Is this a Good deal or no?

Question

Newbie here! I signed a contract to have a home built (purchase price 244,490) in East Austin, TX (Basically manor) The house comes with a 1-2-10 warranty, closing cost are basically completely covered (6000 towards closing cost). The numbers don't really make sense now that I am analyzing them. Here are the details about the home: It's a SFH 3 bed 2.5 bath, closing costs would be $1500, taxes $520+ a month, HOA $33, insurance $60, PMI $116, cap ex 4%, vacancy 3% (not sure if I should include vacancy since it's owner occupied), repairs 3% (low because of new warranty and new built). I have enough saved for 5%-10% down payment. I'm thinking I can get 700 per room. Even thinking about renting out the master to get more. It’s hard to find a home in Austin that cash flows because of taxes! Please share your thoughts and advice! I can still back out of the contract if I need to!

Joe Scaparra · Answer

Hold up, STOP the Press! @Jerry Stevenson. I mentor a few young newbies in the Austin area. All start out wanting to buy a house! STOP right now! If your goal is CASH FLOW and you're wanting to get into INVESTMENT PROPERTY for CASH FLOW, don't buy a house. Unless you're really not into the investment focus and really are looking for a nice place just for yourself. Now off my soap box but let me see if I can relate to you on a much more rational approach, not the emotional. I think Manor, Elgin, Taylor, Round Rock, Georgetown and Pflugerville are all excellent compromises to Austin due to the cost of housing in Austin. I especially like Manor and Elgin for value. I also like the development Project Charm at the east side of Pflugerville which is putting in a MASSIVE Amazon Warehouse. This will bring in lots of good jobs and many will be renters!!!I have recently looked at Manor and the new SFHs being sold. I think it will be fine for someone looking to buy for a personal residence but not ideal for investment. New homes will not appreciate as fast and renting out individual rooms will incur a higher vacancy rate and turnover than seeking long term tenants for say a duplex unit. Focus on finding a duplex!!!!! My brother just bought one in Elgin for 174k (3beds 2 baths, 1 car garage each side) just three months ago. Not to say you will find such a deal but you can find something better than a new SFH. Buy a duplex rent out one side for $1200 and rent out one room on your side for $500 and your living for about $600 a month. Rent two rooms out on your side and your living free. Yes a duplex will cost more, so what, it will bring in more income. Give you more flexibility. If you decide to move for another job or such, you get up and go and rent the other side out. It should cover your expenses. A single family home will not, you will be in negative cash flow. Duplexes as most properties have gotten very expensive, but for a newbie INVESTOR, only small multi-family makes sense. Look at this duplex pending just as an example. https://www.realtor.com/reales... Go to the payment section, put in 5% down and change home insurance to about 180 a month. Your payment will be about 2300 a month. One side would easily rent for 1200. Just use it as a guide and re-focus on a duplex. Cheers!

Jordan Moorhead · Answer

@Jerry Stevenson I agree with @Joe Scaparra. Duplex or SFH with an ADU is the way to go. Yea prices on the mls are high but be patient and make offers and you'll find a good one! I'm under contract on a duplex in East Austin right now.

Filipe Pereira · Answer

@Jerry Stevenson if the goal is to buy a cash flowing property, this is not the one. Try to find a duplex / triplex / 4 plex that you can get into with a FHA loan or lower down payment amount. I know you said you had 5-10% for this house, so if you can avoid FHA I would. I know there are owner occupant conventional loans out there for 5% down. Find one of those!

Jerry Stevenson · Answer

@Joe Scaparra I appreciate the advice!! I actually started out looking to buy a duplex! I got a little discouraged because of the prices in ATX, but your advice is gold! I really appreciate the insight!

Alan McClain · Answer

@Jerry StevensonCongratulations on taking action! Some things to consider:-Always account for vacancy in your numbers- even if it is owner occupied at the moment because you plan on renting the other units and need to view the numbers for when you move out- Have you done research on the home builder? Some builders use cheap materials and a rush job which could impact repair estimates and value. - Based on what you think the rents will be ($700 per room) total monthly income will be $2,100. With a purchase price of $244,490 my guess is this will not cash flow especially with high taxes and HOA fees. However this does not mean it will be a bad investment. If you plan on living there for years this is a great way to possibly reduce your rent and build equity with a house hack strategy.- It is not common in my area for investors to purchase new builds for cash flowing properties simply because they are selling at retail prices. These are mostly for families or people looking for a home, not investors. What is your goal? If you are trying to purchase a cash flowing property this does not appear to be a good investment. However if you are trying to reduce your rent and build equity in an upcoming neighborhood to sell eventually this doesn’t sound like too bad of a plan. You will learn how to be a property owner and landlord, which will give you valuable experience. Also you will need to live somewhere anyway so it is a less risky way to begin investing. Good luck!

Lynn Anderson · Answer

Stay patient....I am also looking at purchasing my first duplex/triplex in Mpls. Prices are still high. Every day I work on running numbers to practice. Hang in there.

Jerry Stevenson · Answer

@Jordan Moorhead Thanks!

Jerry Stevenson · Answer

@Alan McClain Thanks for your insight! The goal is/was to buy a cash flowing property. Building equity and saving for my next property isn’t a bad back up plan, but ideally would like to buy a ash flowing property.