Buy and Hold Deal

13 Replies

Hello, I wanted to see what is thought about a deal I am working on at this time. I received a call a couple of weeks ago from an owner wanting to sell his home. It is a SFR IN east Texas and he wanted too much to begin with. He wanted 60K and after looking at it one night, very quickly, I told him the best I could do was 40K. I gave him assistance on trying to sell himself on Craig's list and post lets. I would have to replace rood, HVAC kitchen flooring, cabinets and try to move W/D connections to Carport storage. Currently tax appraisal at 58K which is average for the street and immediate neighborhood. If I do the above changes I can get $750 a month without a problem. Well this morning he sent me message that he can sell and needs to sell for45K. This will cash flow at $128 monthly at 45K.

Purchase price 45,000

Repairs.  10,000

15% down and 5% on 20 years. 

I did analysis but do not know how to upload it on my IPad.  

He is going through depression due to divorce and was to to sell. But he needs some money to get on his feet.  He has a loan or mortgage for 35K. 

Thanks

Tom Keith, TAK Enterprises | [email protected] | 903‑452‑8843

Hey @Tom Keith.  I do not know what is normal for your area.  For me it sounds like a pretty good deal.  I am buy and hold myself.  I recently bought a property for $55K then had to put about $4K into it just to make it habitable. I was thrilled to get $750 per month.  The thing I would stress is can you resale it for more than you have into it?  If you are spending fix up money I want it to truly add value to the property.  Maybe you can get him to do a contract for deed and use his financing for awhile to save you some more money.  Anyway good luck.

I like those numbers!  $55k all in for $750 rent is great. Will you do the work yourself? Is it in a rural community @Tom Keith?  Is it near you?  Near other rentals you have?  I don't worry too much about appreciation, but would hate to have to sell in a town of 2, ya know?

Nice find!

@Steve Vaughan @Jerry W. Thanks Guys,  Jerry, I had been thinking of asking him for a deed of trust to do just that.  This is in the town two over from me.  I have one rental there as well as a flip deal I am trying to wrap up.  I am unable to do any work myself due to medical disability.  I just find the deals and turn over to my wife to get done.  The one thing I find necessary is to take this 1338 foot 1 bath home with W/D connection in kitchen is to get the W/D elsewhere and maybe add 2nd bathroom to complete it.  The other homes on same side of street are much like this.  Then the other side is larger homes with double and triple the lots to add value.  This street is also all homeowners.  It is just blocks from the lake.  

Tom Keith, TAK Enterprises | [email protected] | 903‑452‑8843

@Tom Keith The deal looks really good on the paper. Is the property tax and insurance under 1000 a year? I calculated the cash flow of about $125 a month based on your number and the assumption of insurance being $1200 a year, 10% vacancy, $800 property tax a year and 0 PM cost. 

Do you manage your properties in general? Have you owned deals like this before?

I'm seeing a few that cash flows about the same in duplex setting so it'd cost about 100,000 and cash flow about $250- close to $300 total a month. That's similar to what you are seeing here?

However, after asking quite a few other experienced investors/pm's in Houston area, I've gotten the feedback regarding things that's not on the cash flow analysis. It sounds like the extra cost/headache that come with this type of properties are related to potential higher in vacancy, higher wear & tear on repairs, crime rate, and problematic tenants. What's your thoughts on that?

@Iman Yu  thanks for your ideas.  The taxes are a little over $1200 for it w/o discounts.  I re did my numbers to get it to a decent rental and my contractor came in at $35K. So... I offered $30K  which I think is dead on and he got mad and hung up.  I really think the owner is in for a rude awakening when he try's to go retail.  

Tom Keith, TAK Enterprises | [email protected] | 903‑452‑8843

@Tom Keith glad my input helped out :-)

The taxes are a bit high and I can understand why you dropped the price. Glad you didn't pull the trigger though.

Is this property a class C property? Do you have any experiences in owning those in the past?

@Iman Yu Hello,  yes, we are plagued with property taxes that I feel are too high for what we receive.  The neighborhood would be considered B due to small town and 100% owner occupied and well maintained older homes mixed with medium maintained properties on same street.  I have one rental in the same town of the same quality.  It is on a large lot, 1200 sq ft, 2 bed/ 2 bath, frame construction 1957yb.  

Tom Keith, TAK Enterprises | [email protected] | 903‑452‑8843

@Tom Keith if you can get in a class B neighborhood for 50k or less, that's fantastic. In Houston area, that'd probably be right around 100k.

Most tax rate I come across is about 2.7%. That's pretty high!

Originally posted by @Iman Yu :

@Tom Keith if you can get in a class B neighborhood for 50k or less, that's fantastic. In Houston area, that'd probably be right around 100k.

Most tax rate I come across is about 2.7%. That's pretty high!

Hello there Iman,

I'm curious what areas you invest in that are on average 2.7% total tax rate? 

Medium untitled design  1 Benjamin Blackburn, ARCO Home Solutions | 281.222.0504 | http://www.ARCOhomesolutions.com

Originally posted by @Tom Keith:

@Iman Yu   I re did my numbers to get it to a decent rental and my contractor came in at $35K. 

 Tom, that quote from the GC seems very high compared to what you initially estimated.  I would recommend writing a scope of work yourself and then giving it to a few contractors for bids.  

Have you looked at other similar rental units to determine what quality and features the market demands for a $750 rental?

@Matt Schelberg Hey Matt,  yes it is a lot higher as I walked through the home with the contractor I found my initial estimate was off,  We also added a few cosmetic items that I thought necessary for the rents.  This home was seen to be a lot worse with the walk through without owner as I could look at things closer and more in depth.  The contractor is known to me and does the kind of work I needed.   I had written down what I thought was necessary and we used that base repairs on.  On question of rents, I called a friend of mine with extensive expertise in this area.  She agreed with me of necessary rehab for $750 rents.  This town is a little suppressed on rents and I was basing my value on $750. Hope this answers all.  Thanks to all for responses.  It is great to have advice and recommendations 

Tom Keith, TAK Enterprises | [email protected] | 903‑452‑8843

@Benjamin Blackburn I can send you the MLS #'s if you are interested. I saw a bunch multti and sfh in the 2.7% tax rate.

they are in alief, houston area (14531 Buffalo Speedway, 7200 W T C Jester Blv) and Stafford area. Spring and Cypress tend to be a little over 3%