Austin Area: Sell or Rent

[Travis Washington]

Hey BP fam,

I’ll try to keep this short and simple. Have a primary home moving out of and analyzing whether to sell or rent. Stats:

-PITI: $1950

-Rent: $2750

-Current Loan Amount: $300K

-Current Value: $475K -$500K

Other factors:

-Interest rate: 2.75%

-House was built in 2018 so maintenance and repair should be minimal 

-Current housing inventory in our market: 0.2 months

-There is a housing shortage going on right now that doesn’t show any signs of slowing down. Selling or renting are both too easy.

-Moving into another property in town to house hack (that we’re already up $40K in equity on and have a great rate of 3.375%) so we’ll be in the area to self-manage.

What would you do? Interested to hear what fellow investors here think about the situation.

[Stephen Stokes]

@Travis Washington

Based on your numbers, assuming $200k in equity and $112.50/mo cash flow (75% rents minus PITI) equates to 0.675% cash on cash return....not a great COC return. Can you get better cash flow investing somewhere/something else? Do you need the tax advantages of depreciation to help offset any earned income?

[Rick Reeder]

I'd personally want the appreciation you're likely to see in Austin, assuming it is somewhat close-in?  Maybe not the highest-best cash flow, but if that's not your primary goal, having anything that cash flows in this town while appreciating is like gold.  I've sold a couple of houses in Austin between 2004 and 2015 and I wish like hell I still had them.

[Jordan Moorhead]

@Travis Washington hold it and buy more! You'll be glad you held it as prices continue to go up

[Travis Washington]

Originally posted by @Rick Reeder:

I'd personally want the appreciation you're likely to see in Austin, assuming it is somewhat close-in?  Maybe not the highest-best cash flow, but if that's not your primary goal, having anything that cash flows in this town while appreciating is like gold.  I've sold a couple of houses in Austin between 2004 and 2015 and I wish like hell I still had them.

 Hit it on the head. It is pretty much impossible to find a cash flowing property here. So to have both I see as a premium to me. 

I'm also thinking I could still utilize a HELOC to still tap into the equity and leverage it for other properties.

And although you no longer have those properties, I’m sure you were able to lever them up to other properties well!

[Jordan Moorhead]

@Travis Washington you also want to look at what opportunity you have for the money too, if you don't have anything better then hold

[Travis Washington]

Originally posted by @Stephen Stokes:

@Travis Washington

Based on your numbers, assuming $200k in equity and $112.50/mo cash flow (75% rents minus PITI) equates to 0.675% cash on cash return....not a great COC return. Can you get better cash flow investing somewhere/something else? Do you need the tax advantages of depreciation to help offset any earned income?

90% rents minus PITI is more realistic in this situation. Using 75% is way too conservative given the dynamics of the Austin renter marker (had 8 showings and 5 applications in first 48 hours), location of the property in a sought after neighborhood, minimal maintenance issues due to newness, and being self-managed. At 90%, that's still $3,300 of cushion per year for uncertainties which is more than sufficient. 75% would put it at $8,250 of cushion per year which is too high IMO.

And the other point above, a positive cash flow in general in Austin is a rarity.