All Forum Posts by: Pete Harper

Quote from @Cody L.:

Quote from @Shyam Kumar:

I have been thinking about relocating either in California or Texas. I want make this decision based on which state and city is better suited for real estate investments. I want live in a city where I can expand my real estate investments and make good returns.

Any guidance on this will be very helpful.

 As someone who lives in Ca, and should be biased towards investing in CA, I'd take Houston all day long.

Let's set aside the fact the returns are better (and honestly I think there is more upside -- depending on what you buy):  I'd be scared to death of the politics of CA.  Rent control.  Eviction moratoriums.  tenant friendly property codes.  etc.   "CA gets a 'no' from me dawg"

Have you lived through a Houston Hurricane yet?  Wait until you need to muck out a place and rebuild after a hurricane. I will never invest near the gulf coast again. I learned my lessons in TS Claudette and H Rita. I know people who lost everything in Rita. 

Quote from @Shyam Kumar:

Quote from @Pete Harper:

Quote from @Shyam Kumar:

@Wale Lawal @Joe Funari @John Morgan
My biggest concern investing in Texas are the high property tax and insurance rates. I fear this will affect cash flow and net profits.

Any thoughts on this?

I've owned property in both California and Texas. You are correct Texas property taxes are sky high. On my primary residence I pay double the taxes in Texas on a $800k home compared to a $1.3M home in California. On average the total middle class tax burden is higher in Texas compared to California. 

Insurance is half again higher in Texas too. The primary drivers are weather. Between hurricanes and hail damage claims are much higher in Texas.  In the 20yr life of a roof you can pretty much guarantee a hail storm requiring replacement. We had to replace the roof on our Texas primary residence. Just about half the rental properties we buy need a new roof. 

 @Pete Harper Where do you prefer to invest in rental properties, California or Texas?

I invest where I live. My rule is I only invest within a 2hr drive. I want to be able to keep an eye on my properties. We also do most of our own renovations. 
California and Texas are two different markets. California was much better for appreciation. We almost 4X our investment in South Bay in seven years. I've made much much more money in CA than 20+ years in Texas. TX has made a strong run in the last two years but things are cooling off fast.
From an Investor standpoint CA was a great market. I developed two building lots. Sure there is a ton of red tape and delays. That only serves to increase the value once you are done. Limited supply, high barrier to entry, high demand equals high prices. 

Quote from @Shyam Kumar:

@Wale Lawal @Joe Funari @John Morgan
My biggest concern investing in Texas are the high property tax and insurance rates. I fear this will affect cash flow and net profits.

Any thoughts on this?

I've owned property in both California and Texas. You are correct Texas property taxes are sky high. On my primary residence I pay double the taxes in Texas on a $800k home compared to a $1.3M home in California. On average the total middle class tax burden is higher in Texas compared to California. 

Insurance is half again higher in Texas too. The primary drivers are weather. Between hurricanes and hail damage claims are much higher in Texas.  In the 20yr life of a roof you can pretty much guarantee a hail storm requiring replacement. We had to replace the roof on our Texas primary residence. Just about half the rental properties we buy need a new roof. 

Be prepared to screen through a whole lot of junk. Before bidding I would do a drive by inspection. You would be amazed how many homes have been torn down leaving a vacant lot. Next you will find many more that are in total disrepair; roofs falling in, broken windows, water damaged, fire damage etc.  I started screening on Zillow or Google Streetview to save driving around. I'd go from a list of 20-30 properties on the auction list down to 2-3. The better properties always come off the list at the 11th hour. I asked the sheriff and was told they made a small payment. You'll frequently see the same property in the next auction only to repeat the process. 

This was a whole lot of work for little return so I decided to send letters like the original poster. Out of two auctions I received one response. Daughter of the couple who owned the home. She was wanting stuff out of the house. I drove by to inspect and found the roof over the kitchen caved in. Hard Pass. 

In the larger markets you will find professional flippers. We found a nice property listed at $125,000. The owners had passed away. ARV was $250,000. Bidding started with me and two flippers. They blasted through $150,000 in a couple bids. Too rich for me. I ended up going for low retail. One major plumbing or AC problem with the home and these guys were under water. Risky business.

Quote from @Bruce Lynn:

Just FYI....not to say there's not opportunity there, but Denton and Collin have virtually nothing that actually goes to sale.  Some, but very very few.....might be better counties to attack like Dallas county.   I guess when you think about these two counties....lots of new or newer construction....most of that will have loans on it, loans typically make owner escrow taxes and either way the taxes end up getting paid from escrow or lender pays it, even it owner doesnt.   Most of what goes to tax sale is older homes or lots that have been paid off long ago and for some reason owner can't or family stops paying taxes....so that's what is left....but not that many of those in these counties.

 Adding to your comments. I've followed Anderson, Freestone and Bell county auctions. The majority of the properties that hit the auction are real junk. Abandoned houses with roofs falling in. Frequently the owner has passed away and nobody takes care of the place. They sit 2-3 years before hitting the auction. 

The pattern I see with the better properties is they will be withdrawn the night before the auction. The owner will come up with a couple hundred bucks and get the property pulled off the list on the 11th hour. The same property will be back on the next auction list next month. I've seen the same property hit three consecutive auctions and never sale. 

Killeen is a strange market. I would not recommend investing there without first looking at the area. The old down town is pretty rough, a block or two makes big difference. I highly recommend you visit and drive around a bit to get familiar with the area. Also talk to PMs to see if they will manage property in that area. Better areas are South of I14 and East Killeen/Harker Heights  Killeen is a one company town with Ft Hood being the dominant employer. Currently War is Bullish but that may change.

We own a 4-plex and have done well. In the last couple years prices have shot up. A lot of CA investors bidding prices up  :-)  BTW I'm a retired Engineer from the bay area. 

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Fairfield.

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is going to be our most ambitious real estate project yet. This is a 1960's all brick duplex. It was originally build as a mother in law property with two identical 1200sqrft 2 Bedroom/1 Bath units. It was most recently occupied by the original owner who had cats. The place reeks of cat urine. She has moved to an assisted living facility and we purchased it from the family. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms. We will rebuild as a 4 bedroom/ 2Bath with laundry. This will make the property family friendly in keeping with the residential neighborhood.

Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

All-in cost $145,000
ARV estimate $225,000
Rents $2200

After reno is complete and we have the property fully rented we plan on doing a cash-out refinance and go find another deal. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

Update: We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast so everything worked out in the end.

All-in cost $185,000
ARV estimate $250,000
Rents $2550

What made you interested in investing in this type of deal?

We saw the value add potential in renovation and adding additional bedrooms and baths.

How did you find this deal and how did you negotiate it?

Found the deal on MLS.

How did you finance this deal?

Cash out refinance from another property in Bryan, TX

How did you add value to the deal?

Completely redid the entire interior from the studs up. We took old carport area to add second bath/laundry, bedroom, and living room. Upgraded each side from 2BR/1BA to 4BR/2BA.

What was the outcome?

Long term hold.

Lessons learned? Challenges?

Painful lessons learned dealing with contractors. First guy was a crook, literally a convicted felon. I now do background checks.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Fairfield.

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is going to be our most ambitious real estate project yet. This is a 1960's all brick duplex. It was originally build as a mother in law property with two identical 1200sqrft 2 Bedroom/1 Bath units. It was most recently occupied by the original owner who had cats. The place reeks of cat urine. She has moved to an assisted living facility and we purchased it from the family. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms. We will rebuild as a 4 bedroom/ 2Bath with laundry. This will make the property family friendly in keeping with the residential neighborhood.

Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

All-in cost $145,000
ARV estimate $225,000
Rents $2200

After reno is complete and we have the property fully rented we plan on doing a cash-out refinance and go find another deal. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

Update: We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast so everything worked out in the end.

All-in cost $185,000
ARV estimate $250,000
Rents $2550

What made you interested in investing in this type of deal?

We saw the value add potential in renovation and adding additional bedrooms and baths.

How did you find this deal and how did you negotiate it?

Found the deal on MLS.

How did you finance this deal?

Cash out refinance from another property in Bryan, TX

How did you add value to the deal?

Completely redid the entire interior from the studs up. We took old carport area to add second bath/laundry, bedroom, and living room. Upgraded each side from 2BR/1BA to 4BR/2BA.

What was the outcome?

Long term hold.

Lessons learned? Challenges?

Painful lessons learned dealing with contractors. First guy was a crook, literally a convicted felon. I now do background checks.

Quote from @Kevin Sellers:

I am a commercial mortgage broker specializing in single tenant and multitenant retail properties nationwide.  Interest rates have risen 150 basis points this year with typical range for quality STNL properties at 4.65% to 5.15% interest rate.  If you finance a low cap rate property, you will need to put 45-50% down.  Amortization schedule is typically 25 or 30 years.

Thanks for reply. I have a follow up question on financing. Why the high down payment? Typically commercial requires 20-25% down. I would think NNN would be considered lower risk than multifamily.

I'm a long term buy and hold investor looking to diversify my portfolio. We currently own 38 doors of small multi-family apartments in Central Texas. As we grow our business I'm looking for options to diversify. We started off very hands on doing our own renovation work, we renovated 12 units in the last year anywhere from full gut reno to light reno. We did the self manage thing for a year but I've now turned everything over to a PM. My wife and chief painter, keeps reminding me we are supposed to be retired. With an eye to more hands off investing in the future I wanted to investigate NNN.

I see a number of properties in the $1M-4M price range. Starbucks, McDonalds, General Dollar, Autozone and etc  Most are advertised for a 3.5-4.5% cap rate.  Any advise on large National Brands vs smaller local mom and pop operations. Retail vs Fast Food?  Do you get a percentage of gross?

I hear financing is a little different for NNN compared to small multi-family commercial. Can I use cashflow to qualify for a loan? Typical down payment and terms? Seller financing an option? I have a good relationship with a small local bank willing to do portfolio loans. The only issue is they are only giving me 15-20yr term and that isn't going to cash flow at a 4% cap rate.

How hands off are NNN really?

Any good resources to learn more about NNN? Books, PodCasts, etc.