Takeaways
- Fort Hood is a GREAT area for cash flowing rentals, if you know what to look for
- Decide what kind of investor you are and adjust expectations accordingly
- These principles apply to owner-occupants, too, as they may find themselves landlording one day
Passive versus Active Investing
What kind of investor are you?
If you read the rest of this article, you will see I am discussing cap rates in the 5-7% range. For most active investors who buy their groceries with their real estate investment earnings, a 5-7% cap rate is nowhere good enough. They are often looking for double digit cap rates – 10-15%. Those deals exist in our market, but they take a lot of work and hustle to get them. They are almost never on the MLS.
The “typical deal” numbers I work through below are more oriented toward your passive investors – folks who have a day job but need somewhere to park and grow their money for the future. If you are new to cap rates and buy-and-hold investing, be sure to check out the forums and guides at Bigger Pockets, as well as explore my other investor articles about the Fort Hood market.
Active or passive, however, the profile of each property type below still applies if you are looking for buy-and-hold rental real estate in the Fort Hood area.
Try to Be Boring
The ideal property specifications that guide my recommendations are the most “boring” homes in the Killeen area. I want to be as close to “average” as possible – average number of bedrooms, average market value, average condition, etc. There are 1000s of 3/2/2 home rentals in our area. There are 1000s of homes renting in the $900s/mo range. You want your property to be there, too, because that is where there are 1000s of renters looking for homes just like that. Rural areas like Kempner or Florence don’t make my ideal rental area for that reason – the properties might be too unique, too expensive, too far from the Fort Hood installation, or too much land.
I recommend that you don’t try to get cute in our market – trying to turn a single family into a multi-family, for example. Stick to the boring property that roughly meets the approval of the biggest segment of your renter population. That is the way to keep your rental occupied and the rent checks coming.
How to Flip Homes in Killeen
- Flipping can be done in Killeen, and the MLS can be a lead source.
- But the MLS is probably not the best lead source.
- Most flips are bought with target ARVs around $90,000-$160,000
Single Family Homes (SFH)
A Typical Single Family Deal
| Purchase Price | Repair Cost | Gross Monthly Rent | Cap Rate (50% Rule) |
|---|---|---|---|
| $80,000 | $15,000 | $950 | 6.0% |
| $105,000 | $10,000 | $1150 | 6.0% |
Pros
- Highest rent/unit
- easier to find quality
- willing property managers
- less likely to be vacant
Cons
- Can take a long time to find
- often in multiple offer situations
- when it’s vacant, it’s 100% vacant
Where to Find Them
- Foreclosures
- Short Sales
- Aging Listings (120+ days on market)
- TLC (Tender-Loving-Care) listings (owner sales in need of work)
- Off market (auction, tax liens, probates, direct mail, driving for dollars, bandit signs etc)
Consider If
- You are doing BRRRR strategy
- You aren’t interested in living in your investment
- You want off market properties with cap rates 10%+
What I Look For
- 3+/2/2 (3+ bed, 2 bath, 2 car garage)
- ARV $80,000-$250,000
- Monthly rent $850-$1500 though will consider as low as $750 in the right circumstances
- Built after 1978 (ideally in the 1990s/2000s in most parts of Killeen)
- Killeen, Harker Heights, Copperas Cove, Nolanville
- 1200+ square feet
- No pools
Fourplexes
A Typical Fourplex Deal
| Purchase Price | Repair Cost | Gross Monthly Rent | Cap Rate (50% Rule) |
|---|---|---|---|
| $205,000 | $10,000 | $2400 | 6.7% |
Pros
- Higher cap rates
- Vacancies hit sporadically meaning you’re seldom if ever 100% vacant
Cons
- Fewer choices
- Some property managers aren’t interested in managing them
- Lower rent/unit
- No new construction options
Where to Find Them
- MLS
- Sometimes (rarely) foreclosures
- Sometimes (rarely) off-market deal (wholesaler, auction, direct mail etc)
Consider If
- You have the resources but only enough to do one deal in the area
- You are interested in living in your investment (house hacking)
- You want an investment but don’t have time or willpower to stalk SFH foreclosures
What I Look For
- Built 1990s or more recently (most in the 2000s)
- Ideally with two 3 bedroom units, and two 2 bedroom units (3/2/2/3). Buildings with only 2 bedroom units sell for about $10-$15k less
- Killeen, Harker Heights, Copperas Cove
- Generally townhome style (all four units enter at ground level and have upstairs) instead of apartment-style (two units on the bottom floor, two units on the second floor)
- Market rents of no less than $550/2 bedroom unit and $650/3 bedroom unit ($2200-$2400/mo gross)
What to Expect When Landlording in Fort Hood
- Pricier homes don’t always have pricier rents
- Plan on only collecting about 70% of the total rent
- Homes that rent around $900-$1200 probably make the best rentals in our market
Duplexes
A Typical Duplex Deal
| Purchase Price | Repair Cost | Gross Monthly Rent | Cap Rate (50% Rule) |
|---|---|---|---|
| $155,000 | $5,000 | $1500 | 6% |
Pros
- Better option for live-in investors to “house hack” versus single-family homes because you can use it as a rental while living there
- Only option for new construction multi-family
Cons
- Generally lower cap rates versus 4-unit buildings and a solid single-family deal
Where to Find Them
- MLS
- Sometimes (rarely) foreclosures
- Sometimes (rarely) off-market deal (wholesaler, auction, direct mail etc)
Consider If
- You want a live-in investment (house hack) but slightly better accommodations and choices than what fourplexes can generally provide
- You want a new construction multi-family
What I Look For
- Built in the 1990s or more recently (most in the 2000s)
- Almost always look for duplexes with 3 bedroom units and a garage (3/1.5-2/1)
- Minimum market rent of $750/mo per unit ($1500/mo gross)
- Killeen, Harker Heights, Copperas Cove, Nolanville
Notes
- Most multi-families that meet the criteria above in our market are separately metered with utilities paid by the tenants. Almost none are gas – just electric.
Conclusion
Hopefully this gives you some direction on what to look for in a Fort Hood area property when adding to your rental portfolio.
Of course, I am a local Realtor and am happy to talk more about investing. I own a fourplex and SFH rental myself in Killeen, and work with investors when I can. And be sure to check out all my other investor resources for folks trying to learn more and get started in the Fort Hood area rental market!