Do i invest in Austin?

Question

Hi, I'm currently renting in Austin. I have access to some funds to provide a good down payment for an investment property. But still debating whether it makes sense to invest here. In 4-5 years I plan to move overseas. However, i am considering whether to have a property in Austin, maybe live it in (or not) until I leave, rent it out while I am away, and I get the passive income. I also want to leave the property as inheritance to my child, or even resell it during retirement if I need the funds. I am an older worker who will be facing retirement in about 10 years or so. Austin is a nice city and I see potential for more growth.

My gut is to get a small apartment downtown, but the HOA fees and taxes may be a killer.Not sure if the rental income will be enough to cover my mortgage. I've also looked at East Austin, which is growing a lot. I'm not interested in a large house because of maintenance. In essence, I have more questions than answers.

Any experiences out there or tips to help me decide?

Thanks

My gut is to get a small apartment downtown, but the HOA fees and taxes may be a killer.Not sure if the rental income will be enough to cover my mortgage. I've also looked at East Austin, which is growing a lot. I'm not interested in a large house because of maintenance. In essence, I have more questions than answers.

Any experiences out there or tips to help me decide?

Thanks

Joe Scaparra · Answer

@Renee Burke Yes indeed you SHOULD invest in AUSTIN.   @Costin I. is 100% correct.  BUY A DUPLEX AND DO IT NOW!

Here is WHY!!!!  Lets Review the facts.

1.  You are Renting NOW, Throwing away money!

2. You are planning on moving in 4-5 years.

3.  You have funds for a "Good" Down Payment

4.  Facing Retirement in 10 years

5. Desire to leave inheritance for Daughter

My recommendation is so strong because you are going to be owner occupied for 4-5 years.  If not, disregard my advice.

Buying in Austin now from a pure capital appreciation play is risky because this market has run up so much.  For this reason it rules out a Single Family Home (SFH).  Housing market undergoes stress you might not be able to rent out the SFH as easily as a duplex.  Far easier to find two $1200 renters than one $2000 renter in a down market.

Buy a duplex and moving in on one side, rent out the other.  When you leave Austin, you simply rent out the other side and experience a positive cash flow.

Lets run some numbers shall we:  Find a duplex in NW Austin.  $300k can be done don't let anyone tell you it can't be done!  Your "Good" down payment say $60k leaves:

Mortgage 240k @ 4.5% 30 yr payment $1216

Insurance $100

Taxes $300

Maintenance $100

Vacancy $100

Total Monthly Payment $1816

You rent one side $1100 (conservative estimate)

Outflow $1816

Inflow $1100

NET $716 Out of pocket (your cost to live there)

Hey were not done just getting started!!!!

What is your current rent? I don’t know so lets assume $1100.

You begin saving $384 each month over current expenses. You’er living there for 4 years.

4 yrs X 384 X 12 months = $18,432 saved in your pocket and this assume no rent increase where you are currently living and assuming you are not going to raise your rents to your tenant. CONSERVATIVE ESTIMATE.

If you buy a SFH you have to find a $2200 renter and risk higher vacancy rate and out of pocket cost when vacant.

Lets look at two scenarios.  Housing Market Flat to Down.   Housing market up.

Housing market Flat or down you move in 4-5 years, no problem your rent in not affected.  Renter pool paying $1100 increases causing your rents to stay or go up!!!  Housing prices crash, rents do not at the $1100 range.  However, at the $2200 range expect less rent in a downturn.

Market up.  You participate two ways.  Price of duplex goes up along with your rents!  Same could be said for a SFH but I also believe your rent percentage increase is larger going from $1100 than from $2200.

My friend your in a screaming buy zone due to being an owner occupant vs being a renter next 4 years.  One more advantage, if you plan on coming back to Austin for a visit during your overseas trip your air fare and some expenses are write offs, reducing your taxes.  Lastly you can experience tax free gains by selling if you lived in it 2 of last 5 years.  Come back to Austin live in it for 2 years and sell it if you want.  Or let your daughter inherit it upon your death and she then can sell for 100% tax free gain.  Real Estate you have to love it!!!

Good luck.

Cheers!!!!!!!!!

Costin I. · Answer

@Renee Burke Do some house hacking and BRRRR:

1. Get a duplex.

2. Move in the uglier side and renovate it. Rent the nicer side.

3. Switch and repeat: move in the uglier side and renovate it too. Rent the newly renovated side.

4. Take your time - in 4-5 years you'll have both renovated and ready to leave them as good cash flowing low maintenance rentals.

This strategy will give you good ROI and cash flow. Plus, you'll hit multiple goals with one stone, be able to take advantage of good financing, while getting income and tax advantages.

Linda Osborn · Answer

@Renee Burke  In my opinion, if you can live it it, that is always a great option. Although you don't get cash flow immediately, you get the best mortgage rates....which should make it easier to cash flow later, and you can deduct the mortgage interest when you do your taxes. You also can file for a homestead exemption, which both lowers your property taxes AND caps the yearly tax increases. These are benefits you get from home ownership...so in my mind it does not make sense to rent your personal residence, and buy investment property in the same town. Buy your personal residence first, and, if needed, turn it into an investment later. There are additional tax benefits in doing this if you live in the property for at least two years, but want to sell 1 to 3 years after you leave.  I also know some great property managers in Austin...one that I have used for years on my own properties, and would be happy to recommend one or more of them if you need someone down the line. Additionally, it gives you a little more time to investigate them on your own. However, when you go searching make sure the property meets or comes close to meeting your investment criteria and it is somewhere you would like and can afford to live.... just in case you will be living there longer than you think and/or should you need to turn it into an investment property sooner than later.

Danny Webber · Answer

Stay out of Austin-

Very little if anything will cash flow close to the city

Look in outlying areas including Jonestown, Lago, Taylor, Hutto

Stay away from HOA's, MUDS and high tax areas if possible

Off 1431 is a good area as well as 2243

Shenandoah/Riviera are good areas but pricey unless you can find a deal

Renee Burke · Answer

Thanks, all good responses. The other dilemma I have is that I currently rent close to my daughter's school (NW Austin) and would hate to buy and live on the East side (traffic). I am VERy interested in the East side and see potential, but living there and commuting every morning and afternoon to Nw Austin would be a nightmare. I've seen some properties in NW Austin and while the neighborhood is very established, It is expensive and I am not sure if it is good area regarding growth compared to East Austin.

Dan Hunter · Answer

@Nirvana Mortell

I have an A+ agent I can recommend you. Shoot me a DM if you want her info. She’s been my agent for many years and invests herself as well.

Ryan Kelly · Answer

@Nirvana Mortell you will find several investor-friendly agents here in this thread and all will be open to visiting with you. I was just in Dripping Springs this morning with some investor clients looking at AirBnB options. Commutes back into Austin will be anywhere from 30 minutes to 1 hour depending on location and traffic. Schools in Dripping Springs are very solid top to bottom.

Manaia Alalamua · Answer

@Nirvana Mortell

Dripping springs is a beautiful place! I lived (and somewhat periodically live) in Buda, TX which isn't too far away from Dripping Springs. I believe it's gonna get more expensive in those tertiary markets just outside of Austin, and along the 35 corridor.

@Lane Kawaoka is also correct, CF in these markets are slim to none unless you purchased awhile back, at below market prices, or do something like STRs (There may be other strategies available, but I'm not too knowledgeable about that).

Anyway, I live in San Antonio and I can probably answer some questions about either markets for you and give you a Hawaiian's perspective living here in TX for little over a year. Shootz, Aloha!!!

Lane Kawaoka · Answer

To me Austin, Boise, and Vegas are just under the waterline to be able to cashflow despite being good markets. I just feel like its just a little over heated by residential real estate which is why I stay to commercial apartments.

I'd rather be in better cashflowing, emerging markets like Houston, Phoenix, etc.

Joe Scaparra · Answer

Mahalo @Nirvana Mortell.  I lived in Hawaii for 5 years back in the early 90's.  Since you're coming from HI and CA you will still think property values are  reasonable here.  That is probably a good thing for you as us Texas investors are more hesitant to pull the trigger with these prices.  Since you are coming to Austin I think finding a property that you can cashflow somewhat would be a great thing.  Most who know me will tell you I would recommend looking for a small multi-family (duplex works well) would serve you nicely.

I am neither a real estate agent or mortgage lender.  However, I am a grey hair old fart with a fair amount of real estate experience.  If you get in town and would like to meet, just look me up.  Dripping Springs is an excellent community but has little multi-family to choose from.  I live in Bee Cave just a little bit away from there.  Cheers.  Joe

Do i invest in Austin?

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