Austin Multi-Family - Prices still worth it?

Question

Hello All -

I currently have 2 rentals in the Houston metro (currently living in Houston), and have been considering using the FHA Loan with 10% down to purchase an owner-occupied triplex or fourplex in the Austin area. For personal reasons, I would like to move to the Austin area (big outdoors guy/Houston is very flat), and I'm fortunate as an engineer to work remote - relocating isn't an issue.

It's no secret that Austin real estate is hot and I have concerns about making a deal work with how much Austin real estate has elevated to over the years. Triplexes/Fourplexes under 500k are possible to find (East Austin/South of Lamar near WestGate, etc.)  Assuming I could close a deal on a fourplex, hypothetically at 450k, living in one unit, renting the other 3 out - I'm curious of investor's opinions on Austins market.

To cash flow positive with only putting 10% down + Austin Property Taxes is difficult, but this will also be my residence for a couple years. (not wanting to be solely reliant on appreciation for purchasing a property)

To boil down my question:

- Do investors think Austin is still a place for novice investors like myself trying to accomplish the above with multifamily investing?

Also to note: I'm not dead set on Austin - I've also been exploring the San Antonio area as well, which still provides proximity to New Braunsfels/Austin, but you can find triplexes/fourplexes in the metro for under 300k. I personally think San Antonio has a lot of potential for growth as the metro Houston/Austin markets price people out.

Appreciate any advice.

Best,

Michael

David Ivy · Answer

@Michael Nelson

Yes, Austin is still a good place for novice investors to house hack multifamily properties when you consider everything else the metro area has going for it (with some caveats below). You can get more property for your money, spend less going in, and get better cash flow on a multifamily house hack in San Antonio. You’re also correct that SA has good prospects for growth for the foreseeable future. However, for a young guy in the tech industry, there’s arguably no better place to be in the US right now than the Austin area. Even though you’re able to work remotely, being in the middle of Austin’s hot tech economy is a big benefit for networking and future career growth.

Your $450k-$500k price point is realistic in the Austin area for a fourplex, though many will be outdated and/or have lots of deferred maintenance. You’ll have a harder time competing in the Austin market with an FHA loan, and the properties you offer on will need to be in at least fair/good condition to pass FHA appraisal. A bigger challenge, however, will be finding something that meets the FHA Self-Sufficiency Test. On a 3-4 unit property, the total PITI + PMI mortgage payment for an FHA loan cannot be more than the property’s gross market rent (vacancy included) as determined by the appraiser. You should explore your conventional loan options, if you haven’t already, to avoid this issue. Also, duplexes don’t have to pass the self-sufficiency test, if you’re open to those.

Overall, I’d say that if you decide that Austin is where you want to be, then house hacking here is a good option to explore. However, you’re not going to put 10% down on a multifamily property and “live for free,” let alone get extra cash flow. In our current market, house hacking is best considered in context as an alternative to renting and a way to get started multifamily investing in a strong market that might otherwise be unaffordable. If you don’t already have a strong interest in moving to Austin regardless of whether you’ll house hack, then the current market here probably isn’t the best fit for you specifically. It depends on how long you plan to stay in the property, your tolerance for risk, and what your overall goals are.

Michael Nelson · Answer

Greatly Appreciate all the advice here.

After educating myself on the FHA Self Sufficiency test, it is not the route I will be taking with the obvious challenges mentioned above. I have secured pre-approval funding through a conventional mortgage broker instead for my next purchase.

Agree on the point @Jacob Pereira about living in up and coming areas - not a place for a family/SO. Being a single guy is definitely an advantage right now, as I can pick up and move anywhere. My other 2 places in Houston are in up and coming areas, have had no issues living there to let them appreciate, and definitely wiling to do the same in areas around SA/Austin that have good room for growth over the next years.

Have made some good connections already in SA/Austin areas through this forum alone that I've been pursuing looking at deals, very cool to see this platform used as a great networker. Thanks again.

Omar Khan · Answer

@Michael Nelson

Use some common sense and buy in Austin and/or San Antonio (assuming you're buying for more than 5 years or so). There is a reason why prices in Austin are high - everyone wants to move there! It's the same as why prices are high across all attractive markets in the country.

You can find cheaper digs in some podunk town that might cash flow better but you'll get little to no appreciation. Appreciation is where you will make the really #@$% you money in real estate.

The above in no means imply that you should buy any random property in Austin/San Antonio. Common sense should prevail and you should always live below your means but to compare high growth markets like Austin to heavy cash flow markets is like comparing apples to (rotten) oranges.

Aaron Gordy · Answer

@Michael Nelson Buying a fourplex with fha is going to be a major obstacle in the Austin market as the self sufficiency test needs to be met. Not saying that it can't be done. I closed one about 3 months ago that was very difficult. Fannie mae just let a program expire that was very good for this purpose that allowed for 5% down. I am also closing one within this program in a few days...in the nick of time as they are allowing us to close with it. The best thing to do is to chat with a good mortgage broker to see what other kinda programs are out there, to be sure. Are you a veteran?

Jacob Pereira · Answer

From a guy who has "house hacked" a few fourplexes in Austin and seen their values more than double over a five year span, yes, Austin fourplexes can still make sense. If nothing else, you'll subsidize your own living expenses while owning a building. One thing you might want to think about, though, is that clustered fourplexes are almost by definition in rough areas, simply by the nature of what they are. As a young guy, they're generally not the best places to bring a date or raise a family.

Michael Nelson · Answer

@Austin Neal hey Austin. Thanks for the perspective. I'll send you a note. Curious of your story.

Austin Neal · Answer

@Michael Nelson I left Houston in 2018 and moved to Bulverde (N side of San Antonio, W of New Braunfels) and absolutely love it. Big city amenities and all the outdoor activities we desire. I think you’d be wise to choose a market with less heat on it. The competition in Austin will tempt you to overpay for deals.

Jarrod Covey · Answer

Hi @Michael Nelson - tough to compete in the market with MF and conventional anymore. 2 doors and up that are close to turnkey are going into mutli-offer cash sales on the MLS. If you have a good realtor, like @David Ivy, you might have better odds. Really need a realtor inundated in the market to be successful.

Michael Nelson · Answer

@David Ivy Thank you for such a detailed reply. I get what you are saying regarding "house hacking" - with only 10% down I am well aware that I will not be "living free". Viewing it from your perspective as an alternative to renting, and a way to get started in multi family investing is how I am looking at it as well.

Thanks for the notes around the FHA Self-Sufficiency Test. I was not aware of this and will research more. Thanks again.

Austin Multi-Family - Prices still worth it?

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