Austin, TX SFH appreciation vs Out Of State MFH vs Syndication

[Gary Parente]

Austin, TX SFH appreciation vs Out Of State MFH vs Syndication - tough to decide!!!!!!!!

Its no surprise that Austin and surrounding areas are appreciating like crazy. I've got 4 SFH rentals that are continuing to appreciate with very little actual cash flow though. I am wanting to replace my day job income with real estate income as fast as I possibly can. I can keep riding this appreciation wave (which for the sake of this argument, and with supporting data, I believe will continue for the next several years at least), or I can start selling these assets and convert to something more cash flow positive from out of state. If I start selling these properties then I would have about $300K to invest in 1-2 years elsewhere (not counting any additional cash I want to throw in). So far I have essentially been performing long-term BRRRRs to acquire more properties: My first rental home appreciated enough that I cash-out refinanced to get the next, so on and so on to get into 4 SFHs currently. I can continue that trend and likely end up with 10 homes in the next 10 years, or I can get out of this and get into something else sooner.

Again I just want to get enough capital/net worth built up to where I can generate life changing income reliably. 

The usual arguments are:

1) Don't bank on appreciation, that's too risky. Except I would argue that Austin, TX is an anomaly here. There is plenty of strong evidence to support betting on appreciation here. 

2) SFHs vs syndication - you accept all the risk with SFH, its distributed across multiple investors with syndication. True! But again, I would argue that the risk that Austin goes bellyup in the next several years is low, so I am willing to accept that risk

3) Cash-flow > Appreciation. In areas where growth is not projected, I could agree. Yet again, appreciation is highly likely to continue here in Austin. 

I like SFHs because I manage them on my own. I'm smart, I work hard, I am handy and can perform most of my own repairs, and nobody else makes decisions for me. I don't like them because they aren't putting a lot of cash in my pocket currently and I have a lot of leverage/debt on my credit. 

BUT...if the goal is to save any income from appreciation or cash flow to keep building a nest egg until its generating enough income to retire on, how is SFH vs OOS MFH vs syndication any different? Isn't this just as easy as spreadsheeting this out to determine what is going to grow faster? If I had something that cashflowed right now, I would just save all that income and keep investing/snowballing it so the next egg grows.

I've got a very good day job in tech sales here in Austin and will never be unemployed. However, I want to quit doing it ASAP so I can go and do whatever I want vs having to work everyday for a paycheck. How do I get there fastest!!!??????

[Bryan Noth]

@Gary Parente I would suggest viewing this on a timeline plot versus available capital.  

For example:

Let's say you want $5000 per month in cash flow.  Annually that equates to $60k

Assuming you can secure investments at 8% Cash on Cash return annually, you would need $750k in raw capital to achieve that today. At 6% COC that's $1M. At 10% that's $500k.

Now calculate how much capital you have access to now and how much you have the ability to accumulate for investments each year. You mentioned $300k in properties now that could be reallocated. If your hypothetical goal was $60k / yr passive, at 8% COC you need another $450k to close that gap. Even if you can save $50k each year, you have 9 years to go.

However, if you know your timeline must be a minimum interval of several years, there are methods to potentially build wealth faster.  Looking at your investments here in Austin, what have they appreciated at annually?  If you are even at 4% that's huge.  Because it is not 4% on your investment, it is 4% on the total asset value.  You only paid 20% for the asset up front but realize gains on 100% of the value, simple math shows that is 5x on you return.  4% appreciation turns into 20% equity growth annually, and compounds.  On a $300k home with 4% appreciation, that's a $60k investment that could grow to $312k.  $12k / $60k = 20%.  You won't built passive income quickly, but your growth potential that you alluded to above has far more potential if you have a timeline of several years. 

Ironically, playing the long term game could help you win at the short term game faster than simply playing the short term game.