Rental Property Investor · Cedar Park, TX · Member since 2017 · 59 posts · 51 votes
Looking for first property in the N. Austin area for a buy & hold rental. Been doing research and reading/pod casting BP and I am not finding deals that "work". I am watching properties come up and sell and from what I can see from my evaluation is that they are not even break-even. What am I missing? I am all for appreciation and realize that is the current market we are in, but I want something that is cash flow positive. Is everyone paying cash. Are there opportunities to use bank mortgages?
I want to use my current cash to get into 2-3 properties vs. pay cash for a single unit. I would appreciate any guidance to get in. I am ready to get in for the right deal. Am I being too picky as a new investor?
Welcome to BP! You're not missing anything. Almost every residential single and multifamily property being sold in the immediate Austin area is cash flow negative if purchased with a conventional loan at 20% down. It has been this way for at least a couple years. Rents have not kept pace with the incredible appreciation. Also, there are plenty of people speculating on the upward trajectory of the Austin market who don't care much about cash flow so long as the property doesn't hemorrhage cash. You'll also find competition from 100% cash buyers all the way into the $300k price range. The rare quality (for Austin) deals that do appear on the retail market (e.g., Austin MLS) will get multiple offers the same day.
Yes, there are opportunities to cash flow on a conventional mortgage, but even then, the numbers are usually so thin (e.g., $50-100/mo.) that tenant trouble, a large maintenance item, or unplanned capital expense will put you into the red for the year. And again, if those "thin-but-positive" opportunities are on the retail market, everyone else will be jumping on them too.
The investors I know having the most success right now source their own off-market deals by deploying some pretty sophisticated and very expensive marketing techniques--we're talking multiple thousands a month on a consistent monthly basis. It's also their full-time job/career, and some even have a small team in place. Other people making it work include house hackers or investors who work the suburbs and even far out (e.g., Killeen, Temple-Belton, Taylor, Elgin, Buda, and Kyle).
I've been investing in Austin for the past 6 years. I used to buy turn-key right off the MLS. Then I started having to do some rehab/upgrading before the rental numbers made sense, but still on the MLS. My last few deals have either been outside of Austin (e.g., a fourplex in Killeen) or brought to me off/pre-MLS by a fellow Realtor. I've also had to go all cash to compete in the sub-$200k price point.
I look at wholesale deals on a daily basis. Every now and then, there's something pretty good. Unfortunately, the majority of wholesale deals are not much better than retail.
You're not being too picky. This is the current reality of the Austin market. You have to know exactly what you want and be disciplined enough to be patient. However, don't wait for an opportunity to come to you. Get active! Meet and network with as many people in the industry as possible, including Realtors, other investors, lenders, contractors, and insurance agents.
Maybe look into other markets such as San Antonio, Waco or Buda. Or look into a househack through a duplex, single family with an ADA for airbnb, etc.
What are you looking to put down? 25%? I've seen strategies that work one place won't in others. Seems like rents in Austin aren't high compared to the price. When you go airbnb you can make up for that gap.
My duplex in a nice area of minneapolis cashflows as a regular rental but with airbnb it's a cash beast. It took me 3 months of looking to find this deal though and most that I analyzed didn't cashflow or lost money. It's a process man and you have to keep pushing, just don't give up!
Thanks Jordan. Austin is a tight market right now and since I want to self manage, I want to stay close. Once I have more experience, I would consider expanding my circle. What kind of occupancy rates do you get with airbnb?
Are you just looking on the MLS and similar sites or have you started a direct mail marketing campaign? The market is definitely hot and some people are willing to settle for less returns but as Jordan said, you just have to keep analyzing and staying true to the numbers.
Welcome to BP! You're not missing anything. Almost every residential single and multifamily property being sold in the immediate Austin area is cash flow negative if purchased with a conventional loan at 20% down. It has been this way for at least a couple years. Rents have not kept pace with the incredible appreciation. Also, there are plenty of people speculating on the upward trajectory of the Austin market who don't care much about cash flow so long as the property doesn't hemorrhage cash. You'll also find competition from 100% cash buyers all the way into the $300k price range. The rare quality (for Austin) deals that do appear on the retail market (e.g., Austin MLS) will get multiple offers the same day.
Yes, there are opportunities to cash flow on a conventional mortgage, but even then, the numbers are usually so thin (e.g., $50-100/mo.) that tenant trouble, a large maintenance item, or unplanned capital expense will put you into the red for the year. And again, if those "thin-but-positive" opportunities are on the retail market, everyone else will be jumping on them too.
The investors I know having the most success right now source their own off-market deals by deploying some pretty sophisticated and very expensive marketing techniques--we're talking multiple thousands a month on a consistent monthly basis. It's also their full-time job/career, and some even have a small team in place. Other people making it work include house hackers or investors who work the suburbs and even far out (e.g., Killeen, Temple-Belton, Taylor, Elgin, Buda, and Kyle).
I've been investing in Austin for the past 6 years. I used to buy turn-key right off the MLS. Then I started having to do some rehab/upgrading before the rental numbers made sense, but still on the MLS. My last few deals have either been outside of Austin (e.g., a fourplex in Killeen) or brought to me off/pre-MLS by a fellow Realtor. I've also had to go all cash to compete in the sub-$200k price point.
I look at wholesale deals on a daily basis. Every now and then, there's something pretty good. Unfortunately, the majority of wholesale deals are not much better than retail.
You're not being too picky. This is the current reality of the Austin market. You have to know exactly what you want and be disciplined enough to be patient. However, don't wait for an opportunity to come to you. Get active! Meet and network with as many people in the industry as possible, including Realtors, other investors, lenders, contractors, and insurance agents.
Bryan Petrinec mine have been incredibly high but I would check with operators in your area. Location, finish and price have a lot to do with occupancy.
I'm moving to Austin hopefully in the next few months, and my strategy will be to rent now because its a very hot market for selling, not buying. If nothing else, patience will pay-off, if not, I'll sleep comfortable because the money I have I'll put it into a passive mode, until something really good comes handy so I can take it out and invest in some property. I think MLS right now is no business for investors looking for a deal, but for investors looking for sale some of their properties.
Thanks for all the feedback. I agree with most of what you all are saying and patience will pay off. I am still amazed at all the deals that are happening off of MLS that make no sense to me. I am ready to execute and will keep looking.
I moved to Austin in late November 2016. So far I've acquired 8 properties in Central Texas. Of those, only one property in Austin due to the exceedingly high property taxes. From my experience, Austin does not work if you are buying rentals for cash flow unless you are interested in short-term rentals in the core or near South Congress.
Thanks for all the feedback. I agree with most of what you all are saying and patience will pay off. I am still amazed at all the deals that are happening off of MLS that make no sense to me. I am ready to execute and will keep looking.
They don't have to make sense to you, other people have different goals. Just learn from the transactions and then....look elsewhere.
So true. I am learning very quickly that my goals and the numbers that make a deal work for me are not universal. When I originally posted, I was watching properties go quickly that no matter how I looked at it, I couldn't understand why anyone would buy near that price point. But now I understand that for some, it will meet their goals and not mine.
Luckily I put an offer on two properties, both duplexes, and one was accepted this weekend. So far, I like the numbers and excited about the property. So I am almost officially a honest to God real estate investor.... almost.
@Bryan Petrinec Now there are a lot of ways to get started in real estate investing using other people’s money, but there is nothing wrong with the old fashion way of saving up and paying for things on your own. That said, I think one of the easiest ways to find deals is to go to Craigslist and filter through all the
crappy stuff to find the gold. In my market at least, there are still great deals to be had on Craigslist, it just takes a lot of time to find them. If you dedicate yourself and create a system, and you stick to it, Craigslist can be a source for your first couple of deals until you can save up for a direct mail campaign. A good guide to help with this is:
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