Good Markets in Texas to Invest in Small Multifamily

[Nathan Smith]

Hi All, I'm interested in investing in small multifamily (open to 2 units up to 50) somewhere in Texas.  Austin, Tx seems to be a little on the high side these days.

Any recommendations for other cities / towns in Texas where you can still get decent returns?

[Leland Barrow]

Inventory is low anywhere between Austin and San Antonio. San Antonio has MF inventory but SA is a different market than many of the other areas near Austin. Houston and SA are probably the two markets that will be hit the least by a down cycle. I am not hot on Austin anymore. It is quickly becoming a one-trick pony that is technology dependent. When prices were lower it was great with having the capital there, UT, and technology. Government workers are now priced out of the market and so are support personnel for UT. It is a very narrow market now that can afford to purchase in Austin. All of the surrounding cities are pegged to the Austin market. A decline in Austin is going to cause a decline in every commuting suburb.

Belton is a good suggestion. Good luck finding inventory in San Marcos. That is pretty much a new build town. It is a new build, master plan market like  http://kissingtree.com/. You may be able to find lots and build. I am a newb at new construction but I am boots on the ground for anyone that has experience. The big developers are trying to get a foot into San Marcos but the old guard taxpayers are fighting back. Unless you can impress them you are not going to build anything significant in the best areas. 

Kyle is a sea of cookie cutter homes and is managing to over develop itself into a substandard city. Unless they start master planning it is going to be less desirable than other areas. Cedar Park is land-locked. Round Rock still has potential but that is going to be new builds also. The area around old settlers park will be one of the hottest areas in round rock and it is underdeveloped. People want things to do and you have the jewel of round rock right there. Add in Dell Diamond, a water park, and better than average shopping, and it becomes that much better. I think it will eventually overshadow brushy creek. 

If you want cheap with a huge upside then Seguin is a great option. Seguin is a poor town off of I10 and is currently dominated by owner financing bottom dredgers. Seguin has a river and a downtown that has huge upside. If I had more time and partners I would take Seguin block by block starting in the downtown areas and start gentrifying it. Buy and holding in Seguin will pay off eventually.

Canyon lake is probably one of the most underrated areas near San Antonio and Austin. Canyon lake is overrun by the retired mobile home owner. It used to be too far to commute and ran under the radar of big developers. Things have changed and Canyon lake is now in prime west side land between San Antonio and Austin. Eventually, Austin and SA will be one large DFW type metro area and Canyon lake will be the home to executives. West side I35 is hot whether you are in Austin or San Antonio. That trend is going to hold as you move up through Canyon Lake and Wimberly. If you think "man I wish I had built in Westlake or Alamo Heights years ago" and you believe Austin and San Antonio are the next Dallas/Ft. Worth then you should be looking at everything west of 35 between the two cities.

The problem is that Seguin and Canyon Lake are long-term plays. The quarries that run along 281 are another long term potential investment. The quarries are digging up limestone. Eventually, the quarries will close and what will be left is lakes in beautiful green scapes. Quarry lakes are gorgeous and clear. These quarries are west of I35 and in the path of development. Eventually, the quarries will start selling land because of the opportunity cost. I get to hunt on quarry land for one of my clients outside of REI and I drool every time I get to be out there.

If you want Multi-Family then I would look at new builds in San Marcos or old inventory in San Antonio.

I wouldn't do anything in Austin at the current prices. I am not an expert on anything so take my advice with a grain of salt and make your own decisions when it comes to investing.