20911 Park Brush Cir
    Sales Price $200000
    VA @ Mrkt%
    69.20/sqft

    Here are the repairs that were included in the ARV calculation to bring it up to value.

    Exterior paint & rotted wood repair 2,400.00
    Interior paint & drywall repair 3,300.00
    Kitchen update - appliances, granite counter top. 4,500.00
    Bathroom update (1.5) 1,500.00
    Flooring 5,300.00
    Lighting & electrical 1,800.00
    HVAC check 350.00
    Misc Expense 2,000.00

    From my perspective I think the repairs are way over estimated so I am having a contractor go out there and validate the repairs.
    Also there is a cash transaction sale used for one of the comps. That seems more like a wholesale deal to me. Also some of these sales occurred back in January of this year. Are they allowed to do this as I see within the last 6 months properties are selling in the area 190000+.

    I did the math and If I were to do this deal with hard money it will require almost $30000 during the life of the project. And after financing I may have 15000 still locked  up by the property. 

    My Purchase Price 135000
    Lender will lend me 126000

    So I will have to cover 9000

    Lender fees and closing roughly 10000 including origination fees
    My estimated repairs 12000

    Total out of pocket is $31000

    Then when I refinance @75%

    Lender will finance 135000

    Estimated $3000 in refinance fees

    Seems to me I will have over 20000 locked up in this deal.  Untill I resell it at retail for 180000 - 200000.

    To me this does not sound like a good deal unless I skip the hard money and purchase all cash. Let me know what you think. How can I get this deal to work. Private money seems like a good idea at this point in time to me.

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