COC for Houston or Austin Rentals

[Joshua Longcor]

Looking to gain my first rental property in 2018, but rentals seemed to be heavily compressed. I'm interested in opinions on what type of cash-on-cash ROI is a realistic target in the Texas (Houston & Austin) markets. Insights?

[Bryan Petrinec]

There are a lot of factors that go into COC ROI in the Austin market. If you are looking at conventional financing with 20-25% down, the market looks very different than if you are buying distressed properties cash and doing the BRRRR method and getting all if not more of your money out in 6 months to a year. If you are new to REI and dont have the cash or the incentive to buy distressed properties needing major rehab, you will be lucky to find positive cash flowing properties in the heart of Austin.

Just this year I entered the market and purchased 3 duplexes in Austin suburbs and used conventional financing. I am seeing between 5-7% COC. Personally I am happy with these properties as there is a value add through raising rents to closer to market value, shift utilities to tenants, and general improvements as the units turn over, which will then allow 10-15% rent increases given similar units in good condition in the area. Although Austin has historically seen market leading appreciation rates, I am not banking on that, but will be a nice bonus.

This is a long term investment strategy for me, but everyone has their own drivers. Know what works for you. Don't compare yourself to others. Sure 12%-17% COC is possible, but how they got that may be a different strategy than yours. Know your numbers and what works for you. If 10% COC is what you are looking for, find it. But don't compromise on your numbers.