Is investment home in Austin worth it?

Question

I purchased a house 2 years ago in Austin. It is valued at $600K in county appraisal today. It is 14 year old house, I recently replaced roof with $11K from my pocket. I turned it to investment house this year as I moved to a different house. I feel I should sell the old house as rent($2.3K monthly) from it is not going to cover my mortgage + taxes. It’s going to be negative cash flow for me. Am I thinking correctly here? Please advise.

Kristi H. · Answer

I like  Eliott Elias' thinking  on this. It can pay to hold something in a growing market even if that means contributing a small amount yourself each month. I bought a home in Crested Butte, CO that I'd moved out of and turned into a rental. For a few years, the rent didn't fully cover my expenses. Today, however, that property has much more than tripled in value. The increase in equity more than makes up for the small amount I initially paid into it. Even today, the rent isn't super high and it's tempting to sell, but my plan is to take a loan against the equity and purchase another property.

Eliott Elias · Answer

Some investors strategy involves negative cash flowing for a few years to take advantage of that appreciation. It all depends on your situation, if you have a W2 job supporting it, it could work. If you don't have the reserves to cover it, it could feel like an anchor dragging you down every month. Maybe mid term rent it so see more cash flow?

Joshua Noth · Answer

@Suneel P. It's difficult to offer black and white advice such as "yes" or "no" without all the details.  We do know some big picture stuff, but some finer details may influence your decision as well...  How negative of cash flow is it? Losing $200/month is WAY different from $1000/month.  What area of Austin is it in?  All areas are growing, but is it a spot you see great potential in?  What was the purchase price? Again, a 150k equity gain in 2 years versus 10k in 2 years are very different.

If cash flow is your only deciding factor, strategies like STR or MTR are finding great success in the Austin area - they just tend to have more involvement/management than LTR.  However, it's worth nothing that Austin currently has one of the fastest increasing rental markets in America, so your current numbers could easily change in the next year or two.

Taylor Dasch · Answer

Austin is really great for appreciation. There is a lot of good stuff happening in Austin right now. If you are able to cover it very easily, I would try and hold it if possible since the percentage of appreciation will likely be more than appreciation and cash flow elsewhere. However, If you want to start scaling and your goal is cash flow, it is definitely a good idea to explore other options. I am a Realtor and Investor here in Temple, (about 55 miles north of Austin). I may be biased, but Temple has a healthy balance between cash flow and appreciation. Facebook is also opening something here in Temple that should be big! I cant rememebr what it is though. LEt me know if you ever have any questions!

Aaron Gordy · Answer

@Suneel P. Its always hard to cash flow on a sfh for the first year or two as the prices are really high relative to rents. Typically over time the rents will keep increasing to outpace your expenses. That is, in general. You should run cost/benefit analysis of keeping the property vs selling it. How much has the property gone up? Has the rents outpaced the property taxes increases? How much do you think that property will be worth in a few years? Can you absorb the negative cash flow until it breaks even? What is the tax situation? Does a negative cash flow put you in a lower tax bracket? Those are just some of the questions that you should probably figure out. Some of those questions are specific to your situation and only you can answer it. The real estate side is easier to figure out as a broker but the personal situation is your situation only. You may want to have a chat with your cpa as well to determine the cost benefit of selling the house vs 1031 exchanging it.

Suneel P. · Answer

The house I am talking about is https://www.zillow.com/homes/1... located in Avery ranch community

Conner Olsen · Answer

@Suneel P. If you have a spot for the money to go that will give you a higher return I'd sell it. If you want hold onto it a monthly rental and you can increase your rent by 50-75%.

Celine Crestin · Answer

I agree with the other posters - we would need more details to truly provide a valid opinion. However, rents are much higher in Austin than previously and I also wonder if you could be getting higher rent, which may in turn allow for cash flow. If not, there is a need for mid-term rentals which could work better for you. Many options at play besides just holding at current rental rate or selling.

Steve Ward · Answer

@Suneel P. Double check the rent you are getting.  Can you get more?  Lots of people moving here (I'm in Austin), company relos, etc.  So there is upward pressure on rents.

Jonathan Soto · Answer

any oppportunity for short term rental? i love the austin area but not sure which part you are in. check your area and see as you should get a lot more for short term rental

Is investment home in Austin worth it?

Most Popular Reply