New Investor in N. Austin and surrounding areas

[Bryan Petrinec]

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?  

[David Ivy]

@Bryan Petrinec

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.