As the title indicates, I am a newbie, so keep this in mind as you read my post.
I am analyzing a property for a potential buy and hold strategy in Fort Worth, TX. I have never purchased a property before so I would like some feedback on my analysis and if there is anything I should be wary of. The details are as follows:
- Property Address: 11412 White Leaf Court E, Fort Worth, TX 76135
- Property Type: Residential, Single Family
- Style: Single-Wide Mobile With Land
- List Price: $69,900
- Analyzed Purchase Price: $60,000
- Estimated Closing Costs: $2,400
- Estimated Rehab: $5,000 (replace flooring with heavy wood-looking linoleum, also get fridge/stove and tidy up the place)
- Down Payment: $12,000 (20% of $60,000)
- Total Initial Investment: $19,4000
- Expected Rent before Vacancy: $1000/month (my PM estimated $1,000-$1,200, but I'm using $1,000 to be conservative)
- Vacancy: 5%
- Principal + Interest: $261.35/month (assuming 20% down, 5.125% interest rate. Given that it's a manufactured home I'm not 100% certain this financing is available like it would be for a stick-built home)
- Taxes: $100/month (assuming 2% of $60k purchase price - this may be a bit low...any recommendations for how I can easily verify? I get a little lost using the Tax-Assessor website for Tarrant county and don't know where I can find the info for all of the districts necessary to compute tax rates)
- Insurance: $55/month
- Maintenance: $69/month
- Property Management: $116/month (11.6% of rent before vacancy - this includes leasing fees)
- CapEx: $183/month
- Estimated Net Cash Flow: $166/month
- Cash on Cash Return: 10.3%
- Cap Rate: 12.2%
- 1% Rule: 1.67%
- 5 Year IRR: 10.3%
10 Year IRR: 15.9%
- 20 Year IRR: 17.2%
- (IRR calculations assume 3% rent growth, 2% appreciation, 2% inflation, 8% selling costs). All of my analysis is performed in a pricing tool I built in Excel which I'm happy to share if anyone would like to use/review!
Some of my main concerns about this are the following:
- What are the downsides of purchasing a manufactured home? It is on its own land and not within a park which is good, but are there other issues I should be concerned with? It has been on the market for 135 days as of 9/19/2019; should I expect similar difficulty when selling it?
- Is the area good? Another thing to note is that I live in Southern California. This will be an out of state purchase and I will not (and probably will never) view the property personally. I have based most of my deal finding in Forth Worth/Arlington/Dallas areas on assigned schools. Of all the properties around the $100k price range or less, this has the best schools that I found, feeding into Azle. Is it smart for me to base so much of my deal finding on school ratings? As of now, I won't even really analyze most properties in poor school areas (1-4 school ratings), even if it looks profitable on paper.
- Blanket question...what am I missing? To me it looks like a good deal but I am hesitant and assume that I am leaving out some crucial part of the analysis. If it were actually a good deal, wouldn't it have sold a long time ago?
Thank you all for taking the time to read. I'm excited to begin investing but need to get some other eyes on my work and thought processes to make sure I'm not crazy. Please let me know if I can provide additional detail!
@Taylor Robinson thanks for posting here. I personally would never invest in a manufactured/mobile home but there are plenty of investors that do make it work....but many that DON'T make it work. Here's some things to keep in mind:
- Manufactured Home Don't Appreciate in Value - they DEPRECIATE. That's the opposite of a standard 'single family" home. So when we buy, we have to buy very aggressively.
- Financing - Financing 1 investment property mobile home is nearly impossible. And financing a Single-Wide makes it even harder. If it were double-wide, maybe you might find someone out there who could do it....maybe. But your rate won't be a single-family home loan rate. If you need financing you should be prequalified first before you do anything, even if it's a regular home. ALWAYS get prequalified first if you need financing. That will tell you how to analyze your deal better.
- Closing Costs - Yours are too low. Being prequalified will also show you what to expect here
- Out of Pocket - $20,000 this is WAY too high to buy a $69,000 property...or even $60,000. Have you read up on the BRRRR method? Keep that out of pocket low so you can keep more money to buy more houses.
- Property Taxes - you can see this on Zillow or realtor.com or just about anywhere that lists the property for sale. Use that data to estimate this correctly. No need to manually try to do it.
- Rentals - Keep in mind that people that rent are different than people who buy their own homes. Properties that are in "poorer" school zones can still be good rentals. Most target properties below $180k here in Dallas-Fort Worth because they follow the 1% rule. There are some places that are better than others of course....and that's why out of state investing is really difficult. What neighborhoods do you invest in? It's hard to say unless you know someone here....do you know anybody here that can advise you on this sort of thing?
Anyway, I hope some of this was helpful in some way. Maybe it's not all the information you wanted to here but this is the right information for you to know. Thanks!
Zillow numbers are way off. I use realtor.com and redfin.com.
- Property Taxes - you can see this on Zillow
@Andrew Postell Thank you very much for your input! Whether it's good or bad, I'm only in search of the truth, so I appreciate your response even if it makes this deal look worse.
Appreciation: This is a good point. Not having appreciation certainly makes it more difficult. For this particular property the Redfin estimate has actually appreciated 43% from 2014 to 2019 (or an effective annual appreciation of 7.4%). This might just be their algorithm attributing the local area's zip code appreciation to this particular property though and it may not translate well to this home, so I definitely take it with a grain of salt.
Financing: Do you have any recommendations for people I can reach out to who may be able to offer financing for a single wide manufactured home on its own land?
Closing Costs: Good point, thank you. From other research I've done and pre-approvals on other single family homes maybe $4-$5k would be more appropriate?
Out of Pocket: What percent of purchase price do you think is a reasonable amount out of pocket? Even if I didn't need to make any improvements, I would still be out $12,000 (20% of $60,000) for the down payment and let's say $4,500 for closing costs which puts me at $16,500. Are you saying I should be able to do this for cheaper? Maybe by putting less down or through some other creative means? I've read a little bit about BRRRR and understand it at a high level but I haven't analyzed any deals assuming I'd use this strategy.
Property Taxes: I used Redfin to get my initial estimate of 2% but this seemed low to me considering Fort Worth averages around 2.75% I believe. To estimate using Redfin data, I just took the 2018 taxes of $426 and took that as a percent of the current assessed value of $21,244 to get 2%. I then apply this to my purchase price to estimate what I would pay in taxes. Is this a reasonable way to do this? Using Zillow's data and the same methodology I also get about 2% average using the last 5 years of taxes. As @Alex G. mentioned though, I'm hesitant about the accuracy of this. Since Redfin and Zillow are in agreement though perhaps that's a sign it's correct.
Rentals: You make some good points here. I use school ratings as my quick way of determining if an area is "good" or not, but, as you point out, in doing so I'm surely eliminating many properties that are still good options just because their schools are rated 2/10 instead of 7/10. At this time I don't have a great way of differentiating homes in different areas both with poor schools. Maybe one of them with its 2/10 schools is actually a decent area for rentals and the other, also with its 2/10 schools is in a terrible area for rentals...I just don't know. I'm working with a realtor but she says she's not allowed to tell me if areas are "good" or "bad", but can only try to lead me in the right direction using things like school ratings. Is there a way I can determine which of these areas are good for profitable rentals despite poor school ratings?
Thanks again for all of the information - I really do appreciate it!
I am familiar with that area having worked around there on homes that were bank foreclosures although I don't know that particular neighborhood.
My thoughts are that being you are out of the area and don't really plan on seeing the property yourself, you should be very cautious. Mobile homes are a lot different than stick-built homes and come with a whole different set of issues. I believe @Andrew Postell brought up some very good points. You may want to make sure you can get funding before you get too far along. Personally, I would contact the city to see if you are able to put a new mobile on the land if you ever needed to. You may never want to do that, but the house won't last forever, but you'll still own the land. Some areas around here are no longer allowing mobile homes although I don't think that would be a problem there.
I would hire an inspector that has experience with mobile homes that is independent of your PM. It looks from the photos like there was some cosmetic work done and you need to make sure of any potential problems. It looks like the home may have been in pretty bad shape at one time so you want to be sure things are sound because ongoing repairs will eat any profits quick. Make sure the underside of the trailer is intact for one. That's a common problem with mobile homes. The metal shower would be a concern to me. You need to know why they did that. A water leak in a mobile home can do a lot more damage than a regular home.
The schools are rated well do largely to other homes in the area. There are some nice properties around. That particular area can be iffy. Although I would not call it bad. I would also not say it's good. If you look at Google and explore the street, you will see a few well-kept places, but you will also see some that look like junkyards. I would increase your 5% vacancy number. The people you will attract for that may not be the most stable and it may take longer to rent to a qualified tenant than other areas.
I don't want to sound negative. You can make this work just don't buy the place solely based on some photos or the word of a PM. Getting the place in good, stable condition may require more work than you think if you want to attract good tenants. Assuming that you can. Also, I would first offer less. The time on the market is a lot for around here. I'm not saying low ball them, but they have already come off the original price and it's still available for a reason.
Good luck with it.