Is Austin/Cedar Park still worth it? SFH's with thin cash flow...

[Gary Parente]

Hi BP family - I am new here, but have been reading and learning for quite some time. I have 3 SFH's in the CP/RR area, they are cash flowing about $200/each on around $1700 rents. I live close by and the quality of tenants is high so the situation is comfortable for me, but I have $480K in debt and the returns just aren't real attractive. I can cash-out refi one of them to get about $45K for another investment, but that brings my cash flow down to under $100 for that property.

I know the thinking is that my tenants are paying the mortgage for me, I am pocketing a little each month, cash flows will increase in time with amortization and rising rents, and the properties are appreciating in the strong Austin market, but I am just wondering if putting down $50K on a property and getting 5% CoC every year makes the most sense. Especially once a big repair hits like HVAC or something else.

Long-term goal: I want to have $120K in rental profits every year as soon as I possibly can so I can possibly walk away from my day job. 

Thoughts?

[Joe Scaparra]

@Gary Parente, It seems to me that your goal is to achieve $120k in predictable, sustainable income each year so that you can retire......yes?! It appears to me that it is going to take a long time to get there investing in SFH that positive cash flows 100-200 per month. It also sounds like that cash flow takes a hit if an AC unit needs replaced. Maybe not the right real estate type to get to your goal.

If you are in the Austin MSA it is difficult to find nice cash flowing properties.  My recommendation is to start looking at duplexes to 4 plexes and expand from there. Most likely you will need to hit the outskirts of the Austin market.  Look at Burnet and Marble Fall areas to the west and Manor, Elgin, Taylor to the east.  Find 1% deals with small multi-family.  Yeah it is difficult to find but it can be done!  I just found a duplex two months ago in Elgin doing better than 1%.  

10 years ago 1% deals could be found every day in Austin, not so much anymore.  Keep searching and expanding your search area.  I don't think the Austin market is going to get any easier.  I do see a robust market but, new cash flow investors are in precarious situations buying duplexes at 375-450; cash flowing 2600-3000 per month.  On top of that you have the Austin mayor taking away the best management tool landlords have and that is eviction.  No evictions till end of August.  This could become the new norm. 

Buckle up Austin, there is very little room for investor's mistakes in Austin proper.  Triple whammy for investors that bought in the last 2 years.  Cash flow is tight, taxes skyrocketing and now you can't get rid of the dead weight.  It is more important than ever before to put in the best financially stable tenants possible.  I used to be willing to take on well intentioned prospective tenants who had income challenges but not now.  Austin mayor takes away the only stick we have, all the while the county continues to raise taxes, the low income sector is getting squeezed.  I am getting $1300 rents on units that rented for $650 six years ago.  That sounds good initially but when taxes have more than doubled and we are experiencing default on rents with no way to correct the situation put all new investors in financial jeopardy.  

Also for you newbies out there, you better attack this problem two fold.....find ways to force increase income and find ways to decrease expenses.  How?  Offer to put in used washer dryers for additional $30 more in rent.  If your property comes with  a garage, rent it out separately as storage.  Don't even consider property management.  Actively find ways to lower repair cost.  Lastly, I am putting in granite kitchen countertops which bumps rents 50-75 more a month.  I can do a granite countertop upgrade on a duplex kitchen for $1000 installed.  For $150, install a microwave where the hood vent sits.  Currently if you have first rate properties you should have zero days turnover between tenants given a 30 day notice.  Last week one of my tenants told me that he is moving on the 18th of THIS MONTH, even though his lease runs through July.  I quickly advertise this week, and I will be showing it to three good prospects on Saturday.  I fully expect it to find a renter before the 18th because my pictures match my ad.  Can't do business as usual, but the good and the determine will succeed.   Cheers.