Could use some second opinions on a deal in AUSTIN

Question

So I'm looking at a possible rental property in the Round Rock area with single days on market. I've got plenty of comps that says it will rent for 1400/month easy. If I minus PITI of 921.87 so in theory it should cash flow 478.13. Is there anything I'm overlooking and should account for? It seems like this would be a good deal. How would you look at it?

Andrew Wydra · Answer

Jeremy,

Always, Always, ALWAYS factor in a management fee. I've been in real estate for 10 years and the number one thing I've learned is to account for this expense. If you want to manage it, great, then pay yourself. But, many times investors realize they don't want to deal with the day to day aggravation. I view my time as more valuable searching for the next opportunity. Just remember- any rental property should support a management fee, if it doesn't, find another one that will.

Jeremy Gonzales · Answer

Thank you all for the feedback. This is why I recommend BP to anyone who is looking for information about REI.

Marian Smith · Answer

Brian is right, the neighborhood of the Cameo house isn't bad, just older, entry level homes built with mainly siding so the upkeep and house color choices vary by street...nothing to recommend the area other than affordable.  Not bad, per se.  I can't think of an an area in Round Rock that is bad, like war zone etc...   There probably is a great need for landlords in those older areas for affordable rents for people who can't buy.  And inflation raises all boats.

Brian Mathews · Answer

I did a call on that house because the furnace wasn't working.   How funny.   It has a pool in the backyard that will need some love,  they had it covered up with boards  The 4th bedroom is a converted garage.    That neighborhood isn't bad, but a little on the rougher side as it is older.  Fannie Mae house as I recall.

I'd plan on 15-20% of rent to be safe.   10% @ $140 a month isn't enough.   Keep $5000 in the bank just for the house for repairs and you'll be safe.

Marian Smith · Answer

You just have to remember that rents are at record highs...as are prices...but Williamson County is hyper growing so if the neighborhood is nice (one you or you'd like to see your daughter live in) interst rates are low enough that if prices dip a little you'd still be okay.  That Cameo house has a converted garage and also little chance at decent appreciation due to the neighborhood.   One thing of value I got out of reading that new zillow book was the authors cited a study that claimed that helping low income Americans buy homes often did not create the affluence desired primarily because the area they purchased in did not go up in value as expected.  That is why the apparent trade off with cashflow or appreciation.  Poor or class c- properties usually are surrounded by the same kind and unless something changes, they stay lower quality.  Took 70 years for east Austin to happen.  Good luck!

Dan N. · Answer

I have a couple of Round Rock rentals. I would only add that you should see whether there is an HOA. That can be a mandatory monthly expense. In my case, they are 4 BR / 2.5 baths really close to schools.

Dan Burstain · Answer

Hi Jeremy,

Well I am going to do some guesstimating here and say you are paying around $175,000 for a place and putting 25% down to get a PITI payment close to that.  If that is the case then I would say your deal is not bad but you can do better.  I think you can get closer to the 1% rule in Round Rock.  For example, 1802 Cameo Dr. is for sale at $122K and that 4 bedroom should lease for $1300/mo.  Hope that helps.  Feel free to contact me anytime if you want to work with a Realtor specializing in income property.  Good Luck!

Jarrod Weaver · Answer

Many do not, but it would also be worthwhile to include a management expense as well. Sounds like you will want to pull the trigger on this one.

Corey Jahn · Answer

Take into account any cash required to make any immediate repairs necessary, potential vacancy rates, maintenance costs, management costs, etc. I've seen a lot of folks take 10% off the top for maintenance, but that also depends on the age of the property. Doesn't have to be exact. Also look up cash on cash return or ROI... That paints a better picture to me in how hard your money will be working for you. Everyone has a preference and a goal. If it fits your goal and plan, and you've done your due diligence... all that's left is to go for it.

Eric Thomson · Answer

Hey Jeremy,

I would also account for vacancy and repairs in your expense estimates. I think a good rule of thumb is about 20% of gross rent per month (so $280). If you do your own repairs or if the demand in your area is high then you could probably get away with a less conservative number.

Could use some second opinions on a deal in AUSTIN

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